PHARMA

Drugmakers Enter an Era of Lower R&D Spending Amid Regulatory Pressures and Patent Cliffs

Code Red: Pharma budgets are bleeding, and there’s no immediate remedy in sight. After becoming one of the hottest trades during COVID, drugmakers now face one of the most challenging environments in nearly a decade. They’ve taken a page out of tech’s cost-cutting playbook, hoping to put themselves back on track after a wild ride.

Pharma pullback: Years of hefty research and development (R&D) investments have pharmaceutical companies pumping the brakes. Charles River Laboratories ($CRL), which helps companies develop new drugs, noted that large firms are scaling back on research spending — a move CEO James Foster called “unusual” and “sudden.” And this is just one part of the broader cust-cutting sweeping the industry.

• Over 14K biopharma jobs have been culled this year — mostly in sales and R&D, with firms prioritizing outsourcing and reducing management roles.

• Companies like Pfizer ($PFE) and Bristol-Myers Squibb ($BMY) are embracing cutbacks ahead of expected revenue declines later this decade.

These Cuts Are No Surprise To Pundits…

A perfect storm of changes, including new legislation, slowing sales, and an incoming patent cliff, forces companies to adapt. Many major drugs are about to lose their 20-year exclusive selling rights — opening up the market to generics and putting $200B+ of industry revenue at risk. Researchers have also warned that companies would cut R&D as the Inflation Reduction Act opens up drug price negotiations, potentially impacting earnings and innovation.

• Earlier this year, Bristol Myers warned that the IRA “will have a serious impact on future innovation for patients” after a judge tossed out their lawsuit challenging the price-cutting initiatives.

• However, the Foundation for Research on Equal Opportunity argues that profits from big pharma companies often don’t lead to new discoveries — instead claiming that smaller startups generate most new drugs.

Forward-looking: Pharma companies might scale back on expensive clinical research and drug trials for now, but they’ll eventually have to pay up to replace drugs that go generic. Analysts predict a surge in mergers and acquisitions as major drugmakers use their cash reserves to buy promising new treatments, particularly in areas like cancer. Others, like Amgen ($AMGN) and Eli Lilly ($LLY), are pouring more funds into weight-loss drugs. Even Big Pharma isn’t immune to chasing shiny new objects.

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LARGECAP RECAP

📺 Warner Bros. Discovery Faces More Trouble After $10B Quarterly Loss

No, this isn’t “Midsommar” or “Sinister” — it’s just another nightmare quarter for entertainment titan Warner Bros. Discovery ($WBD). And this time, the HBO parent company had analysts and investors running scared. Amid an increase in cable cutting and falling ratings, WBD took a $9.1B impairment on its cable business — representing the lion’s share of the company’s $9.98B quarterly loss.

• The damage comes after a review of its cable portfolio — including CNN, Food Network, and HGTV, among others — revealed diminishing value.

• Making matters worse, the company’s failure to secure renewals for its TNT channel in the NBA’s new media rights deal has created even more disruption in its portfolio.

Shareholder value destroyer: CEO David Zaslav acknowledged that the media landscape has changed significantly since the WarnerMedia and Discovery merger in 2022, valued at $43B. Today, the whole company is worth less than half of that — with its stock down 90% from its peak to an all-time low. As a result, the company has told investors that it might consider strategic alternatives. CFO Gunnar Wiedenfels stated on the quarterly earnings call, “You shouldn’t be surprised to see us engaging in partnership discussions.”

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Markets & Economy

Labor market shows resilience: Weekly jobless claims fell to 233K, below expectations, easing concerns about a weakening job market. However, continuing unemployment claims rose to 1.9M, the highest since Nov. 2021. The overall upbeat report sparked a futures rally. [Read]

Coca-Cola faces $6B tax bill: A US court ruled Coca-Cola ($KO) owes $6B to the IRS over profit shifting to overseas subsidiaries. The beverage giant plans to appeal, arguing that the IRS and the tax court misinterpreted regulations. [Read]

Mortgage rates hit 15-month low: The average 30-year fixed rate dropped to 6.47%, potentially reviving the sluggish housing market and easing the homebuyer burden. However, high home prices and low inventory continue to challenge affordability. [Read]

Business & Wealth

Bumble swipes left on near-term growth: Dating app Bumble ($BMBL) announced a strategic reset to improve customer experience and monetization, even if it means short-term losses. While Q2 revenue grew 3% annually, niche dating apps are gaining ground. [Read]

Ken Griffin bets big against cannabis: Hedge fund billionaire Ken Griffin is contributing $20M to oppose Florida’s Amendment 3, which would legalize recreational cannabis. Griffin argues it would create a monopoly for large dispensaries, plus increase crime and addiction. [Read]

Costco tightens membership rules: Costco ($COST) is introducing membership scanners at store entrances nationwide to crack down on card sharing. The bulk retailer is also raising membership fees by $5 and $10 for standard and executive memberships, marking the first increase in seven years. [Read]

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DIGIT OF THE DAY

Homeowners Who Invested in Clean Energy Upgrades Received $8.4B in Tax Credits from the IRS in 2023

Going green saves both the planet and your wallet, thanks to Uncle Sam’s tax credits. Last year, Americans claimed $8.4B in tax breaks for clean energy upgrades — surpassing government projections for their first full year. This increase in claims comes after the Inflation Reduction Act, signed by President Joe Biden in 2022, extended these credits for ten years and increased their value.

• Over 3.4M US households took advantage, receiving an average of ~$5.1K for residential clean energy and $882 for energy-efficient home improvements.

• The states with the highest claims included California, Florida, and New York, where popular upgrades included solar panels, heat pumps, and energy-efficient water heaters.

Tax privilege: Despite the popularity of these credits, only 2.5% of taxpayers utilized them in 2023. Additionally, 66% of the total tax credits disproportionately benefited those with higher incomes. AnnDyl Policy Group’s Saul-Rinaldi noted this imbalance is largely due to their nonrefundable nature. And to benefit from tax credits, you need to owe taxes — so higher earners with bigger tax bills reap more rewards.

DELIVERY APPS

Delivery Apps Are Defying a Global Consumer Slowdown With Record Revenue And Transaction Growth

Food at your door and money out the window — that’s how it feels to order in. But delivery apps are making bank while your wallet takes a hit. Since the launch of leading delivery platforms like Instacart ($CART), DoorDash ($DASH), and Uber Eats ($UBER), the longstanding question among investors has been whether these companies could serve up profits. Despite $20B+ in operating losses, they’re now changing their diets from red meat to greens.

HOT TO GO: Even with tighter budgets, Americans are still finding room to fund grocery and restaurant delivery. Last quarter, DoorDash, Uber, and Instacart reported record levels of orders and revenue, beating the slowdown in restaurant traffic and consumer confidence. Uber’s CEO said that the demand for food delivery is becoming “much more habitual,” while DoorDash described demand as “really strong.” Transaction volume grew 19% at DoorDash, 10% at Instacart, and 16% at Uber, with revenue also posting double-digit gains. Part of this growth is due to a focus on higher-margin advertising products.

