10/21/2024

Good Morning.

Earning season for Q3 is underway, and understanding the interconnected nature of the financial markets cannot be overstated. There are numerous significant drivers of volatility unfolding that include interest rate cuts, geopolitical uncertainty, questions of a soft landing, election uncertainty, AI, and much more. Utilizing every development as a potential gauge to understand what is happening is the course of action we are trying to take. 

In today’s newsletter we will cover: 

• Market update

• Bank earnings

• Nuclear plant Three Mile Island

• ASML sales forecast

• What to look out for this week

Markets 

Market Update

Last week was a whirlwind for U.S. financial markets, packed with drama that left traders, analysts, and investors with plenty to digest.

Stock Market:

The S&P 500 experienced a swing as investors reacted to economic data and earnings reports. Tech stocks stayed in the spotlight, as Nvidia saw volatility and neared all time highs. 

Earnings will be driving the equity markets over the next three weeks as 73% of the companies listed on the S&P 500 are scheduled to post earnings. This will be a key driver of increased market volatility in the near term. 

Bank Earnings

In the past few days bulge bracket banks have announced earnings. Key units saw growth including sales and trading, investment banking, and wealth management. Because these areas are all major revenue sources for the bulge banks, the markets reacted positively. As the effects of rate cuts begin to be felt, these earnings also reflect how a cheaper cost of borrowing could be a catalyst for increased dealflow. 

KBW Index is the benchmark index of the banking sector that includes 24 banks.

Since banks began reporting, the index is up 5.9%.

Three Mile Island

Microsoft has entered into an agreement with Constellation Energy Corp to reopen the Three Mile Island nuclear power plant. This site is known for a nuclear meltdown in 1979 and has remained closed until recently. Microsoft, like many other tech companies, has set mandates to transition to renewable energy sources. Alternative forms of clean energy like wind and solar do not produce power around the clock. In addition, increased electricity demand and limited resources have led tech companies to take a greater role in the sourcing of electricity. The deal is reported to be the largest agreement ever to purchase power. This power will be used for the numerous data centers Microsoft has opened to supply more computing strength for AI demand. 

“Powering industries critical to our nation’s global economic and technological competitiveness, including data centers, requires an abundance of energy that is carbon-free and reliable every hour of every day, and nuclear plants are the only energy sources that can consistently deliver on that promise.” Joe Domingue, Constellation Energy's CEO.

According to reporting from Bloomberg, Microsoft agreed to pay over $100 for every megawatt-hour for 20 years. In this agreement Microsoft is potentially paying 66% more than the $60 standard. Microsoft's willingness to pay significantly more for nuclear energy is important to recognize as a growing trend. Nuclear energy is seeing a large increase from parties who require a large amount of clean energy. Those who are willing to pay the most will get it.

Three Mile Island, currently operated by Constellation Energy Corp

ASML

ASML is a producer of the machinery used to make semiconductors. The company is in the Netherlands and recently cut its sales target. This adjustment is not because of a decline in demand for chips used for AI. Instead it is experiencing the effects of a decline in demand for semiconductors in consumer products like cars and other electronics. In addition, trade restrictions against China have shrunk the size of ASML’s market. During the Covid-19 pandemic most supply chains experienced shortages of semiconductors. However, now the market is stabilizing and showing signs of slowing down. In recent months semiconductors have become synonymous with AI in companies such as Nvidia, which has rapidly grown in market cap. However, semiconductors are used in a much broader range of products and are not solely used for AI. Traditionally the demand for these chips has been a gauge of the overall economy. A decrease in the production of semiconductors could be evidence of reduced consumption of semiconductors. This in turn might reflect a more general decline of the overall economy. 

Product being built in an ASML factory

What To Look Out For This Week!

Tuesday: GE Aerospace, Philip Morris, Verizon, and Texas Instruments will report earnings

Wednesday:

• Existing home sales (September)

• Tesla, Coca-Cola, T-Mobile, and Boeing will report earnings 

Thursday: Amazon will report earnings

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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