10/14/2024

Good Morning.

We hope you are having a relaxing long weekend and we appreciate you taking the time to read on a holiday. We are publishing today because U.S. stock markets will stay open on Columbus/Indigenous Peoples Day and we want to continue to publish timely and insightful content. 

In today’s newsletter we will cover: 

• CPI Report 

• Tesla Robotaxi Event, “We, Robot”

• China market update

• Deal of the week: Ares acquires GLP Capital

• What to look out for this coming week

Markets 

• The bull run continues as the major indices once again push all time highs.

• The chart above is the 1 year price movements of the S&P 500, which has returned 34.37%.

CPI Report and Market Implications: September 2024

The latest CPI data for the month of September showed inflation at 2.4%, trending closer to pre-pandemic levels and indicating that inflationary pressure may be easing across the U.S. economy. Although coming in slightly above estimates, the market viewed the report as a positive sign. This could mean a shift in monetary policy; the Fed could prioritize growth in the labor market instead of focusing on battling inflation.

Tesla’s Robotaxi Event (“We, Robot”) Sends the Stock Tumbling 

On the next trading day following the robotaxi event, Tesla shares fell over 9% after months of anticipation that built their share price up off of lows.

What transpired at the “We, Robot” event?

Elon Musk unveiled three new products: Cybercab, Robovan, and the Optimus humanoid robot, as well as different versions of these products. The version for the Cybercab includes:

1. Full autonomy: Operates without a driver, utilizing advanced full self-driving (FSD) technology 

2. Affordability: Priced under $30,000

3. Electric efficiency: Sustainable; lower operational costs 

4. Target for ride-sharing: Revolutionary for meeting urban transportation needs

The Market's Interpretation of the Event

The consensus following the event was largely negative, which led the stock to fall 9%. The negativity centers around concerns about the production timeline, with the Cybercab not entering production until 2026-2027. Tesla’s past struggles to meet ambitious production goals led investors to question the company’s delivery promise. Ultimately there was a lack of concrete details on profitability and the long-term road map, contributing to the stock decline.

Update on China's Markets 

• Over the course of the last month the Chinese equity markets have outperformed by a significant margin. The above table represents the performances of the major global indices.

Foreign investors have been cautious, withdrawing capital from Chinese markets due to uncertainties surrounding economic policy and regulatory interventions. China is navigating a complex web of economic challenges. 

Here are the top developments you need to know 

• China’s economy is experiencing slower-than-expected growth in 2024, with GDP growth forecasted at just under 4%, significantly below the 8% growth experienced in 2021. A continued decrease in the growth of GDP could make stagflation a serious threat to the Chinese economy.

(China annualized change in GDP, Trading Economics)

• The property market, a key pillar of the economy, continues to struggle with weak demand and declining prices. The over-leveraged property market remains a drag on the economy.

• The Chinese government has remained elusive on the status of stimulus measures, including cuts to interest rates and easing restrictions on property purchases. This is leading to volatility, especially with foreign investors who do not know what to expect.

• U.S. China trade tensions and rising competition from low-cost producers like Vietnam and India have hit exports. Chinese manufacturing has contracted for three consecutive months.

(China annualized change in manufacturing, Trading Economics)

• A key part of a rebound for China's economic woes is boosting domestic consumption. However for an economy that has shown tremendous growth from exports, this transition could be challenging. As Chinese policy makers attempt to boost domestic spending, investors could likely remain hesitant until sign of greater expansion.

Deal of the week: Ares Acquisition of GLP Capital

Ares Management (ARES) is a global alternative investment manager that specializes in private equity, real estate, credit, and more. It's known for its innovative approach that has enabled it to excel in emerging trends like private credit and critical infrastructure. 

Ares has significant investment in real estate with a total of $51 billion in AUM. Real estate is a key vertical in alternative asset managers’ strategies, because these managers can use a diverse range of debt, equity, and other investment strategies to invest into real estate. In addition asset managers can use real estate to target specific identified trends like data centers and renewable energy. The use of these strategies by the likes of managers like Ares creates opportunities for investors in real estate vehicles that they would otherwise not gain exposure to with traditional methods. 

On October 8th Ares announced it would acquire GLP Capital’s AUM in an alternative asset manager with significant investments in real estate outside of China in a transaction valued at $3.7 billion. The firm will finance the acquisition with $1.8 billion in cash and $1.9 billion in Ares shares. This merger will almost double ARES real estate AUM to $96 billion.

This is a notable example of consolidation within asset managers as they acquire portfolios in order to remain competitive and rapidly expand. This is part of a greater trend in the industry in which these managers are aspiring to be “one stop shops for investors”. This means that the largest asset managers want to have the most investment strategies available to investors to gain their business and become their sole manager. This is key to the business of asset management because profit is made from lucrative fees on investors capital and increase in AUM will increase profits. 

CEO of Ares “We believe that Ares’ and GCP International’s experienced management teams…will create a powerhouse in global real assets investing.”

Source: (GLP Capital Partners & Bloomberg)

What To Look Out For This Week

Monday: U.S. Bonds Markets will be closed

Key financial earnings:

• Monday: Goldman Sachs, Citi Group, State Street 

• Wednesday: Morgan Stanley, Discover Financial services, US Bancorp

• Thursday: Blackstone

• Friday: American Express

Thursday: Initial jobless claims

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Authors: Ben Banchik, Zachary Singer

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