• Earlier this year, Instacart cut 7% of its workforce to concentrate on more profitable areas like digital advertising and enterprise software, which now make up ~30% of its revenue and are expanding faster than its core delivery business.

• Instacart also launched AI-powered shopping carts in US Aldi stores, one of the world’s fastest-growing discount grocers.

Fewer Deliveries, More Fees

This growth comes despite new fees levied on customers to offset higher courier compensation. In California, New York City, and Seattle, new rules forced delivery platforms to pay gig workers more — but the apps have found ways to push back.

• Big players in food delivery have added new surcharges that resulted in NYC consumers paying 58% more in delivery fees after the rules took effect — while delivery volumes fell 9% in the first quarter from the previous year.

• To mitigate rising labor costs, delivery and rideshare apps are battling to keep their workers classified as independent contractors.

Forward-looking: Their recent quarterly performance shows delivery apps have come out on top. DoorDash, the largest US food delivery service, reported a less than 1% dip in orders due to new minimum pay rules. And like many other industries, delivery apps are facing a tough consumer market. Given the expensive changes, budget-conscious consumers might soon say, “Forget the fees. I’ll pick it up myself.”

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LARGECAP RECAP

🧳 Airbnb Faces Booking Blues as Travel Industry Hits a Rough Patch

The thrill of exploring is fading among Americans, chilling the air around Airbnb’s ($ABNB) bookings. Despite summer traditionally being a peak season, Airbnb only recorded an 8.7% increase in bookings in Q2, its slowest growth since the pandemic, leading to a 13% drop in its stock price yesterday.

• CEO Brian Chesky attributed the slowdown to shorter global booking times and weaker demand from US customers.

• Nonetheless, the company noted “continued growth across all regions” year-over-year, with strong performances in Latin America and Asia Pacific (CNBC).

Grounded expectations: This trend isn’t unique to Airbnb; the travel slump is hitting the entire industry. Last week, Booking Holdings ($BKNG) reported similar struggles, blaming slower European travel and a shift toward budget-friendly stays by Americans. Marriott International ($MAR) also noted operational challenges in China and revised its expectations for the US and Canada. It looks like the only checks these travel giants will be getting this year are rain checks.

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Markets & Economy

Saudi Aramco maintains dividend: Despite a slight Q2 profit dip to $29B, the global oil behemoth plans to pay $31B in dividends, highlighting resilience amid market cycles and anticipating oil demand growth in the second half of 2024. [Read]

Wall Street bets on aggressive rate cuts: Major banks expect earlier, frequent Fed rate cuts in 2024 following weak jobs data. Bank of America suggests to “sell the first rate cut” due to historical stock declines during hard-landing cuts. [Read]

Disney’s streaming profits soar: Disney ($DIS) reported its first quarterly streaming profit of $47M, one quarter ahead of schedule. With 100M+ subscribers, the company plans price hikes, showing strong pricing power. [Read]

Business & Wealth

Google discontinues Chromecast line: Ending its 10-year run, Google confirmed it will stop producing Chromecast devices and focus on its new Google TV platform and third-party devices. [Read]

Real wage growth varies by income group: The top 10% of earners saw 46.2% wage growth since 1979, while the bottom 10% saw 17%. Middle-income groups fared about the same, with 17.4% wage growth. [Read]

X sues over ad boycott: Elon Musk’s X (formerly Twitter) filed a lawsuit against media watchdog GARM and select members like CVS, Unilever, and Mars, seeking damages and aiming to stop GARM’s advertising recommendations on X. [Read]

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DIGIT OF THE DAY

9.1% of Credit Card Balances Have Slipped Into Delinquency Over the Past Year, Highest Since 2011

Delinquencies are up, and spoiler alert: it’s not because people are buying more lattes. The pandemic triggered a surge in new and existing debts, with spending spiking after stay-at-home restrictions ended. Now, with post-pandemic spending fading and essential costs climbing, many are relying on credit for daily expenses. As a result, Americans are falling behind on credit card payments at levels not seen since the aftermath of the 2008 recession.

• US credit card debt has reached a new peak at $1.14T, with 7.18% of these balances overdue by more than 90 days — the highest rate in 13 years.

• PYMNTS Intelligence found that across generations, 23% of Gen X are focusing on reducing their debt, followed by 22% of baby boomers and 20% of millennials.

Savings squeeze: Overall delinquency rates are steady at 3.2%, but this rise suggests potential troubles are brewing with consumer debt. Despite consumer spending bolstering recovery post-pandemic, Americans’ savings dropped to 3.4% of after-tax income in June, down from 4.8% a year earlier. However, while Americans have been tightening their belts, economist Mark Vitner remains optimistic, stating to MarketWatch, “There are a few cracks there… (but) from an overall basis, consumers look to be in pretty good shape.”

RETIREMENT

Golden Years Go Gray as Retirement Age Keeps Climbing

Hope you like your job, ‘cause you might be doing it for a long, long time. Countries worldwide are considering raising their retirement ages as people live longer and birth rates decline. This shift creates an imbalance in the global economy, with more retirees and fewer workers to support pension systems, stressing healthcare systems and national budgets. While these changes might make sense on paper, not everyone agrees.

The age-old problem: Last year, French President Emmanuel Macron raised France’s retirement age from 62 to 64, sparking significant public outcry and street protests. Following this, other countries have started to increase their retirement ages as well. In China, where many workers have traditionally retired between 50 to 60, the government announced plans to bump the retirement age due to a workforce shortage and declining birth rates. And most dramatically, a think tank is recommending the UK government consider altering the pension age to 75 to boost retirement savings. These changes are causing widespread discontent among younger citizens on social media, who are concerned about longer working years and poor job prospects.

• Gao Lingyun from the Institute of World Economics and Politics supports delaying retirement, stating, “It can increase the accumulation of social welfare and alleviate labor shortages due to population aging.”

• On the other hand, the National Pensioners Convention’s Jan Shortt criticizes this idea saying, “Making those already living with ill health wait even longer to claim their pension will only increase poverty and the demand on already-creaking services.”

Raising The (Retirement) Bar

In the US, the retirement age is currently 67, but some politicians suggest changing it to 70. By 2035, retirees might face a 17% reduction in full benefits due to concerns about Social Security shortfalls. As baby boomers reach their retirement years, many are working into their 70s because of growing living costs and the diminishing presence of workplace pensions. Last year, 20% of Americans over 65 were still working, nearly double the number from 35 years ago.

• If the retirement age goes up, nearly three-quarters of Americans could see their benefits cut — potentially leaving low- and moderate-income workers financially vulnerable when they retire.

• Proposed changes could result in a 14.3% reduction in benefits, costing median wage retirees up to $99K over ten years — or as much as 54% of their total account balance, depending on their age.

Pension tension: Social Security is the primary income source for 60% of US retirees, yet only 34% of future retirees believe it will be sufficient. While raising Social Security’s retirement age aims to reduce the long-term deficit, lowering it doesn’t seem feasible for supporting US seniors. Psychiatrist Gary Small suggests that raising the retirement age might help people maintain daily routines and potentially reduce the risk of cognitive decline.

