1/13/2024

Good Morning.

Earning Season

U.S. investors have large expectations for this earning season. Valuations remain historically high. Elevated growth prospects under Trump and the pattern of earnings beating expectations in 2024 has set the bar high for 2025. Earnings will have to be impressive to satiate investors' appetite for growth. This year's first earnings will provide insight on how investors value companies and price in future growth.

Los Angeles Fires

The Palisades and Eaton fires have burned over 35,000 acres in the LA area. More than 10,000 structures have been destroyed. "These fast-moving, wind-driven infernos have created one of the costliest wildfire disasters in modern U.S. history." (Meteorologist Jonathan Porter) Damages are estimated to have already reached $135B. Insurance companies which cover the areas experiencing fires have suffered. JP Morgan estimates insured losses to be over $20B so far.

(Leading insurance companies affected)

Post election gains wiped out

A strong U.S. jobs report once again showed the inverse relationship between investors’ expectations for rate cuts and economic growth. Investors who placed major emphasis on rate cuts have reduced expectations from the Fed to cut rates after this strong indicator of economic growth. As a result the S&P 500 and Dow Jones have largely lost the gains experienced after the recent U.S. presidential election.

In today’s newsletter we will cover: 

• Markets

  • Friday’s Job Report Driving Equities and Yields

  • UK Yield Surge 

  • STOCK MOVERS: Delta Airlines (DAL), Walgreens Boots Alliance (WBA)

• Deal of the week: Blackstone’s $300M data center investment

• What to look out for this week

Markets 

Friday’s Job Report Driving Equities and Yields

The U.S. economy added 256,000 jobs in December, significantly surpassing Wall Street's estimate of 150,000, while the unemployment rate fell unexpectedly to 4.1%. Analysts had anticipated steady unemployment alongside moderate job growth, but the stronger than expected data heightens inflation concerns.

• According to the CME FedWatch Tool, the odds of a Fed pause this month now stand at 97%, with chances of a first-quarter rate cut dropping below 30%, down from 50% just a week ago.

• The 10-year Treasury note yield rose sharply to 4.78% following the release of the December jobs report, reaching its highest level since late 2023. Major stock indexes tumbled. 

UK Yield Surge 

Yields on the United Kingdom’s government debt surged to multi-decade highs amid concerns over elevated government borrowing and economic fragility. On Thursday, the yield on the 30-year gilt climbed to over 5.45%, its highest level since 1998, while the 10-year gilt yield rose to 4.92%, a peak not seen since 2008.

Stock Movers 

Delta Air Lines (DAL) surged nearly 8% in premarket trading after reporting earnings per share and revenue that exceeded Wall Street expectations. Delta noted that demand accelerated throughout the fourth quarter, highlighting robust consumer appetite for air travel.

Walgreens Boots Alliance (WBA) finished the week up 27% after reporting quarterly earnings and revenue that exceeded Wall Street expectations. The strong performance was driven by growth in both its international operations and U.S. retail pharmacy business.

Deal of the Week: Blackstone invests $300M in continued AI push

"Data centers are the digital highway systems of the 21st century." (Jonathan Gray, COO Blackstone)

Blackstone is placing a major bet on the AI revolution, investing heavily in the data centers, infrastructure, energy, and digital infrastructure necessary to roll out this technology. Blackstone has made large equity investments and has also provided large amounts of financing. It has labeled AI a mega trend that will require investments of trillions of dollars. According to an October report Blackstone has “over $70B worth of data center assets, with another $100B in our pipeline.” Blackstone has identified data as the bedrock of AI and has prioritized investments to support the increased demand for data usage.

Notable Investments

• $10B takeover of QTS, a data center operator (2021)

• $135M investment in Vectra, which uses AI to stop cyber attacks (2021)

• $16.1B acquisition of AirTrunk, an Australian data center operator (2024)

In its latest investment Blackstone is investing $300M in DDN, a company which enables users to organize and analyze the large amounts of data that have been created by the demand for AI. DDN’s products have been used in some of the largest data centers being developed. It supports over 500,000 NVIDIA GPUs, the leading computing technology used in data centers. Blackstone believes this company's technology is scalable and will be necessary for the “astronomical growth in data.” DDN now has a post money valuation of $5B.

What To Look Out For This Week

Bank/Financials Earnings

• Wednesday: JP Morgan Chase, Goldman Sachs, Wells Fargo, BlackRock, Citigroup, Bank of New York Mellon

• Thursday: Bank of America, Morgan Stanley, U.S. Bancorp

Wednesday: Consumer Price Index for December

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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