Good morning. Happy Friday. Happy New Years Eve Day.
The Asian/Pacific markets leaned up. China, Hong Kong and Singapore did well; Indonesia and the Philippinese were weak. Europe, Africa and the Middle East are currently doing well. France, Turkey, Greece, South Africa, Spain, Italy, Austria and Sweden are up; Poland, Russia and Hungary are down. Futures in the States point towards a slight down open for the cash market.
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The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
In store for ’24
It’s that time of the year again. Investors are taking out their crystal balls to set up their portfolios for 2024, but many are wary after the unexpected turn of events that materialized over the past year. Most economists and analysts on Wall Street got things wrong in 2023, ranging from recession predictions and a down year for the market to the last mile of inflation would be the hardest to conquer. Going into the coming year, we’ll explore some commentary from the SA analysts that got it right and what they now say is in store for ’24.
No sign of financial stress
ANG Traders: SA Investing Group Leader of Away From The Herd.
2023: “Fear of inflation, rising Fed funds rate (FFR), quantitative tightening, and lower corporate earnings have resulted in the consensus view that 2023 will bring a recession and even lower stock prices. In this piece, we outline our contrary view; recession is unlikely, and a new bull market will start in 2023. Interest income will add to the economy and help drive stocks higher. If current net spending by the Government is maintained, we expect the SPX to hit 4900 in 2023.”
2024: “I am assuming that government spending will stay at 2023 levels until the November election. Although there is lots of talk about high levels of debt in the private sector, the bank credit:GDP ratio is back down to the pre-pandemic average. The delinquency rates on business loans are near-historic lows and so are delinquency rates on consumer loans and the household debt service payments as a percent of disposable personal income. Deficit spending is higher than last year and, if maintained, will drive the SPX to new highs (~5300).”
Bull market continues
Elazar Advisors: SA Investing Group Leader of Fed Trader.
2023: “Inflation is dying. The Fed will most likely reverse hard. It’s amazing that it sounds like everybody is expecting a recession. But recession means down GDP quarters and we’re not seeing that. In our generation, it’s not hard to think the market gets 20x. My target for 2023 would be the S&P 500 at 4520.”
2024: “I’m bullish for 2024. The key measure I’m going to be watching is jobless claims, people don’t put a lot of emphasis on jobless claims, but I do. And I think it’s like the most real-time thing you could get on the overall economy for all the stocks, which really leads to how the companies are doing. I [also] see three major drivers to bonds, which drive long-term rates.”
Not everyone is on board
Dan Victor, CFA: SA Investing Group Leader of Conviction Dossier.
2023: “There is absolutely room to fight the Fed with a view that they are overplaying their hand on inflation and entering the new year with an overly pessimistic outlook. An outlook with inflation surprising to the downside can open the door for a Fed policy pivot as part of the bullish case for stocks. S&P 500 companies can benefit as margins rebound and macro conditions improve going forward in a soft landing scenario. We’re setting a 2023 year-end S&P 500 target at 4,777, just about reclaiming the all-time high and representing a solid 23% return from the current level.”
2024: “We’re taking a bearish tilt for the year ahead. It won’t be a straight line lower, but in terms of handicapping odds, we’re looking at the market as having a higher chance that something goes wrong in an environment filled with risks. What bulls need is for a lot more things to go right. While it may take several quarters to play out, we are forecasting the S&P 500 to end 2024 at 4,257, with rising volatility being the story going forward.”
AI revolution
Simple Investing: SA Investing Group Leader of Outperforming the Market.
2023: “Nvidia: The contrarian opportunity is here in 2023. Nvidia’s (NVDA) customers are likely to continue to spend even during downturns like today, in my opinion, due to the strategic importance and mission-critical aspect of the accelerated compute to support its customer’s artificial intelligence and analytics initiatives. I estimate the ChatGPT revenue opportunity for Nvidia to be approximately $5B. Outside of ChatGPT, there are huge AI opportunities for Nvidia to capture in the long term with low penetration rates and AI is at an inflection point.”