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LARGECAP RECAP

📉 JPMorgan Analysts See “Buy the Dip” Opportunity After Global Stock Slump

Even before yesterday’s tumble in global stocks, triggered by the Bank of Japan’s rate hike and US unemployment numbers, the tech-heavy Nasdaq-100 and growth-flavored Russell 2000 indexes were struggling, each down ~10% over the past seven trading days. But JPMorgan analysts suggest that the cloudy days might finally be coming to a head, hinting that a “buy the dip” opportunity could be on the horizon.

• JPMorgan analysts believe that the rotation out of tech stocks is “mostly done,” but they caution investors to be careful, noting that economic data will be a factor in determining whether markets will recover.

• The company said the outcome of upcoming economic readouts like inflation and manufacturing could offer investors the opportunity to buy at acceptable valuations and prices.

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Markets & Economy

Uber accelerates past Q2 with earnings beat: Uber ($UBER) reported impressive second-quarter results, growing revenue by 16% from last year and surpassing analyst earnings estimates by ~52%. Revenue hit $10.7B, with 156M monthly active users. [Read]

Celsius energizes with earnings surprise: Celsius Holdings ($CELH) shares climbed after reporting Q2 earnings, exceeding expectations by ~17%. Revenue reached $402M, up 23% year-over-year, showing strong gains in the energy drink sector. [Read]

Crypto ETFs face first major test: Bitcoin and Ether ETFs experienced their first significant market challenge as the crypto market erased $370B in 24 hours. Despite the volatility, most ETF investors held firm, with spot Bitcoin ETFs seeing minimal outflows and Ether ETFs recording net inflows. [Read]

Business & Wealth

OpenAI co-founder joins rival Anthropic: John Schulman, a pivotal figure in ChatGPT’s development, left OpenAI for competitor Anthropic to focus on AI alignment research. His departure leaves only three of OpenAI’s original 11 founders at the company amid reports of other high-profile exits. [Read]

Prison healthcare hindered by small co-pays: A new study shows that small co-payments for medical care in prisons drastically reduce inmates’ healthcare visits. This practice, implemented in up to 90% of US prisons, raises concerns about worsening health outcomes among the incarcerated. [Read]

Movie-going evolves post-pandemic: The film industry is adapting to changing viewer habits, with theaters focusing on premium experiences. While overall attendance remains lower, recent successes like “Deadpool & Wolverine” and “Inside Out 2” show audiences still value theatrical experiences. [Read]

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DIGIT OF THE DAY

VIX Sees Third Major Spike in History Following Bank of Japan’s Unexpected Rate Hike

Sometimes, the market can make things seem worse than they are — and that’s exactly what happened with the VIX this week. Often called “Wall Street’s fear gauge,” the CBOE Volatility Index (VIX) measures volatility in S&P 500 options, offering early clues about investor sentiment. Historically, it has served as a barometer for rocky times in the market and spiked during major disruptions like the 2008 Financial Crisis and the 2020 COVID-19 crash. This week, it added a third notable event: the Bank of Japan’s surprise interest rate hike.

• On Monday, the VIX surged by 42 points, marking its largest single-day increase since 1990.

• Many traders had expected the market to stay calm, so when it began to fall, they had to quickly adjust their bets, which exacerbated the declines.

The VIX fix: Despite this escalation, global markets quickly showed signs of resilience. Although a rising VIX typically signals heightened uncertainty, this recent jump was triggered by global market downturns, prompting investors to buy options for protection against short-term drops. The swift recoveries of the Japan Nikkei 225, Nasdaq, and S&P 500 the following day suggest that the VIX’s burst reflected traders’ reactions to unexpected news rather than a fundamental decline in market health.

PORTFOLIO STRATEGY

This Year’s Hot Trades Are Cooling Down Due to Slowing US Growth and the Bank of Japan

Global markets just discovered what Teahupo’o surfers have always known: even the most exhilarating ride can end in an unforgiving crash. After months of gains, a shake-up was inevitable to rouse the bulls from their stupor. The signs were clear, with the Cboe Volatility Index ($VIX) surging over 40% on Friday. And now, investors are seeing what insiders had been preparing for.

Market breakdown: The Bank of Japan’s 0.25% interest rate hike disrupted one of the year’s most popular trades — the carry trade. Sophisticated investors have borrowed Japanese Yen at near-zero interest rates and invested in higher-yield assets, profiting from the asset’s decline. As a result, Asian countries had some of the bleakest showings they’ve seen in years — with Japan booking its worst trading day since 1987 and South Korea’s KOSPI exchange briefly halting trades. The impact was global, affecting risk assets from stocks to crypto.

• The Vanguard Total World Stock Index Fund ETF ($VT) fell 2.5% yesterday, led lower after global stocks followed the overseas downturn.

• Crypto markets had their worst day since 2022, with over $500B lost in market cap over the weekend. Bitcoin and Ethereum dropped below $50K and $2.4K, respectively.

Going Out of Style

The carry trade is hardly the only trade attracting scrutiny. In the US, an unexpected increase in unemployment has stoked fears about slowing US growth, leading investors to pull back from some of 2023’s most crowded trades — including Big Tech names, semiconductors, and growth stocks.

• After earnings from Magnificent Seven darlings such as Nvidia ($NVDA) and Tesla ($TSLA) failed to impress, the tech-heavy Nasdaq-100’s fell within earshot of correction territory on Monday.

• The growth-focused Russell 2000 ($IWM) lost most of its year-to-date gains, and the red-hot VanEck Semiconductor ETF ($SMH) decreased 11% week-over-week.

Did the Fed wait too long? Stocks originally rallied on optimism that the Federal Reserve would begin cutting interest rates before things went awry. Now, Fed officials are clarifying that if economic troubles emerge, they will step in to “fix it.” This has drummed up a discourse about whether the Fed waited too long to end its generational rate hike cycle and start reducing rates.

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LARGECAP RECAP

📒 Accountant Shortage Wreaks Havoc On Publicly-Traded Companies, Threatens Financial Statements and CFO Stability

Think getting your taxes done is a headache? Ask a CFO how they feel. Over 300K accountants and auditors have retired or left their jobs in the past two years, leading to a 17% decline in industry employment in the US. This shortage is impacting the quality of publicly-traded companies’ earnings reports.

• In 2023, 720 businesses cited insufficient accounting staff as a factor in errors, a 30% jump from 2019.

• According to the WSJ, these kinds of deficiencies generally increase the odds that a company’s CFO is replaced — which means turnover in this critical position could become more common.

=SUM(ERROR): Businesses and accounting firms can’t fill open jobs fast enough, as fewer college students enter accounting careers due to long hours and poor pay. Since the 2008 Financial Crisis, new grads in accounting have faced stagnant salaries despite rising education costs. To address these issues, trade groups such as the National Pipeline Advisory Group have proposed alternative certification options for the Certified Public Accountant (CPA) license, but no changes have been made yet. This means investors may have to endure accounting uncertainty for the foreseeable future.

