11/25/2024

Good Morning!

We wish you and your families a Happy Thanksgiving. 

• A projected 33 million turkeys will be consumed at a value of $983 million, representing a $186 million decrease in spending on turkeys compared to 2023.

(Farmer Bureau)

Black Friday spending

• The health of U.S. consumers will be in the limelight on Black Friday, which is the kick off of holiday spending.

• Consumer spending accounts for 70% of the U.S. GDP.

• Projected $10.8 billion in spending 

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In today’s newsletter we will cover: 

• Market update 

• Nvidia earnings

• Scott Bessent Treasury Secretary nomination

• Loss of the week: $900 million GS PE investment gone bad

• What to look out for this week

Markets 

• Major stock indexes ended the week higher, bouncing back from losses in the previous week. Uncertainty remains around the policies of the incoming Trump administration, and geopolitical tensions persist due to the ongoing Russia-Ukraine conflict.

• These gains were seen broadly across the market this week, with smaller-cap indexes outperforming large-cap indexes.

• Bitcoin has continued its post-election rally, marking its third consecutive week with gains exceeding 10%. This surge has brought Bitcoin's price close to the $100,000 mark, setting new all-time highs.

Nvidia Earnings 

The company reported earnings last Wednesday, beating the market's expectation. Nvidia has been at the forefront of the ongoing artificial intelligence boom with their stock rising close to 200% so far in 2024 and has become the most valuable company in terms of market cap.

• Record quarterly revenue of $35.1 billion, is up 17% from Q2 and up 94% from a year ago

• Record quarterly data center revenue of $30.8 billion is up 17% from Q2 and up 112% from a year ago

The stock remained relatively stable compared to the historic volatility seen around previous earnings announcements. Although it beat estimates the market did not recognize any additional value, but instead helped justify the high multiples that the stock is trading at.

It is clear that the major tech firms are investing in areas that require the products offered by Nvidia. The question still remains if these underlying tech firms will see returns on these investments, which will ultimately translate back into Nvidia’s growth. These investments include data centers and developing A.I. capabilities.

 Scott Bessent Treasury Secretary Nomination

Scott Bessent is the founder of Key Square Group, a hedge fund that utilizes macro strategies. He is seen as aligned with the interests of Wall Street, including lowering corporate taxes, market stability, and reining in spending. The secretary position will be pivotal to Trump's economic policy decisions including sanctions and government spending. The secretary is essentially the head salesman for the largest asset class in the world, the $28 trillion U.S. treasuries market. Bessent will likely prioritize market stability in his role and work towards ensuring strong demand for U.S. treasuries.

Loss of the week: GS PE $900 Million Loss

Goldman Sachs Asset Management has almost $3 trillion in AUM, and $500 billion of that is alternatives that include substantial private equity investments. 

Northvolt is a Swedish battery producer startup that was intended to rival China's massive market share. Batteries are a pivotal part of Europe's energy transition. Efforts to bring the supply chain home while competing against China, who is able to produce batteries cheaply at scale, have proven difficult. The company has subsequently filed for bankruptcy after amassing $5.8 billion in debt and not having the cash to sustain operations for another week.

Goldman Sachs has built an $896 million dollar position in the battery producer through investments in multiple private equity funds. The U.S. bank will mark the investment at a value of $0, writing it off as a total loss.

GS:“While we are one of many investors disappointed by this outcome, this was a minority investment through highly diversified funds. Our portfolios have concentration limits to mitigate risks.”

This large loss is a symbol of the increasing complexity for PE seeking excess returns. GS was extremely ambitious on Northvolt’s growth. However, potential misguided evaluations, inability to raise financing to prevent bankruptcy, a slower than expected rate of green energy adoption, and increasing competition with cheap products have likely ended Northvolt’s run at becoming a battery powerhouse. This is a perfect example of how difficult the energy transition will be amidst deglobalization efforts, particularly competition with China.

What To Look Out For This Week!

Thursday: Markets will be closed for Thanksgiving

Tech earnings:

Monday: Zoom

Tuesday: Dell, CrowdStrike, HP, Autodesk

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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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