2024: “Microsoft (MSFT) is the ultimate AI winner and has so much going on in its AI services. Azure’s beat and acceleration highlight the strength of its AI services segment as that more than offset the optimization trend. Microsoft continues to invest in the cloud and AI and I think that for the rest of FY2024, we will see Microsoft extend its leadership in cloud and continue to lead in the AI wave.”
Other great calls
CashFlow Hunter: SA Investing Group Leader of Catalyst Hedge Investing.
2023: “SVB Financial Group (OTCPK:SIVBQ) is the holding company for Silicon Valley Bank. The flipside of the tech bubble is fairly ugly for the company with added pressure coming from higher operating costs, higher costs of deposits, and unrealized losses in its htm (hold to maturity) fixed income portfolio. Both these htm losses and potential losses from the loan portfolio could wipe out book equity value. I think playing this company from the short side (via puts or shorting the stock) makes a lot of sense particularly versus other banks that do not have the same tech exposure.”
2024: CashFlow Hunter makes some new calls on a variety of stocks, including solar players Sunpower (SPWR) and Maxeon (MAXN), industrial names Ferroglobe (GSM) and Otter Tail (OTTR), as well as Seritage Growth Properties (SRG) and Tiptree (TIPT).
Today’s Economic Calendar
9:45 Chicago PMI
1:00 PM Baker-Hughes Rig Count
SIFMA Early Close at 2:00 PM
3:00 PM Farm Prices
What else is happening…
Google (GOOGL) to settle $5B ‘Incognito Mode’ privacy lawsuit.
Baidu’s (BIDU) AI product Ernie Bot surpasses 100M users.
Getty (GETY) inks photo partnership for college football playoffs.
Altice USA (ATUS) offloads Cheddar News to media firm Archetype.
Hess (HES) drops as Venezuela deploys soldiers amid Guyana dispute.
Boeing (BA) says 737 Max hardware issue has been fixed.
Mullen Automotive (MULN) surges after delivering 50 EV cargo vans.
Headed to SCOTUS? Maine bars Trump from presidential primary ballot.
Cathie Wood ditches Grayscale OTC:GBTC for Bitcoin futures ETF BITO.
Apple (AAPL) mulls long-term software fix for watches while appealing ban.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets did great. China, Hong Kong, South Korea, India, Australia, New Zealand, Indonesia, Singapore and the Philippines posted solid gains. Europe, Africa and the Middle East are currently mixed and little changed. Denmark and Turkey are up; Greece, Norway and Austria are down. Futures in the States point towards a flat open for the cash market.
————— Audio Course: Guidelines to Successful Trading —————
The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
September
Hosts scramble: Airbnb (ABNB) hosts in New York went into panic mode as new regulations effectively banned short-term rentals. The city argued that the units took away much-needed affordable housing, and some were concerned the move could hurt Airbnb before the stock was added to the S&P 500. Many also cited fears that the stringent rules could set a precedent that destroys the benefits of the sharing economy.
On strike: The United Auto Workers went on strike against the “Detroit Three” after employees’ four-year contracts expired and the two sides couldn’t reach a negotiation. Workers walked out at factories owned by General Motors (GM), Ford (F) and Stellantis (STLA), marking the first-ever simultaneous strike. The walkouts halted production of popular vehicle models, including the Ford Bronco, Jeep Wrangler and GMC Canyon, and eventually involved nearly 50,000 workers before being resolved.
IPO exuberance: Arm Holdings (ARM) closed up 25% during its opening debut, reaching a valuation of nearly $68B, in a stellar trading debut that reignited IPO market hopes. Arm, majority-owned by Softbank (OTCPK:SFTBY), sold more than 95.5M shares in the biggest initial public offering of the year, while Softbank CEO Masayoshi Son said he intended to maintain his 90% stake for “as long as possible.” Other IPOs that followed included grocery delivery firm Instacart (CART), marketing automation firm Klaviyo (KVYO) and iconic shoemaker Birkenstock (BIRK).