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Markets & Economy

Buffett slashes Apple stake: Berkshire Hathaway cut its Apple position by nearly half in Q2, now holding $84B. Wall Street analysts suggest not overreacting, emphasizing Apple’s concrete fundamentals and growth prospects. [Read]

Cloud leaders ramp up AI infrastructure: Big Tech is rapidly expanding its AI cloud infrastructure to meet surging demand. The companies are investing heavily in GPUs from Nvidia and AMD ($AMD), with global AI infrastructure spending projected to hit $1T by 2028. [Read]

Medicare scrutinizes home health visits: The Centers for Medicare and Medicaid Services is investigating potential abuse of a program that pays insurers extra for diagnosing health conditions during home visits. The agency spent an estimated $15B on the program from 2019 to 2021 and wants to curb inflated payments. [Read]

Business & Wealth

Google loses antitrust case: In a landmark win, Judge Amit Mehta ruled that “Google is a monopolist, and it has acted as one to maintain its monopoly.” Here’s what comes next for the search giant… [Read]

Student credit cards face stricter rules: The Consumer Financial Protection Bureau proposes tighter regulations for issuing credit cards to those under 21, requiring proof of independent income or assets to prevent excessive debt. [Read]

Snoop Dogg boosts Olympics viewership: The rapper’s involvement in Paris Olympics coverage has significantly increased audience engagement. Viewership is up 79% compared to Tokyo, with the opening ceremony attracting ~29M viewers. Snoop’s unique commentary has gone viral on social media. [Read]

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DIGIT OF THE DAY

Shoplifting Surges 24% as More Americans Struggle with Rising Costs

Forget cardboard boxes and cocoa — shoplifting has become the real recession indicator. Despite a general decline in crime rates, the Council on Criminal Justice has reported a 24% increase in shoplifting incidents during the first half of 2024. According to Matt Schulz from LendingTree, “Lots of people are struggling in the face of still-rising prices, and they’re going to somewhat desperate measures to help them get by.”

• Since 2022, financial insecurity among Americans has amplified by 6.7%, affecting 36.4% of households that struggle to afford essentials like food, housing, and healthcare.

• Of those facing economic hardship, 34% of shoplifters admitted to stealing due to high prices — while 30% did so to meet basic needs and 27% to save money.

Shop small, shoplift big: Shoplifters are increasingly targeting chain stores over small businesses. As a result, US retailers like CVS and Target are enhancing security by locking up everyday items, while stores such as TJ Maxx are equipping staff with body cameras. This is frustrating customers, leading to a drop in store sales, and pushing more people towards online shopping. Kevin Thompson from Capital Group warned Newsweek, “If this trend continues, prices will likely go much higher as retailers adjust pricing to offset losses.”

MANUFACTURING

Record US Manufacturing Spending Struggles To Translate Into Jobs — New Data Signals Worsening Trend

Quality control has become damage control for the once-booming US manufacturing sector. Despite a record $19.7B invested into US manufacturing facilities in June — an 18.6% increase from last year and nearly 100% from June 2022 — job growth has been minimal, and the problem has recently intensified.

Factories collecting dust: In July, the manufacturing sector contracted for the fourth consecutive month, with a steeper decline than in previous months. Data from the Commerce Department’s Census Bureau released last Friday showed factory orders fell 3.3% in June, exceeding economists’ forecasts.

• Companies are feeling the squeeze from elevated interest rates, rising costs, weak demand, and a strong dollar — while uncertainty ahead of the presidential election is also delaying major investments.

• According to Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee, interest rate uncertainty is the “most significant factor” holding companies back — stating, “We are entering into a deeper slowdown period as demand remains elusive.”

The Manufacturing Boom That Wasn’t

No matter where you look, manufacturers are struggling with tough market conditions. Deere & Co. ($DE), the world’s largest farm equipment maker, has cut 15% of its hourly workforce since November. Appliances manufacturer Whirlpool ($WHR) cited a soft housing market for weak demand — while recreational vehicle maker Polaris ($PII) reported a 49% drop in quarterly income.

• Earlier this year, Rivian ($RIVN) paused the construction of its $5B Georgia plant over slowing electric vehicle (EV) sales — while Ford ($F) and General Motors ($GM) have also pulled back on their EV investments.

• TSMC ($TSM) also delayed plans for its Arizona chip facility, part of a $40B investment — which followed Samsung’s decision to push back the timeline on its $17B chip plant in Texas in December.

And the jobs that didn’t follow: US manufacturing spending soared to record levels in recent years, rising 63% in 2023, the most significant increase over 70 years. Despite this record spending, the manufacturing sector added only a net 23K jobs between Jan. 2023 and Jan. 2024. And those numbers have worsened in recent months, with US manufacturing job openings falling by 100K in June compared to the previous month.

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LARGECAP RECAP

🍝 DoorDash’s Strong Gains Shine Despite Restaurant Industry Slowdown

Knock, knock. Who’s there? It’s DoorDash ($DASH) delivering your favorite meals along with another quarter of solid results, which sent its stock up 8% last Friday. Revenue jumped 23% to $2.63B, with a net loss of $157M, while total orders surged 19%. Barclay’s Ross Sandler remarked that the food delivery leader “continues to defy gravity with its execution and consistency amid a challenging end market.”

• DoorDash’s stock has risen nearly 20% this year, even as consumer spending and restaurant traffic have slowed, with the latter falling 2.6% in the first half of the year.

• CEO Tony Xu noted that while restaurants are facing “headwinds in traffic, their digital channels are growing very robustly — many multiples of their overall growth.”

Dashing out the competition: The food delivery app, which commanded a 67% market share of US meal delivery sales in March, is venturing into new areas like groceries, beauty, and home improvement by partnering with well-known brands such as Ulta Beauty and Michaels. This expansion has led to more frequent orders and threatens traditional shippers like UPS and FedEx, as customers increasingly choose DoorDash’s quick and direct deliveries to order a growing range of retail items.

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Markets & Economy

Buffett trims more Bank of America: Berkshire Hathaway ($BRK.A) has now sold $3.8B worth of Bank of America ($BAC) shares, reducing its stake to ~12%. It remains the primary shareholder, with this stock being its third-largest holding behind Apple ($AAPL) and American Express ($AXP). [Read]

Big Tech’s AI spending spree benefits Nvidia: Amazon ($AMZN), Google ($GOOG), Microsoft ($MSFT), and Meta ($META) reported massive jumps in AI spending, boosting Nvidia, while Intel struggles to keep up. [Read]

Homeownership costs dampen mobility: Rising property taxes and insurance costs are curbing relocations. Bank of America data shows a 4% annual drop in cross-city moves for Q2 2024, with Gen Z and lower-income households now making up a larger share of movers, affecting household spending. [Read]

Business & Wealth

Nvidia faces antitrust scrutiny: Shares of Nvidia fell following reports of a US Department of Justice antitrust probe into the chipmaker’s AI dominance. The investigation focuses on Nvidia’s GPU market position, which is crucial for AI development and potentially impacts its rapid growth in the sector. [Read]

Morgan Stanley allows advisors to pitch Bitcoin ETFs: Starting Aug. 7, the firm’s ~15K financial advisors can offer Bitcoin ETFs to qualified clients, marking a pioneering move toward mainstream acceptance of cryptocurrency investments. [Read]

DraftKings to tax winning bets in high-tax states: The sports betting titan ($DKNG) will impose a surcharge on winning bets in states with tax rates over 20%, aiming to boost profitability as it reports its first profitable quarter since going public. [Read]

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DIGIT OF THE DAY

US Unemployment Rate Rises To 4.3% for First Time Since October 2021, Bringing Back Recession Fears

The latest economic report card is in, and it’s not making the honor roll this time. Contrary to expectations, the US added just 114K jobs, the slowest since the pandemic rebound. The unemployment rate increased to 4.3% as more people entered the job market, but not due to a rise in job losses. This rate is already above the 4% the Fed anticipated by the end of 2024.

