1/6/2024

Good Morning.

Happy New Year! 2025 has kicked off and investors throughout the world will be watching potential shifts in U.S. markets that will reverberate throughout the global economy. Including:

• America first agenda

• Tariffs and potential trade war

• U.S. outpaced economic growth

• Inflation remaining present

• U.S. monetary policy

• Hyper concentration in U.S. markets

• Diversification to private markets

A resilient U.S. economy, strong earnings, and economic growth, all further strengthened the notion of U.S. exceptionalism in the markets. This year forecasts predict that U.S. GDP will grow by 2.8% while other major economies, especially European nations, struggle from stagnated growth. While there are many different forecasts there is consensus that economic growth will slow down with a potential soft landing in most leading economies.

In today’s newsletter we will cover: 

• Markets

  • US Stock Market Recap

  • Historic Trends 

  • Q4 Earnings Outlook

• Spirit Airlines: Flight to Bankruptcy  

• Amazon’s $4 billion investment in OpenAi competitor

• What to Look Out For This Week

Markets 

US Stock Market Recap: A modest rally on Friday for the major U.S. stock indexes failed to outweigh earlier losses from small daily declines throughout the week as markets transitioned into the new year. The S&P 500, NASDAQ, and Dow all ended the week with declines of approximately 0.5%.

Historic Trends: 

• Despite an underwhelming finish, 2024 turned out to be an exceptional year for investors. The S&P 500 reached 57 record highs and delivered back to back annual gains exceeding 20%, last achieved in 1998.

• Historically, January’s stock market performance has been a significant indicator of the market's trajectory for the rest of the year. Since 1929 about 71% of the time, the S&P 500 has ended the year in positive territory following gains in January, or in negative territory after starting the year with a January decline.

Q4 Earnings Outlook: As major U.S. banks gear up to kick off the quarterly earnings season in mid-January, analysts project that fourth-quarter earnings per share for S&P 500 companies increased by an average of 11.9%, according to FactSet. If realized, this would represent the strongest year-over-year earnings growth rate since Q4 2021.

Spirit Airlines: Flight to Bankruptcy 

Spirit Airlines, once a leader in budget travel, filed for Chapter 11 bankruptcy in November 2024, becoming the first major U.S. airline to do so in over a decade. Despite pre-pandemic profitability, the airline has faced mounting challenges since 2019. What factors led to the eventual bankruptcy?

Industry-Wide Pressures: Rising fuel and labor costs, supply chain disruptions, and shortages of new aircraft have driven up operating expenses across the sector.

Unique Struggles: Spirit Airlines grappled with an engine recall affecting its Airbus fleet, grounding dozens of planes and limiting capacity.

Failed Merger: A proposed merger with JetBlue fell through in early 2024 after regulatory blocks, leaving Spirit Airlines in a precarious financial position.

Outlook: Analysts expect Spirit Airlines to emerge from bankruptcy as a smaller airline with fewer routes and reduced costs. A potential merger with Frontier could help it achieve scale and compete more effectively. The broader question remains whether the low-cost carrier model can survive in a market reshaped by post-pandemic realities.

1 Yr Share Price % CHG

Chart of Market Competitors: DAL = Delta Airlines, UAL = United Airlines, SAVEQ = Spirit Airlines 

Additional Information: Chapter 11 is a type of bankruptcy that involves the court-supervised restructuring of a debtor's assets and liabilities, commonly used by businesses. It is often referred to as "reorganization bankruptcy."

Deal of the Week: Amazon's investment in Anthropic

Amazon announced it will invest an additional $4 billion into Anthropic following two earlier investments. The artificial intelligence startup was founded by ex OpenAi executives and is seen as one of the top competitors to OpenAi’s dominance in the market. Amazon maintains a minority investment in Anthropic bringing its total investments to $8 billion.

Amazon Web Services is a leader in cloud computing and data centers. This investment will also lead to increased collaboration between the companies. With AWS becoming the primary cloud and training resource for Anthopics AI models. In addition AWS customers will gain greater access to Anthropics models and other products.

AWS is the fastest growing segment of Amazon and other similar competitors. AWS’s growth in cloud market share is seen as a major driver of growth for Amazon's stock. This $ 8 investment is its largest outside investment, and is significant to Amazon's strategy to continue to grow this business. 

Link to investment announcement: https://www.anthropic.com/news/anthropic-amazon-trainium

What To Look Out For This Week!

Thursday: U.S. stock market & federal agencies will close for the funeral of former U.S. President Jimmy Carter

Friday: U.S. jobs report, Earnings: Delta, Walgreens

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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