Debt drama: Record-breaking red ink saw America’s national debt top $33T for the first time. A spike in interest rates over the past year and a half also made the cost of servicing the national debt way more expensive, posing significant risks to the fiscal and economic outlook. “The U.S. debt situation is out of control, with no responsible body of people in the government willing to address it,” SA analyst John Mason wrote in The Fiscal Mess Of U.S. Debt.
October
Payments resume: Millions of Americans started making payments again on their federal student loans after a pandemic-era pause that lasted for over three years. The resumption fanned concerns about the spillover effects on the U.S. economy, with more than 40M people owing over $1.6T in federal student loan debt combined. Discretionary spending was also widely expected to take a major hit, but that didn’t show up during the holiday season.
Game on: Microsoft’s (MSFT) revised $69B offer to acquire Activision Blizzard (ATVI) passed muster with U.K. regulators. That cleared the way for the technology sector’s biggest-ever acquisition, which had been more than a year and a half in the making. Microsoft refiled for the merger across the pond with remedies that included the divesture of cloud rights related to PC and console games after the FTC finally dropped its suit.
All-out war: Things heated up in the Middle East following the brutal attack by Hamas that killed 1,200 Israelis and injured thousands more. Defense stocks surged, while oil was volatile, and the ensuing war eventually expanded to threaten Red Sea shipping. With a sixth of world trade hanging in the balance, the U.S. and more than twenty other countries formed a naval task force to protect commercial vessels from Houthi attacks.
Historic ouster: Kevin McCarthy was removed as House speaker as a result of escalating infighting within the Republican majority. It marked the first time in history that the House removed its leader and underscored the growing governance challenges that threaten the sovereign rating of the U.S. Mike Johnson later filled the post, and while tensions remain high, the U.S. was able to avoid a government shutdown with a short-term funding bill that kicked the can into next year.
November
He’s back: After a drama-filled few days that saw him jump ship to Microsoft (MSFT), Sam Altman returned to OpenAI as CEO with a new board. Most of OpenAI’s staff threatened to quit after Altman was ousted in what Wedbush called an “embarrassing circus show,” while SA analyst Michael Fitzsimmons said OpenAI was “hoisted by its own petard.” OpenAI researchers had reportedly warned the previous board of an AI breakthrough that could potentially threaten humanity, which was likely a factor in Altman’s ouster.
WeBankrupt: Just four years after it was assigned a $47B valuation, office-sharing company WeWork (OTC:WE) filed for Chapter 11 bankruptcy, marking a big fall from grace for a firm that attracted major investment from the likes of SoftBank (OTCPK:SFTBY) and JPMorgan (JPM). The downfall of one of the most promising startups of the 2010s is a big lesson for investors, highlighting just how quickly a business environment can change and how “growth at all costs” can be a major risk. To date, WeWork has never posted a quarterly operating profit.
Fraud and conspiracy: Sam Bankman-Fried, disgraced founder of collapsed cryptocurrency exchange FTX, was found guilty on seven criminal counts related to fraud and conspiracy. While an appeal is likely, SBF could face decades behind bars. Interestingly enough, the collapse of FTX in November 2022 came after crypto hit its lowest point over the past three years, which was mainly due to the Fed’s rate-hiking cycle and its impact on high-risk assets. Since SBF was arrested, things have actually been on the upswing, with Bitcoin (BTC-USD) even climbing 158% YTD and making crypto one of the best investment classes of 2023.
Speed bumps: Daniel Kan, co-founder and product chief at General Motors’ (GM) self-driving unit Cruise, resigned just a day after its CEO Kyle Vogt stepped down. The exits came less than a month after Cruise halted operations, issued recalls and halted production of its autonomous vehicles amid safety concerns. Cruise was already under federal investigation because of a hit-and-run incident in San Francisco, after which California promptly suspended its licenses, and lost around $1.9B in the nine months ended Sept. 30.
December
Dovish pivot: Investors bet firmly on the end of the Federal Reserve’s rate-hiking cycle. All three benchmark indices scored further gains after the FOMC’s last meeting of the year, while yields plummeted. Central bank officials now see three rate cuts in 2024 and four in 2025, but Chair Jerome Powell cautioned that the Fed was “just at the beginning” of discussing policy easing.