• Job growth was concentrated in education and health services (+55K), and construction (+25K) — while the information sector saw a decline (-20K).

• The number of part-time workers rose to 4.57M, the highest since June 2021, and long-term unemployment reached 1.54M, the most since Feb. 2022.

Hard landing zone ahead: The surge in unemployment could trigger the Sahm Rule, a reliable indicator of an impending recession. This data supports the possibility of a September rate cut — which KPMG Chief Economist Diane Swonk says would take “a major reversal in the inflation data to take September off the table.” LPL Financial’s Jeffrey Roach notes, “The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession. However, early warning signs suggest further weakness” (CNBC).

ARTIFICIAL INTELLIGENCE

Late-Blooming AI Stocks Attract Major Investor Interest After Market Shuns AI Leaders

Big Tech may have had an early lead, but it’s the underdogs showing that “slow and steady wins the (AI) race.” The Magnificent Seven stocks, which led the market on a manic AI-fueled rally since October, are now losing momentum. Investors are turning to smaller names, believing they might be due for a rebound.

Shifting gears: Analysts are moving away from “over-owned” AI picks like Nvidia ($NVDA), Super Micro ($SMCI), and Arm ($ARM) — and leaning into “overlooked” stocks. In the past month, the three stocks are down 10%, 15%, and 22%, respectively — but late-blooming AI stocks such as IBM ($IBM) and Innodata ($INOD) have gained 9% and 21%, respectively. This trend is driven by a search for value and bargains in these challenger stocks, which may offer lower valuations and greater upside.

• Baird’s Ted Mortonson noted, “The obvious AI stocks have doubled over the past year and are facing slower growth from here.”

• Market conditions, including slowing earnings growth among tech megacaps and high valuations, are supporting this rotation and making once-favored AI stocks like Nvidia less attractive.

Nvidia’s Reign Shows Signs of Cracking

Even with Nvidia’s strong position, many companies are challenging its market share in AI — eager to capitalize on the surging demand for computing power. Competitors range from startups like D-Matrix to established players like AMD ($AMD), which plans to release its new AI chip, the MI325X accelerator, in the fourth quarter. With the AI market potentially reaching $400B in annual sales within five years, Nvidia CEO Jensen Huang is “worried and concerned” about the organization maintaining its dominant position.

• Major tech corporations like Google ($GOOG), Microsoft ($MSFT), and Amazon ($AMZN) are crafting their own AI processors to reduce dependence on external suppliers like Nvidia.

• AMD is also boosting its AI investments, with a 115% increase in its data center revenue, positioning itself as a strong competitor to Nvidia.

The AI slow dance: Despite a 293% surge in AI investment last year, enthusiasm for the sector is waning. Skyflow’s Anshu Sharma suggests that startups like OpenAI and Anthropic may struggle to keep pace as they lack the spending power of giants like Microsoft and Google. While companies like Nvidia are seeing high revenues from AI chips, the widespread adoption of AI in various industries remains slow.

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LARGECAP RECAP

💸 Carvana’s Shares Have Risen Over 3,000% Since End of 2022, CEO Expects Another Strong Year

Does your past define your future? Carvana ($CVNA) has proven it doesn’t have to. Two years ago, the debt-ridden used car retailer was battling bankruptcy rumors that sent its stock down 99% at one point. Despite that, the company made a remarkable comeback — with $CVNA soaring over 3,000% since Dec. 2022, thanks to significant improvements in its financial health.

• Yesterday, Carvana reported second-quarter earnings, with revenue surging 11.4% from the previous quarter to $3.41B, while retail vehicle sales jumped 32.5%.

• Following this strong performance, Wells Fargo upgraded Carvana’s price target from $77 to $175 and expressed optimism about future prospects, including easing balance sheet concerns, long-term share gains, and better financials.

Carvana’s victory drive: Carvana has significantly outperformed competitor Vroom ($VRM), which has dropped 95% in the past year — even in a tough auto market where manufacturers are facing an affordability crisis. But Carvana’s secret to success involved cutting $1.1B in costs and defying expectations that the organization was going bankrupt. And the risk taken by those who bought $CVNA at rock-bottom prices has paid off. For those who didn’t invest then, the future wasn’t clear at the time, and the investment could have easily went to zero.

Markets & Economy

Trump allies target young male voters: A $20M campaign aims to sway young men through social media and podcasts, focusing on masculinity and economic opportunity. The effort, led by conservative groups, seeks to expand Trump’s base for the 2024 election. [Read]

DOT cracks down on airline family seating fees: The Department of Transportation proposes new rules requiring airlines to revoke “junk fees” for seating families with children under 13 together, potentially saving families hundreds of dollars. [Read]

Biogen beat earnings thanks to Alzheimer’s drug: Biogen ($BIIB) surpassed Q2 earnings expectations by 31%, partly due to its new Alzheimer’s drug, Leqembi. The business raised its full-year outlook, citing cost savings and strong new product performance. [Read]

Business & Wealth

Reddit blocks unpaid search engine access: Following Google’s $60M deal, Reddit now requires commercial agreements for search engines to access its content. The CEO cites data protection concerns, clamping down on web crawlers used to train Bing, Perplexity, and Anthropic. [Read]

ChatGPT unveils advanced voice capabilities: OpenAI has revealed ChatGPT’s new voice mode, featuring improved accents, multilingual support, and sound effects. The update strives to enhance natural conversations and accessibility. [Read]

Tesla’s self-driving ambitions hit roadblocks: Tesla’s ($TSLA) Full Self-Driving technology faces scrutiny after a fatal accident and an analyst’s near-crash experience. The company delayed its robotaxi launch, leading to a 10% stock drop. Musk remains hopeful despite safety concerns. [Read]

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DIGIT OF THE DAY

Bear and Bull Survey: 60.5% of Investors Are Bullish Going Into August

Our latest monthly bear and bull survey shows that 60.5% of respondents are still optimistic about the market going into August, though this is down slightly from 66% last month. The S&P 500 has risen in nine of the past 12 months as well as nine of the past 10 months — surpassing $5.5K in July. Will August end this streak? It depends. Nvidia ($NVDA), which makes up nearly a third of the S&P 500, has the power to either boost or drag down the market. But it’s not just Nvidia at play — tech companies struggling to produce results from their massive AI investments or a cooling economy could also sway the market’s direction.

• The tech-heavy Nasdaq-100 has fallen nearly 10% since Jul. 10 — driven by wild swings from Nvidia this week and a shift from Big Tech to smaller stocks, with the Russell 2000 up 6% in the same period.

