SB Cap Issue 8, 7/15/2024

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SB Capital
July 15, 2024

SB Capital Insights

7/15/2024

Good morning. Earnings season has officially begun. Major financial institutions will continue to release earnings this week. Powell reiterated in his testimony to Congress that he is not yet confident that the Fed has defeated inflation. If you were not tuned into the election before, it has become almost impossible not to be, due to an assassination attempt on Saturday which threatens the stability of the U.S. election process. 

Keep reading as we explain the postponed Tesla event that resulted in a single day share price fall of 9.17%, delve into bank earnings, and announce upcoming events to prepare you for the week.

Message to Our Readers

We are proud to be delivering newsletter #8 to you, our audience! Over the last two months we have spoken with readers, rolled up our sleeves, and utilized your feedback. We are proud of what we are producing and believe we have made significant progress on refining our work. 

We are eager to grow our readership and improve our work as we enter our second year of college. We would like to call on your support to share the newsletter with friends, colleagues, and anyone you think might be interested. We want to reach a larger audience as it is our mission to deliver insightful financial commentary and analysis that is accessible to all. As always, thank you for your support as we continue on this journey. 

Sincerely,

Ben and Zach

Markets 

  • Following the assignation attempt on Donald Trump the dollar rose (dollar spot index) and strong Bitcoin gains. The market priced in a higher chance Trump is reelected which would possibly bring higher tariffs and crypto support. 

  • Tesla shares fell 9.17% Thursday following announced delays to their robotaxi event. The event was pushed back from August 8th to October. This broke an 11 day winning streak for the stock. This indicates that Tesla shareholders are increasingly pricing in the future earnings that can be brought in from this new business segment. It is clear that Tesla has the technological capability to implement this revolutionary form of taxis. These technologies include the automated driving software and the ability to produce high quantities at competitive costs.

  • Jeff Bezos continued to sell shares of Amazon, as the stock price has risen to all time highs. Over the course of last week, Bezos sold 3,491,404 shares at a market value of $699 million. Since the beginning of July, Bezos has sold a total of $1.65 billion, which presents 2.5% of the total trading volume for the month so far. This brings the total sales for 2024 to $13.5 billion. Bezos has remained silent on the use of this capital, however speculations span beyond Blue Origin and diversification. Nonetheless, Bezos has a large amount of liquid capital that will be deployed in the near future!    

    • Jeff Bezos changed his residence from Seattle to Miami in November 2023. Washington State imposes a 7% tax on capital gains, while in Florida there is no such tax. This is one of the numerous value propositions Florida offers to ultra high net worth individuals. 

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Bank Earnings

  • Citigroup beat earning estimates for Q2. The rise in profit is attributed to cost-cutting measures and revenue growth. Revenue growth appeared in all divisions, with the highest growth in equity trading, investment banking, and securities business. Mark Mason, Citigroup’s CFO, is bullish in regard to their business transformation, addressing regulator concerns, and more. 

  • JPM beat revenue estimates by 9.94% for Q2. The bank put away more money to cover potential credit card losses. Interest rates remaining higher for longer continues to weigh on consumers, leading to higher levels of debt. Jamie Diamond still remains, “There are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world.”

Powell's testimony

  • Fed Chair Jerome Powell delivered his semi-annual testimony to Congress on the state of the U.S. economy. 

  • Rate cut - Powell reiterated that he is not yet confident to declare victory over inflation and will require “more good data” before making any rate cuts. This means he will need to see significant evidence that inflation is continuing to recede before cutting rates.

“The question is: are we sufficiently confident that it is moving sustainably down to 2%? And I’m not prepared to say that yet.” (Fed Chair)

  • Quantitative tightening - Powell stated that the Fed will continue to reduce its balance sheet by selling off the treasuries and MBS products it bought in the wake of the pandemic. Check out Issue #4 in which we delve into what this balance sheet reduction means for the economy.

  • Regulation - After a long battle between regulators and banks Powell announced that a new plan will have a significantly smaller increase in capital requirement than previously proposed. A victory to banks who seek to maximize the amount of capital they can lend. Higher capital requirements come in the wake of bank failures including SVB and First Republic. This proposed increase in regulation is part of basel three endgame which is meant to strengthen the balance sheets of the nation's largest banks in the wake of the financial crisis. Increased capital requirements would make lending more costly for banks and potentially lead to an increase in alternative sources for funding,  like private credit. 

“Banks will have to live with the changes for long time” (Fed Chair)

What to look out for this week

  • (Monday) BlackRock announces earnings - the world's largest asset manager has $10 trillion in AUM. An estimated 81% of its profits come from the fees it earns for managing client assets. BlackRock has a significant impact on the financial industry. For example it has promoted ESG investing, pioneered low cost ETFs, and under the direction of CEO Larry Fink it has strengthened U.S. retirement savings. It has experienced record inflows from investors deploying cash into its ETF products seeking access to record high markets. Investors will look to see if it has been able to grow its AUM, vital to increasing shareholder value.

  • A slew of major financial institutions will release earnings offering insight to the backbone of the U.S. financial system. Notable earnings include major banks: Goldman Sachs (Monday), Bank of America (Tuesday), and Morgan Stanley (Tuesday).

  • (Thursday) Republican National Convention, Milwaukee  - Trump is expected to be announced the Republican nominee for the November 2024 presidential election. After the July 13 assassination attempt on the former president, markets will continue to watch the election closely. A peaceful election is essential to the stability of the bond market. 

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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