Epic win: The current U.S. app store duopoly landed in hot water with a legal ruling that spelled trouble for the closed ecosystems. Fortnite maker Epic Games won an antitrust case after a jury found that Google’s (GOOG, GOOGL) Play Store operated illegally, threatening billions of dollars in revenue for the tech giant. The win was also important in light of Epic’s loss against Apple (AAPL) in a similar case.
Crude strategy: Energy prices continued their descent, with benchmark West Texas Intermediate (CL1:COM) down 22% so far in the fourth quarter and the average price of stateside gasoline falling 18% to $3.21 a gallon. It came as the U.S. pumped crude at a record rate, surpassing even Russia and Saudi Arabia. OPEC members were forced to respond to the record American production, with the Saudis slashing their output, but the deeper cuts did not resonate with oil bulls and even formed some cracks within OPEC+.
Steel of a deal: In an industry-shaking transaction, Japan’s Nippon Steel (OTCPK:NPSCY) agreed to acquire U.S. Steel (X) for a whopping $14.9B. The takeover of the 122-year-old American steel giant by a Japanese producer prompted unions and politicians to speak up, with the United Steelworkers urging regulators to “fully scrutinize” the deal and several Senators voicing opposition. “The management teams at both firms believe there will not be any major regulatory issues at play,” wrote SA Investing Group Leader Daniel Jones. “Obviously, this is something we will have to watch.”
Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Initial Jobless Claims
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Results of $40B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
What else is happening…
Wall Street watch: S&P 500 languishes just short of record close.
Microsoft (MSFT), OpenAI sued by NYT (NYT) over copyright infringement.
Auto crown? Toyota (TM) reports record global output on strong demand.
Senators call on Musk to recall defective Tesla (TSLA) parts.
Cryptocurrency-exposed stocks climb on ETF hopes.
Apple Watch (AAPL) ban paused by appeals court.
FDA’s new drug approvals for 2023 rise 51% from last year.
FTC sues Grand Canyon Education (LOPE) for deceptive advertising.
Amazon Prime (AMZN) is getting ads. How does it compare to other streamers?
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets did great. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia and Singapore posted solid gains; the Philippines were weak. Europe, Africa and the Middle East are currently mostly up. The UK, Poland, Turkey, Germany, Russia, South Africa, Finland, Norway, the Netherlands, Italy, Israel and Sweden are all participating. Futures in the States point towards a flat-to-up open for the cash market.
————— Audio Course: Guidelines to Successful Trading —————
The dollar is down. Oil is down; copper is up. Gold is up; silver is down. Bonds are up.
Stories/News from Seeking Alpha…
May
Weight loss drugs: A new generation of highly effective drugs started to make splashy headlines, triggering hopes that the healthcare industry may be turning a corner with regard to weight loss and chronic obesity. These injected GLP-1 agonists make people feel satiated for longer by slowing hunger signals to the brain and the rate at which a person’s stomach empties. Investors applauded the potential for the drugmakers of Wegovy, Ozempic and Mounjaro, sending shares of Novo Nordisk (NVO) and Eli Lilly (LLY) up 50% YTD.
National AI strategy: In response to “one of the most powerful technologies of our time,” the Biden administration took new steps to “advance responsible AI.” Among them was the National AI R&D Strategic Plan, which outlined key priorities and goals for federal investments in AI research and development. Building on a meteoric rally, shares of Nvidia (NASDAQ:NVDA) also hit the $1T valuation mark as the stock market darling rode a wave of investor exuberance surrounding artificial intelligence.
May the 4th be with you: It may not be cloud cars or desert skiffs, but the FAA unveiled some pretty bold plans that could soon bring Star Wars to life. According to an updated operational blueprint released by the agency, changes to airspace procedures would be made to accommodate flying taxis and new innovative aircraft. Other considerations to take into account include vertiports, existing infrastructure, travel routes and air traffic communication, which will all help usher in the next era of aviation.