• The US unemployment rate is steadily rising, restaurants and consumer goods companies are reporting weak consumer spending, and now, manufacturing is also showing signs of slowing.

Rate-cut revival: If anything can keep the rally going, it’s a rate cut… or three. After this week’s Fed meeting, where Jerome Powell mentioned a “rate cut could be on the table” for September, bond traders have priced in three rate cuts of 0.25 percentage points each in the remaining Fed meetings this year. Still, some remain cautious. Bloomberg reports that Bank of America’s Savita Subramanian believes the S&P 500 has peaked this year after a nearly 15% hike — but says “a full-fledged bear market is unlikely.”

STARBUCKS

Starbucks’ Banner Years of Growth Are In Trouble As Weaker Consumers Push Back on Higher Prices, Long Waits, and Political Controversy

You can mix and match milk, syrups, and additions galore — but no amount of special orders seems to help Starbucks ($SBUX) with its Trenta-sized cup of problems. The coffee giant is facing a series of challenges after years of banner growth, managing over 38K global stores, including thousands in international markets like China.

Sound of the Siren: Starbucks’ reputation has waned among its affluent consumer base over the past two years. First, due to its controversial anti-union stance — and later, because of its employees’ views on the war in the Middle East. But the biggest issue is on its menu. Repeated price hikes have pushed many customers away, creating a “nightmare” situation for the world’s most valuable coffee company.

• With customers cutting back, Starbucks has now reported two consecutive quarters of sales declines — down 3% year-over-year in its latest earnings report.

• Along with slowing revenue, the company has had to beef up wages and offer deals to boost demand — leading to a 7.5% drop in profit for the quarter.

Serving Investors a Cold Brew

In tough times, Starbucks could once rely on CEO Howard Schultz, who led the company on three separate occasions. However, Starbucks’ latest serving of economic angst comes at a trying time for the brand, which will now rely on a new face to fix the company’s issues — CEO Laxman Narasimhan.

• Narasimhan, who took over in Mar. 2023, says the company is “making real progress” despite a “complex” consumer environment.

• Service speed and quality improvements, especially for mobile pickups and drive-thru orders, are underway to address customer complaints.

Cloudy With a Chance of Profits: Starbucks is hardly the only brand struggling with customer pushback over higher prices. McDonald’s ($MCD) and Yum Brands ($YUM) have also seen declining sales this earnings season, and all three brands are offering discounts to bring back customers. However, Starbucks’ recent missteps have put Narasimhan — a former PepsiCo exec — in the hot seat. With criticism from an increasingly skeptical activist investor, Elliott, and former CEO Schultz, many analysts are uncertain whether he can solve Starbucks’ unique issues.

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LARGECAP RECAP

☁️ Microsoft’s Cloud Revenue Falls Short, Overshadowing An Otherwise Strong Quarter for the Tech Giant

You’d think double-digit growth would be enough to satiate tech investors, but for Microsoft ($MSFT), a 15% year-over-year (YoY) revenue increase wasn’t enough to keep its stock from dipping. On Wednesday, shares fell as its closely-watched Intelligent Cloud and Azure Cloud segments missed analysts’ estimates, dimming an otherwise bright quarterly performance. Making matters worse, the company lowered its outlook for the coming quarter.

• Azure and other cloud services grew 29% YoY, slightly below the 30% expected by analysts. This is the first time since 2022 that Microsoft’s cloud growth didn’t surpass estimates.

• The company’s Intelligent Cloud segment missed analysts’ consensus revenue estimates, coming in at $28.52B (+19% YoY).

Forward-looking: Microsoft’s cloud shortfall overshadowed a 61% acceleration in its Xbox revenue, plus a 19% rise in search and news advertising revenue — both near-records for the divisions. Despite this, cloud and AI revenue remains the star of the show. Microsoft notes that nearly a third of its Azure growth was driven by AI, with big-name brands like TikTok representing up to a quarter of its revenue. This means full speed ahead, especially as competitors like Google ($GOOG) and Amazon ($AMZN) continue pouring money into AI — even with the industry’s prospects feeling a little more dreary.

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Markets & Economy

US job market cools as Fed weighs next move: June hiring hit pandemic-era lows, though layoffs remain scarce. The Fed is considering a rate cut due to rising labor costs, which could make job hunting more challenging. [Read]

Bank of Japan signals policy shift: The BOJ plans to cut bond purchases by half and raise interest rates to 0.25%, the highest in 15 years. This shift addresses rising inflation and currency pressures, significantly moving away from its ultra-loose monetary policy. [Read]

Supreme Court approval hits new low: Public confidence in the US Supreme Court has plummeted to 43%, nearing an all-time low, following controversial rulings on abortion and presidential immunity. [Read]

Business & Wealth

StubHub faces lawsuit over deceptive pricing: Washington, DC’s Attorney General is suing StubHub for misleading pricing practices, claiming over $118M in hidden fees since 2015, complicating its planned IPO. [Read]

Uber teams up with BYD for EV push: Uber ($UBER) is partnering with Chinese automaker BYD ($BYDDY) to add 100K electric vehicles to its platform. This collaboration aims to accelerate the transition to zero-emission vehicles with global expansion plans, excluding the US. [Read]

Intel announces job cuts amid cost-saving efforts: Intel ($INTC) plans to eliminate thousands of jobs to save up to $10B annually by 2025 while continuing heavy R&D spending to maintain its semiconductor leadership. [Read]

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DIGIT OF THE DAY

Going For Gold In The Olympics? The Reward For Victory Can Reach $768K

Like a pot of gold at the end of a rainbow, a golden paycheck awaits Olympic medalists — though the amount varies by country. While the International Olympic Committee doesn’t offer prize money, many nations generously compensate their athletes. Besides cash, rewards can include free food, cars, or holiday vouchers.

• Among the top cash payouts, Hong Kong leads with gold medalists earning $768K — followed by Singapore offering $745K and Kazakhstan providing $250K.

• In addition to cash, South Korean medalists can choose between a lifelong monthly pension or a lump sum, while Malaysian winners receive luxury apartments.

How does the US compare? Gold medalists in the US get just $38K — and some countries, like Great Britain and Norway, don’t offer direct cash bonuses for gold medals. For instance, Lily Zhang, the top US table tennis player with six national titles and four Olympic appearances, mentioned in an interview with WSJ that despite her successes, her parents still push her to consider a “normal job” due to the uncertainties of a sports career, including potential injuries and fluctuating income from competitions.

Read: While athletes chase gold, cities like Paris grapple with hosting costs — are the 2024 Games worth it?

TRENDS

Is the “Texas Miracle” Losing Steam After Years of Record Population, Economic, and Job Growth?

Everything is bigger in Texas — its growth ambitions included. Affordable real estate, low taxes, and the promise of minimal government involvement in the lives and work of its businesses and residents have fueled what locals call the “Texas Miracle,” helping the state double its population since the 1980s. But as the state has gone mainstream, keeping that miracle alive for millions of new residents has become a challenge.

Call it a Miracle: Since 2015, the Lone Star state has ascended in American commerce, with over 300 corporations relocating from states like California, Illinois, and New York. With its newfound business leadership, Texas is one of the fastest-growing states in terms of job, economic, and population growth.

