SB Cap Issue 3, 6/10/24

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SB Capital
June 10, 2024

SB CAP, 3

SB Capital Insights

6/10/24

Good Morning. We are so happy to have a strong readership and are excited to be making technological improvements to accommodate our readers. 

Last Friday the Labor Department reported that the U.S. economy added 272,000 jobs.¹ While this figure exceeded economists’ expectations, it shows that the labor market is cooling down. The strong labor market, as of now, will be important to the Fed, which is hesitant to cut rates. Positive data is likely to embolden the Fed to keep rates steady in its announcement later this week.

Markets 

(6/3/24 - 6/7/24)

(6/7/2024)

  • The markets are overall up on the week, with the S&P 500 pushing all time highs. 

  • Short term US treasury rates have held around the same as they did a year ago, however investors are now demanding a higher yield on long term government bonds. A yield curve inversion is when short term yields are higher than long term yields. Historically an inverted yield curve has been a leading indicator of an upcoming recession. However, economic data is currently saying otherwise. The inversion indicates an increased recession risk, but at the same time the stock market rally has ignored the risk.²

  • Following market close Friday June 7th, Nvidia completed its stock split of 10 to 1. Stock splits allow for publicly traded companies to lower their stock price, which allows a wider range of investors to purchase shares, potentially increasing demand.  In addition, Nvidia is paying a .01 dividend per share on Tuesday June 11th.

    • The company over the last year and a half has had an extraordinary bull run, which has propelled them to a market cap of $2.97 trillion, closing in on Apple’s $3.02 trillion market cap.

Stay in the know

  • Aramco, the world’s largest oil producer, is primarily state owned by Saudi Arabia. Saudi Aramco is the world's most profitable company and began drilling for oil in 1938. They went public in 2019 and raised a record $25.6 billion, offering only 1.5% of the company to public investors. This left control to inside ownership (the government of Saudi Arabia).

    • Aramco is in the process of raising additional capital from foreign investors. Aramco is leveraging its $124 billion dividend payout (or 6.6% dividend yield) to attract foreign investors. The deal is set to raise $11.2 billion for the Saudi government through the sale of additional shares.⁴ Aramco’s dividends are used by the nation to fund its $925 billion sovereign wealth fund.

What to look out for this week

  • Core CPI, the Fed’s preferred gauge for inflation, will come out this Wednesday. It is expected to remain at .3%. This data will most certainly be highlighted in the FOMC press conference and will potentially offer investors an explanation for the Fed's rate decision.⁵

  • FOMC Announcements

    • It is expected that the Fed alongside Jerome Powell will announce on Wednesday at its meeting that rates will remain the same at 5.25% to 5.50%. If this happens it will be the seventh time in a row that the cost of borrowing is staying at this rate. Right now rates are at their highest level since 2001.⁶

  • Forecast

    • In addition to its rate announcement the FOMC will release its forecast for future rate decisions. The Fed’s dot plot displays what members of the committee believe rates will be in the foreseeable future. While rates will likely not be cut this Wednesday, the forecast is expected to predict two 25 basis point cuts before the year's end. Though there is no single consensus amongst the committee or economists, some believe the dot plot could even forecast that there will be no rate cuts this year. As the economy braces for and accepts high rates into the foreseeable future, this forecast will provide the markets with an expected timeline for rate cuts.⁷

(Fed dot plot for previous FOMC meeting in March, expecting two rate cuts)

Check out this resource to understand how to interpret the dot plot. LINK

  • AI adopters’ earnings coming out this week: Adobe (ADBE) a software developer, Oracle (ORCL) a cloud computing company, and Broadcom Inc (AVGO) a semiconductor designer

    • Adobe is an excellent example of how incorporating AI can increase productivity and lead to increased earnings, a popular sentiment on Wall Street. Its software enables users to seamlessly use AI to make edits that would previously require professionals hours to implement.

    • Oracle and Broadcom's businesses have grown significantly from increased demand for artificial intelligence.

    • Analysts expect these companies’ earnings to continue to grow, as in previous quarters. These earnings will potentially show investors whether AI can live up to its hype. This is part of a larger trend, as companies rush to incorporate AI into their business. Key earnings from high profile tech companies' AI segments will potentially show that (NVDA) is not the only AI king around.

Noteworthy

  • Keith Gill is back! He is behind the infamous Game “Stonk” Stop short squeeze and is again in the public eye after 3 years away. He held his first livestream since 1/22/21 and displayed his current account balance. As of last Friday, Keith’s E-Trade account was sitting at $145,213,161 in unrealized gains. This is from owning 5,000,000 shares and 120,000 calls for GME at $20 strike that expire June 21st. His brokerage, E-Trade, issued a threat to Gill for market manipulation, and his use of X posts is under investigation by the SEC for market manipulation.

  • Back in January a Delaware judge ruled against Elon Musk’s $50 billion pay package, negotiated back in 2018. Tesla will hold its annual shareholders meeting next week, where a vote will take place to award Musk with the previously revoked stock options and to move the company's incorporation from Delaware to Texas. Musk is under increasing scrutiny of his ability to manage Tesla while spending significant time on his other companies, including Space X and Neuralink.

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 in this field. It is our goal to deliver exciting and informative content that provides valuable insights and a broad picture of relevant current events.

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