Groundwater disappears: In what might be a harbinger for the housing boom in the American West, Arizona began limiting approvals for new developments within the Phoenix area. A study found that around 4% of the area’s demand for groundwater, close to 4.9M acre-feet, cannot be met over the next century, threatening to dampen the explosive development that has made the city one of the fastest-growing metropolitan regions in the country. Besides the groundwater crisis, Arizona also faced significant shortages of its surface water allocation, with a recent deal cutting usage from the drought-stricken Colorado River.
June
Debt drama: The U.S. Senate passed a debt ceiling package by a vote of 63-36, sending the legislation to the President’s desk in time to stave off a catastrophic default. The bill suspended the debt limit until Jan. 1, 2025, in exchange for some measures that cap non-defense discretionary spending, stiffen work requirements for some recipients of food assistance, and allow the Mountain Valley natural gas pipeline. “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” Biden said via tweet.
Merger mulligan: Bringing an end to a bitter split in the golf world, the PGA Tour and upstart Saudi-backed rival LIV Golf announced a merger to unify the sport and its players. Perhaps the most immediate commercial upshot of the deal is a boost to media coverage of the sport, with all its stars coming together as one. LIV Golf drew key players away from the PGA Tour, but then had serious trouble getting media organizations interested in paying it for its events: ESPN (NYSE:DIS), CBS (NASDAQ:PARA), NBC (NASDAQ:CMCSA) and Fox (FOX) all passed on covering the league, while some already had existing deals with the PGA Tour.
Vision Pro: Apple (AAPL) unveiled its mixed-reality headset at its annual Worldwide Developers Conference, ushering in a new era of what CEO Tim Cook called “spatial computing.” Unlike joystick-powered rival devices like the Meta Quest (META), Apple’s headset relied on hand tracking, with the user gesturing in midair to control the interface. However, the new super-premium device was priced at $3,499, and the overwhelming majority of WSB subscribers felt that the product is too niche for the market.
Run, bull, run: The S&P 500’s (SP500) longest bear market since the 1940s came to an end, with a 20% advance from its October low. The bull rally was powered, in large part, by a handful of companies posting outsized gains, like the Magnificent 7. The group’s outsized influence also started to cause some trouble for market indices, like upending diversification rules for the Nasdaq 100 (NDX).
July
Labor action: Hollywood was hit with the first double strike since 1960 after contract negotiations between a union representing 160,000 actors and major studios failed. Actors joined the writers, who had already been on the picket lines for more than two months. “After more than four weeks of bargaining, the Alliance of Motion Picture and Television Producers remains unwilling to offer a fair deal,” said the Screen Actors Guild – American Federation of Television and Radio Artists. Also, don’t forget Barbenheimer, which gave a jolt to the summer box office and saw the strongest weekend for theaters in 2023.
Twitter killer: Instagram launched short-posting text app Threads as Meta Platforms (META) CEO Mark Zuckerberg took on Elon Musk and Twitter (which was rebranded as X later in the month). “Let’s do this,” Zuckerberg declared, before the app garnered 30M downloads within 24 hours. Musk’s response? “It is infinitely preferable to be attacked by strangers on Twitter, than indulge in the false happiness of hide-the-pain Instagram.” But his bravado quickly faded, with Twitter threatening to sue Meta.
In an instant: Modernizing an antiquated U.S. banking system, the Federal Reserve launched a new instant-payment system that is available 24/7/365. “FedNow” was initially supported by 57 organizations like Bank of New York Mellon (BK), JPMorgan Chase (JPM), Wells Fargo (WFC) and U.S. Bancorp (USB), with plans to onboard more lenders and credit unions in the near future. The system was said to help everyone – from consumers to small businesses – settle directly via central bank accounts, unlike closed peer-to-peer networks like Zelle (JPM) or Venmo (PYPL).