• Thanks to new corporate arrivals, Texas now boasts more Fortune 500 firms than any other state — 55 in total.

• Its popularity has hit a fever pitch, with five of the ten fastest-growing metro areas in the US being located in Texas — and its civilian workforce reaching a record 15.3M people in June.

Wish Upon a Star

Despite its successes, Texas may face hurdles in sustaining its growth. Last week, FT reported that the state’s appeal is diminishing among its 30M+ residents — and some of the hundreds of businesses that helped it become a formidable force on the national stage.

• Texas’s infrastructure is struggling to keep pace with its expansion — with issues in power grids, water utilities, and public services causing the state to fall out of the first five rankings in CNBC’s America’s Top States for Business last year.

• Companies drawn by Texas’s “business-friendly” reputation are now concerned about potential backlash from conservative politicians over issues like diversity and environmental policies.

Trouble in Texas: Texas has appreciated a lot of wins, but 2024 has marked a few losses. In April, Oracle announced that it would relocate from Austin, TX, to Nashville, TN — marking a rare departure from the state. In the following weeks, Tesla — which became Austin’s largest employer after relocating during the pandemic — laid off nearly 3K workers. State leaders have downplayed these events as unfortunate hiccups — but there’s a chance that Texas’s meteoric run might be out of steam — and it may need another miracle to maintain the growth it has seen.

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LARGECAP RECAP

💼 For College Grads, These Metros Are the Best (And Worst) Places To Start A Career

The economy is teaching young college grads a tough lesson: beggars can’t be choosers. Since the pandemic, the unemployment rate for workers aged 20 to 24 has risen, and companies are cutting back on recruiting to invest in artificial intelligence. Employers are still hiring — just not necessarily where people might expect. A new report from payroll company ADP highlights the top job markets for recent grads — considering the cost of living, wages, and hiring rates in their formula.

• According to the report, Raleigh, NC; Austin, TX; and Baltimore, MD, are the “most promising locations” for new grads to find work — followed by Atlanta, GA; Charlotte, NC; and New York City, NY.

• On the other hand, Rochester, NY; Virginia Beach, VA; and New Orleans, LA, are the “lowest ranking metros,” with the lowest wages and weakest hiring.

Sun Belt shindig: Many young people are drawn to more expensive markets like San Jose, CA; Seattle, WA; Chicago, IL; and Boston, MA — which ADP says offer high compensation… if you can secure a job. However, these cities are often overshadowed by Sun Belt metros, which have seen the majority of US job creation since the pandemic.

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Markets & Economy

Eurozone economy outperforms estimates: The euro area’s GDP grew by 0.3% in Q2 2024, beating the expected 0.2%. Ireland and Spain led the growth, while Germany saw a contraction. [Read]

Commodities hit fresh 2024 lows: A sharp decline in commodity prices, fueled by concerns over China’s economic slowdown, overshadows optimism in US markets. This slump particularly impacts energy stocks, highlighting global economic uncertainties. [Read]

Pharma giants blast past earnings expectations: Pfizer ($PFE) and Merck ($MRK) exceeded Q2 2024 earnings estimates. Pfizer reported a quarterly adjusted EPS beat of 30%, while Merck posted an adjusted EPS 6% above expectations, driven by strong product sales. [Read]

Business & Wealth

US voices concerns over Venezuelan election: The Biden administration is calling for a full release of Venezuela’s election results, citing “serious concerns” over democratic norms and discrepancies with official results. [Read]

Dubai attracts UK millionaires amid tax changes: The UAE is set to gain 6.7K millionaires in 2024, making it the world’s top wealth magnet for three consecutive years. A significant portion comes from the UK due to plans to scrap the non-dom tax regime. [Read]

X’s revenue plummets under Musk: Internal documents reveal X’s quarterly revenue dropped 53% year-over-year to $114M. CEO Linda Yaccarino faces challenges wooing back advertisers amid Musk’s controversial actions, despite claims that 65% of departed brands have returned. [Read]

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DIGIT OF THE DAY

US National Debt Hits Record $35T, Expected to Climb Higher

If we had a dollar for every time the debt ceiling was raised... oh wait, that’s the problem. On Monday, the US national debt soared past $35T, up from $34T in January. This rapid increase is fueled by the escalating costs of rising interest rates and federal spending, making it even harder to manage the nation’s debt problem.

• The Congressional Budget Office (CBO) estimates that the public portion of the debt will equal 99% of the Gross Domestic Product (GDP) this year.

• Some federal programs, such as the Employee Retention Tax Credit and Inflation Reduction Act, have added to the debt, as companies have paid less in taxes.

Red ink remedy: This year, the government is on track to record a $1.9T deficit, the third-largest in US history. The deficit could lighten if interest rates drop later this year, making it cheaper to service the debt. However, there are differing opinions on how to tackle the debt issue. Democrats propose reducing the deficit by $3T over ten years by increasing taxes on the wealthy and large corporations. Conversely, Republicans advocate for spending cuts, particularly in federal programs, to solve the debt crisis. If the current trend continues, the CBO projects the national debt will reach $56T by 2034.

PORTFOLIO STRATEGY

Bill Ackman Is Hoping to Double His Hedge Fund’s Size Through New Publicly-Traded Fund

Hedge fund billionaire Bill Ackman has never shied away from hot takes — the CEO of hedge fund Pershing Square has been known to take aggressive stances on diversity, universities, and politics, earning him over 1.3M followers on X. Now, he’s hoping his celebrity investor status can help him double the size of his $18.7B hedge fund.

Squaring up loose ends: While Ackman may not boast the cult following of Wall Street’s most pastoral figure or manage a company like Berkshire Hathaway ($BRK-A), he’s taking a page out of Warren Buffett’s book. Inspired by the legendary investor, Ackman’s firm is launching a publicly-traded fund on US markets — Pershing Square USA. This new closed-ended fund will let investors buy into the multi-billionaire’s portfolio on US markets — and potentially hand Ackman and Pershing a monster capital infusion. But first, Ackman needs to convince investors of his track record.

• Since 2015, Pershing Square has lost half of its assets — with bad bets on pharmaceutical companies, expensive shorts on MLMs, and controversial views on US debt costing the fund billions.

• Despite this, a strong performance in 2023 — during which Pershing Square returned 26.7% — shows Ackman’s ability to hit the mark and corral returns for investors.

Trouble in Pershing Square

This week, Pershing Square is expected to raise $25B from its initial public offering (IPO) — potentially one of the largest ever. However, a report released late last week suggests that Ackman had slashed the IPO fundraising target by 90%, and delays have thrown a wrench in the launch.

• The IPO pricing for Pershing Square USA has been delayed after the SEC requested more details about the offering, investors, and comments.

• Additionally, Pershing Square has advised shareholders to disregard Ackman’s previous commitments to provide “unrestricted” updates about the fund on X.

