10/28/2024

Good Morning.

In today’s newsletter we will cover: 

• Market update

• Tesla Q3 earnings

• Saudi Arabia summit

• U.S. equity returns forecast from JP Morgan and Goldman Sachs

• What to look out for this week

Markets 

Market Update

• The S&P 500 broke a 6 week win streak with a decline of .96%. The continuation of the release of Q3 earnings will continue to hold volatility at increased levels, primarily from big tech this week.

• Treasury Yields:

  • Yields continue to rise despite the recent cut from the Fed. This is a result of stronger-than-expected economic and inflation data leading to a shift in Fed expectations. Concerns over U.S. debt and the upcoming election are also adding to the recent bond volatility. 

  • Yields could temporarily overshoot, but we don't anticipate them rising substantially or exceeding the 2023 highs. The labor market and inflation will likely continue to cool next year and the economy remains resilient with fundamentals backing growth.

Tesla Delivers Phenomenal Q3 Earnings

Following market close on Wednesday, Tesla released a phenomenal Q3 earnings report, far ahead of analyst expectations. There are now real numbers backing the company's financial condition and a contrast to the negative sentiment after the recent We Robot “robotaxi event.” 

What did investors like from the earnings report? 

Revenue / Profitability 

• Growth in vehicle deliveries  

• Growth in energy generation and storage and services.

Additional Highlights

• Operating income increased YoY to $2.7B in Q3, resulting in a 10.8% operating margin.

  • This further strengthens the company’s goal of making EVs affordable for everyone. 

Market Reaction

• The stock immediately rose in value after market hours and continued to rise into the end of the week. From the announcement of earnings until Friday the stock rose by 25%.

  

Future outlooks (Information below was gathered from Tesla’s 2024 Q3 Quarterly Update Deck)

Volume

• Tesla expects to achieve slight growth in vehicle deliveries in 2024. Energy storage deployments are expected to more than double year-over-year in 2024.

Profit

• Tesla continues to execute on innovations to reduce the cost of manufacturing and operations over time, Tesla expects hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits. 

Products

• Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025. These vehicles will utilize aspects of the next generation platform as well as aspects of current platforms and will be able to be produced on the same manufacturing lines as current vehicle line-up.

For more information check out this slide deck released by Tesla: 2024 Q3 Quarterly Update Deck

https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q3-2024-Update.pdf

Saudi Arabia Summit

Saudi Arabia will be hosting its future investment initiative this week. The goal of this event is to bring in major players in finance and tech in order to attract and demonstrate investment opportunities. Crown Prince Mohammed bin Salman has prioritized the nation's transition away from dependence on oil in its economy. This transition culminates with vision 2030. The plan is filled with high profile mega projects that are meant to attract tourists and bring in tech companies. According to estimates by Bloomberg, the plan is projected to cost $1.3 trillion. 

The Saudi sovereign investment fund has been seen as a bountiful resource for large asset managers to pull capital from. However, increased spending within Saudi Arabia is threatening this traditional business model. Nonetheless major names will be in attendance as billions in financing and investment will be necessary to carry out vision 2030.

“People simply saw the fund as a bottomless war chest.” (Robert Mogielnicki)

The Saudi sovereign fund is worth almost $1 trillion and its main source of funding is the nation's oil exports. It's the main vehicle used to promote vision 2030 and other projects.

Notable people in attendance:

Larry Fink  (CEO of Black Rock)

David Solomon (CEO of Goldman Sachs)

Shou Chew (CEO of Tik Tok)

Saudi Sovereign Investment Fund

U.S. Equity returns predictions by GS and JP

Many market analysts have come to a consensus that the markets are entering a new era. This means that many analysts do not predict the U.S. (in particular the S&P 500) to make the same annualized returns that the markets have come to expect. The S&P 500 has returned an annualized 11% since 1957 and 13% in the past ten years. 

The main catalysts for these declining outlooks are high treasury yields and extremely high evaluations that could prove to be a roadblock to seeing similar returns.

Goldman Sachs predicts a 3% annualized return over the next 10-15 years.

JP Morgan predicts a 6.7% annualized return over the next 10-15 years.

The differences among the banks' predictions are their views on the fundamental outlook of the U.S. economy. JP Morgan sees further improvement and strengthening of macro conditions. Goldman Sachs on the other hand believes geopolitical uncertainty, macro risks, and more could significantly weaken returns for years to come. Analysts at Goldman Sachs went as far as to predict that stocks will trail treasuries by 72%.

What To Look Out For This Week!

Key financial earnings from big tech:

Tuesday: Alphabet (GOOG)

Wednesday: Microsoft (MSFT), Meta Platforms (META)

Thursday: Mastercard (MA), Apple (AAPL)

Multiple important economic indicators will come out this week. Market participants and the Fed will be watching. The Fed will be utilizing the jobs report and PCE in particular to gauge the state of inflation and the labor market ahead of its meeting next week.

Key Economic Data Reports

Tuesday: International trade in goods (advance), Consumer confidence

Wednesday: GDP

Thursday: Jobless claims, Personal Consumption Expenditure (PCE) 

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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