Relief or responsibility? The Supreme Court overturned the Biden administration’s student-debt forgiveness plan in a 6-3 decision, ruling it exceeded the authority Congress granted to the executive branch. The plan would have wiped off $430B in loans from the government’s books, but some alternatives have been utilized since the decision. Cancellations were made through waivers and existing federal student loan forgiveness programs, benefiting public servants, disabled borrowers and people defrauded by for-profit colleges.
August
No place like home: Property sales fell for the fourth time in five months, presenting another challenge for the real estate market to emerge from a slowdown. Existing home sales declined 2.2% M/M to 4.07M, less than the 4.150M expected, while on a Y/Y basis, existing home sales dropped another 16.6%, compared to an 18.9% decline in the prior month. The situation was exacerbated by mortgage rates that hit a 22-year high at 7.23%, as well as limited inventory that drove up prices.
Full faith and credit: Fitch downgraded the United States’ long-term rating to AA+ from AAA, echoing a move made by S&P Global, which cut its rating for the U.S. in 2011 after a different government fight over the growing debt burden. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” according to Fitch. Treasury Secretary Janet Yellen said she “strongly” disagreed with the decision, calling it “arbitrary,” while many others questioned the timing of the downgrade.
Maui devastation: A series of wildfires in Maui killed over 100 people, with damages from the blazes estimated at nearly $6B. The destruction of tourist and residential areas hit certain stocks, with TD Cowen warning that Maui’s recovery could take years and resort destinations are likely to disappear in the foreseeable future. Hawaiian Holdings (HA) tumbled due in part to the airline having the highest exposure of flights to Maui, while Hawaiian Electric Industries (HE) warned affected customers to plan for extended outages.
Black gold: Crude saw some big summer gains after Saudi Arabia extended its unilateral oil production cuts and said they could be prolonged or even deepened. The move added to other voluntary reductions by some OPEC members, while Russia revealed it would continue to reduce its supply. Separately, the U.S. government withdrew its offer to buy 6M barrels of oil to replenish the Strategic Petroleum Reserve after oil prices recorded their best monthly gain in over a year.
Stay tuned… The final recap of 2023 will be published tomorrow.
Today’s Economic Calendar
10:00 Richmond Fed Mfg. Index
11:00 Survey of Business Uncertainty
11:30 Results of $26B, 2-Year FRN Auction
1:00 PM Results of $58B, 5-Year Note Auction
What else is happening…
Here are the best and worst performing big names of 2023.
Apple (AAPL) files emergency motion against Watch ban.
Intel (INTC) secures big grant from Israel for $25B chip facility.
Dish Network (DISH), EchoStar (SATS) merger slated to close Sunday.
Prime Video (AMZN) is getting ads next month unless you pay up.
CZ sees wealth balloon by $25B even after guilty plea, Binance ouster.
Six Flags (SIX), Cedar Fair (FUN) pull and refile merger notification.
Robust holiday spending online and in stores – Mastercard.
Electrified: NIO (NIO) unveils new high-end EV sedan.
Members of BOJ called for debate on future exit from easy policy.
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets were quiet. India and Taiwan did well; China was weak. Europe, Africa and the Middle East are mostly closed. Turkey and Saudi Arabia are up; Israel is down. Futures in the States point towards a slight positive open for the cash market.
————— Audio Course: Guidelines to Successful Trading —————
The dollar is down slightly. Oil and copper are up. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
January
On the economy: Stocks began the first week of 2023 in rally mode after employment numbers showed strong hiring and a historically low jobless rate. The theme would continue throughout the year, while forecasts for a hard landing ultimately turned soft and predictions for a recession ended in “resilient” growth. Inflation numbers would eventually allow the Fed to slow the pace of its interest rate hikes, and those continued throughout the year until the central bank formally paused its hiking regime in the summer and talk even shifted to rate cuts later in the year.
No more pajamas: Less than two months back on the job, Disney (DIS) CEO Bob Iger outlined that the office should be the Happiest Place on Earth. He told employees that they needed to be back in their workplaces four days a week, becoming one of the first major firms to tighten return-to-office requirements (Amazon CEO Andy Jassy later sparked a backlash after his RTO mandate). Until then, many companies’ post-pandemic hybrid schedules consisted of two to three office days per week, though guidelines have differed by company and sector.
