SB Capital Insights

7/8/2024

Good morning. Markets will open once again at record highs. The U.S. election remains highly competitive. Proposed trade policy, uncertainty in leadership, declining faith in the independence of the Fed, and no concrete plans from either candidate to tackle rising deficits have led to increased volatility in the Treasury bond market. It is expected that yields will stay high through the election cycle. 

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Markets 

• Many interesting price movements occurred throughout the various financial markets this past week. 

  • Once again the U.S. stock market pushed all time highs, especially the Nasdaq posting strong gains. 

  • Short term U.S. Treasury yields fell, while at the same time long term yields increased in comparison to one year ago. It is important to keep in mind that the yield curve is still inverted, which is usually an indication of an upcoming recession. We believe the yield curve returning to normal is imminent and will be accelerated if the Fed decides to cut rates.  

  • Gold saw strong gains and is very close to once again reaching all time highs.

  • This past week Bitcoin had the largest pullback below the $60,000 price level since it crossed above back in February. Based on technical indicators a large pullback is likely based on historic price trends. 

• On July 2, Tesla posted a press release, which included production and delivery numbers for the second quarter and the date for their Q2 financial results. Since the low back in April, the stock has gained 71%. Last week alone saw 25% gains.

• Key notes from Tesla’s press release

  • Tesla produces and delivers a significantly higher quantity of the model 3/Y than all other models combined.

• Their production of electric vehicles has fallen for the second consecutive quarter, a response to the slowing global demand and competition from China’s largest EV company, BYD. 

• Tesla deployed 9.4 GWh of energy storage products in Q2, the highest quarterly deployment yet. This is the fastest growing segment of their business. It will be interesting to see the revenue brought in from this segment in their next 10-Q filing. 

• Tesla will post their Q2 financial results post-market July 23, followed by a Q&A. Stay tuned! 

Labour Party Victory 

Last Friday in a general election the Labour Party had a landslide victory in the UK. Keir Starmer, head of the Labor Party, will be the 4th new Prime Minister in five years, a clear sign of the discontent in the UK. His party is inheriting an economy in decline and a rapidly growing deficit. Most notably Britain suffers from a lack of investment. It's vital to rejuvenate the stagnant economy by incentivizing investment. More investment is key to greater taxable income in order to pay for public services. The Prime Minister is expected to take the role of a global leader more than his predecessors by appealing to the international stage. This will mean more involvement in global national security and increased consultation with business leaders. This push is meant to bring greater investment into the UK by making it more business friendly and by increasing the production of essential goods in the global supply chain.

Debt 

The G7 and significantly industrialized European nations are facing skyrocketing deficits. For now most of these nations (including the U.S.) have gotten away with sidelining this dilemma, but it can no longer be ignored in the UK. The government of the UK has had only 1.7% growth in real GDP compared to the U.S., which has had 8.7% growth since pre-pandemic levels. This lack of growth coupled with higher interest payments to service its debt means the UK’s deficit is becoming an increasingly large problem. As depicted in the graph below, the UK's deficit is already as large as the economy, meaning it has reached 100% of GDP. The U.S. for now seems to be in a stronger position but it too will not be able to ignore its deficit forever. Unfortunately, like the previous administration the Labour Party has not come up with any definite plans to tackle this problem. However we believe this is an important situation to monitor, as any potential remedy will be closely watched by other governments facing a similar issue. 

National debt as a percentage of GDP (Blue is projected growth)

Crypto looks to Trump 

Trump has not always been a backer of Bitcoin, however recent public statements show an opposite stance. At a campaign fundraising event in June it was said "He said he would be the crypto president" (tech executive Trevor Traina). This is an important issue for many young voters as “about half of young voters surveyed by Grayscale said they will consider a candidate's crypto position before voting.” 

Trump has expressed interest in the U.S. becoming a leader in crypto technology. This leaves it to voters to decide whether Trump's embrace of crypto is genuine.

A potential Trump presidency that is friendly towards crypto is making the so-called  “Trump trade,” which is a speculation that a BTC friendly incumbent president would result in a BTC rally.

What to look out for this week

• (Tuesday-Thursday) Powell testifies before the Joint Economic Committee. Markets will be tuned in as the Fed chair makes comments on the state of the economy and monetary policy. Powell will respond to a Q&A from the committee.

• (Thursday) Core CPI for the month of June will be released. The Fed alongside markets will be looking for data showing a continued slowdown in inflation. 

• Q2 earnings kick-off. JPM, Wells Fargo, and Citi Group are the nation's largest banks. They will report earnings on Friday. This will provide further insight into the state of the economy and how banks have adapted their business to a high-interest environment, notably bank deposits becoming increasingly competitive.

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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