#ChatGPT: OpenAI, the developer behind artificial intelligence bot ChatGPT, scored a multibillion-dollar investment from Microsoft (MSFT), setting up AI to be one of the most talked about investment themes of 2023. More on this in coming editions, but Microsoft initially hoped for a version of Bing that could make it a search engine leader, but commercialization of the technology became controversial in its own right. It was also “code red” at Google (GOOG) (GOOGL) as the tech leader tried to quickly respond to the threat posed by ChatGPT with its own suite of AI products.
Incoming! A decision by the U.S. and Germany to send battle tanks to Ukraine reignited discussions on more advanced weapons platforms, such as fighter aircraft. Lockheed Martin (NYSE:LMT) COO Frank St. John revealed that there was “a lot of conversation about third party transfer of F-16s,” and the Biden administration eventually reversed its policies by clearing the transfer of the modern fighter jets. It followed prior resistance to the approval of weapons systems like the M1 Abrams tanks and the Patriot missile defense system, but funding and aid struggles would continue and are still being debated in Congress.
February
Derailed: Lawsuits piled up against freight rail operator Norfolk Southern (NYSE:NSC) following public backlash and investor scrutiny over a series of train derailments. One led to a chemical disaster in East Palestine, Ohio, while another said to be carrying hazardous materials overturned outside of Detroit, Michigan. NSC shares flew off the tracks in response, prompting Norfolk Southern CEO Alan Shaw to pen a letter to address the concerns.
Higher yields: Headlines from the fixed-income world rattled equity investors as the yield on the 10-year Treasury (US10Y) topped 4.00% for the first time since November. The 2-year yield (US2Y) also hit new post-2007 highs and breached the 5.00% level. Many analysts were quick to note that “stocks would be in trouble if Treasury yields keep rising,” but the conventional wisdom did not play out for most of the year and the correlation prompted many to reassess their inversion anxiety over the yield curve.
Disney vs. DeSantis: “The corporate kingdom finally comes to an end,” Florida Governor Ron DeSantis declared after signing a bill that gives the state control over Walt Disney World’s (NYSE:DIS) self-governing district. The move was a long time coming, and followed the “Don’t Say Gay” tussle between Disney and Florida’s legislature last year. The heated battle became the symbol of a broader culture war (also see Newsom vs. Walgreens), while Disney’s flatlining stock price eventually sparked a town hall that discussed building a “modern version” of the company.
Sino ties: An American F-22 Raptor fighter jet shot down what was dubbed a Chinese spy balloon, with Secretary of State Antony Blinken canceling a top-level meeting with President Xi Jinping citing violations of U.S. sovereignty. In response, Beijing called the use of force a “violation of international conventions” and warned of “serious repercussions,” insisting that its “civilian unmanned airship” was merely collecting meteorological data and strayed off course due to high winds. Relations also deteriorated over arms sales to Taiwan, with Beijing imposing sanctions on Lockheed Martin (NYSE:LMT) and a subsidiary of Raytheon Technologies (NYSE:RTX).
March
Banking crisis: March was all about turmoil in the banking sector and whether that would spell trouble for the broader economy. Three small-to-mid-sized U.S. banks failed over the course of five days, including Silvergate Bank (OTC:SICP) and Signature Bank (OTCPK:SBNY), which both had significant exposure to cryptocurrency. The more concerning of the bunch, Silicon Valley Bank (OTCPK:SIVBQ), prompted regulators to take extraordinary measures surrounding deposits and balance sheets to prevent bank runs from spreading and to shore up the industry.
Fallout? The root of the crisis stemmed from poor controls over risk management. The business model at SVB funded cheap mortgages to wealthy clients from little or zero-interest deposits, but a reality check set in when rates rose rapidly. Major paper losses ensued for long-dated assets, triggering bank runs and panic to spread elsewhere. First Republic (OTCPK:FRCB) ended up being seized by JPMorgan (JPM), and PacWest (PACW) and Western Alliance (WAL) rattled the industry, but bigger trouble was seen across the Atlantic.
Crisis takeover: In an emergency deal brokered by Swiss authorities, UBS (NYSE:UBS) agreed to scoop up longtime rival Credit Suisse (NYSE:CS) for $3.25B. Without a deal, Credit Suisse would’ve likely collapsed, risking the spread of financial contagion. Further problems were seen as Deutsche Bank (DB) shares tumbled as the cost of default insurance spiked, while AT1 debt remained under pressure following a $17B write-off that shocked bond investors.
Stabilizing the system: The banking crisis saw some signs of containment as First Citizens Bank (FCNCA) agreed to buy Silicon Valley Bank’s (OTC:SIVBQ) deposits and loans. The purchase of $72B in assets came with a 23% discount of $16.5B, while approximately $90B in securities and other assets remained in receivership for disposition by the FDIC. Emergency borrowing also continued under the Fed’s two backstop facilities, while Treasury Secretary Janet Yellen said regulators were prepared to take additional actions to ensure Americans’ deposits are safe.
April
New market: A pivot to India was on full display following Apple (AAPL) CEO Tim Cook’s visit to the country, which has turned into the tech giant’s most important manufacturing base outside of China. Cook opened up the country’s first Apple Store in Mumbai, followed by a second one in Delhi, after saying he was “very bullish on India” on corporate earnings calls. The growth story in India, where half the population is under the age of 30, also saw Apple’s visionary leader meet Prime Minister Narendra Modi, after the country became the world’s most populous nation.
Inflation eases: A key measure of U.S. inflation showed signs of moderating, with the Consumer Price Index climbing 5% compared to a year earlier, slowing from an annual pace of 6% seen in February. That marked the lowest level since mid-2021, prompting the Fed to ease up on its aggressive hiking cycle. CPI fell to 4% Y/Y only two months later, and nearly 3% Y/Y at the last count in December, showing that the last mile in the central bank’s inflation fight may not be the hardest after all.
Bed Bath & Bankruptcy: Long-struggling retailer Bed Bath & Beyond (NASDAQ:BBBY) filed for Chapter 11 bankruptcy protection as it attempted to auction off assets through a restructuring process. It follows years of losses and failed turnarounds, though the company secured a commitment for some $240M in debtor-in-possession financing from Sixth Street Specialty Lending Inc., listing $5.2B of debts and $4.4B of assets. “Some remnants may survive, but they will likely be small and will leave common shareholders wiped out,” wrote Investing Groups Leader Daniel Jones in SA article The Last Nail In The Coffin.
Next evolution: Netflix (NASDAQ:NFLX) announced it would exit the disc-mailing business after 25 years, an activity that revolutionized movie rentals for a generation of Americans. “Making 2023 our Final Season allows us to maintain our quality of service through the last day and go out on a high note,” the company said in a statement. Netflix’s new business plan cracked down on passwords (paid sharing), as well as subscription plans that included advertising (ad-supported tiers), giving the stock an impressive return of 65% YTD – along with other tech giants.
More on the Magnificent 7? Stay tuned… The next recap of 2023 comes tomorrow.
Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $57B, 2-Year Note Auction
1:00 PM Money Supply
What else is happening…
Tax-loss selling deadline for 2023 is December 27. Read more here.
Manchester United (MANU) agrees to sell 25% stake to Jim Ratcliffe.
Intel’s (INTC) future may be turning around. Is a breakup in the cards?
Maersk (OTCPK:AMKBY) prepares for resumption of Red Sea shipping.
Quants and short traders both love these stocks – who wins out?
AstraZeneca (AZN) to buy Gracell Biotechnologies (GRCL) for $1.2B.
Lions Gate (LGF.A) deal likely means it will seek to monetize Starz.
Cannabis on watch as Biden pardons thousands for marijuana offenses.
Report: Apple (AAPL) in talks with publishers to train generative AI.
Tesla (TSLA) gained over 130% this year. What’s in store for 2024?
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