Can controversy sell? Ackman mentioned that the fund struggles to “generate enthusiasm” around its closed-end structure. Still, the outspoken and controversial investor hopes these delays, comments, or his political views won’t overshadow the fund’s launch. The company will waive management and performance fees for the first year to attract investors. However, given the fund’s tumultuous trip to market, it’s hard to say if Ackman has the clout necessary to pull the billions he initially hoped for.

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LARGECAP RECAP

💰Republican Leaders Commit To Make US “Crypto Capital” At Bitcoin 2024 Conference

Bitcoin might be making its big leap from the blockchain to the mainstream — and this year, it might make or break an election. Politics took center stage at the Bitcoin 2024 conference in Tennessee this past weekend, where Republican leaders addressed crypto maximalists, teasing tens of thousands of attendees with glimpses of what could come out of a big conservative win this November.

• Senator Cynthia Lummis (R-WY) announced plans to introduce legislation for a “strategic bitcoin reserve,” aiming to buy 1M coins over five years to help reduce the national debt.

• Republican frontrunner Donald Trump likened the US crypto business to the early steel industry and promised to transform the US into “the crypto capital of the world.”

Reaction faction: Initial responses to the events at the flagship Bitcoin conference were timid — with Bitcoin’s price falling following Trump’s speech. However, as Democratic frontrunner Kamala Harris reportedly seeks a “reset” with crypto companies, the mood in the crypto industry has struck a new, optimistic tone. Bitcoin nearly surpassed $70K on the report, with the recent bipartisan embrace being seen as a sign that the industry might finally be coming of age after years of volatility and chaos.

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Markets & Economy

Inflation surge wanes, Fed rate cuts draw near: The battle against inflation appears largely won, shifting focus to potential Federal Reserve rate cuts. Futures markets anticipate at least a 0.25% reduction, with some predicting a half-point cut. [Read]

Trump’s voting remarks spark controversy: Former President Trump told Christian conservatives they “won’t have to vote again” if he wins in 2024, drawing criticism from Kamala Harris’s team, who call it a “vow to end democracy.” [Read]

Apple delays AI features, and tech earnings loom: Apple ($AAPL) has postponed AI features for new iPhone and iPad software updates to October. Investors are also awaiting crucial tech earnings reports that could influence market sentiment. [Read]

Business & Wealth

Alzheimer’s blood test shows promising accuracy: A new blood test boasts a 90% accuracy rate in attributing memory loss to Alzheimer’s, outperforming neurologists’ diagnoses. This breakthrough could revolutionize early detection and treatment access for the disease. [Read]

McDonald’s reports sales dip in Q2: McDonald’s experienced its first drop in US same-store sales growth since 2020. The downturn, driven by rising menu prices and cash-strapped consumers, led to the introduction of a new $5 value meal. [Read]

“Deadpool & Wolverine” smashes box office records: The Marvel film grossed $211M domestically in its opening weekend, setting a new record for R-rated movies. This performance places it among the top 10 biggest debuts ever, signaling a comeback for the Marvel Cinematic Universe and the US box office. [Read]

*Thanks to our sponsors for keeping the newsletter free.

DIGIT OF THE DAY

US Home Insurers Faced a Record-Breaking $15.2B Net Underwriting Loss In 2023, Double The Previous Year

We’re not meteorologists, but we’re pretty sure the insurance industry is feeling the heat. Last year, the US homeowners insurance sector recorded a net underwriting loss of $15.2B — its worst underwriting performance since at least 2000. This surge in losses is mainly attributed to the rising populations in disaster-prone areas, compounded by severe natural disasters, and increasing costs due to inflation.

• Between 2010 and 2020, 53% of US population growth occurred in six disaster-prone states like Texas and Florida — leading to increased volatility in the homeowners insurance market.

• Additionally, 37 catastrophic events that occurred globally last year were linked to warmer weather and resulted in losses that exceeded $1B each — with most of these being recorded in the US.

Insured out of luck: According to American Property Casualty Insurance Association’s Robert Gordon, the insurance industry is currently grappling with surging coverage demands (a.k.a. asking your insurance to pay for something) as insured losses soar. The financial strain has led insurers to either withdraw from high-risk areas or raise premiums aggressively — making it increasingly difficult for homeowners to afford insurance. While 2023 was defined by record losses, AM Best is pessimistic about the future, stating, “A return to underwriting profitability for the segment over the near term is unlikely.”

Read: US Insurers Have Been Losing Billions On Policies Since the Pandemic: Here’s How They Plan To Get Even

BIOTECH

Is Biotech Back? The Risky Industry Is Waking Up After Low Interest Rates Cratered Investment, Dealmaking, and IPOs

Sometimes, even those doing the saving need a little help themselves. And the patient in need of a lifeline is the biotech industry — which is about to get another chance from a dose of falling interest rates. Since the end of the pandemic, biotech firms have been punished by higher interest rates and one of the worst sector sell-offs in recent history. But the industry might be about to get the breakthrough therapy needed to bring it back to life.

Bio, you alive? With interest rate cuts anticipated to tee off in September, investors are once again warming up to riskier growth stocks — reigniting talks of a biotech bounce after a rough three years, which saw the SPDR S&P Biotech ETF ($XBI) fall 59% from its Feb. 2021 all-time high. But since Oct. 2023, the index has rallied 58% — and there may be plenty more room for it to run.

• Analysts predict a softer market to spawn scores of biotech IPOs, sector upgrades, and billions in new mergers and acquisitions (M&A) — as pharmaceutical companies look to spend big on their next blockbuster drug.

• Ernst & Young says that pharma companies have a record $1T to spend on biotech deals, which it expects to be used as the industry seeks to replace $300B+ of products losing patent status.

DNA for a Comeback

There’s one notable reason to cheer for smaller biotech and healthcare names — they are well-represented in the Russell 2000. And if you’ve been paying attention, that’s good news. Unlike the tech-heavy S&P 500 and Nasdaq-100, the growth stock index primarily concentrates on financials, healthcare companies, and industrials. As a result, the bio bump has been waking the index up again.

• Healthcare companies are now the second-largest weight in the Russell, comprising 17.6% of the iShares Russell 2000 ETF ($IWM).

• As of Jul. 20, 15 out of the top 25 performers in the Russell are biotechs — led by Longboard Pharmaceuticals ($LBPH), Avidity Biosciences ($RNA), and Emergent BioSolutions ($EBS).

Stay tuned… Biotech’s big comeback has been a long time coming. After a tough 2022, as many as 320 biotech companies were on the brink of bankruptcy. And in 2023, a record year for biotech M&A came as many companies went on a firesale. With the Russell 2000 and $XBI down 11% and 39% from their all-time highs, 2024 could shape up differently and align the fates of both biotech firms and growth indexes.

PARTNERED WITH STANSBERRY RESEARCH

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• It analyzes a range of fundamental and technical signals to give a stock a rating of “bullish,” “bearish,” or “neutral.”

• Bloomberg and Reuters use the tech behind the Power Gauge in their financial software — and it’s also a favorite of large brokerages, including Fidelity.

With the Power Gauge, you can protect your portfolio during a turbulent election cycle — and see through the media hype and noise.

Access the tool for free here.

LARGECAP RECAP

🌎 Immigration Could Be the Past, Present, and Future of the US Economy

For decades, immigration has been a lightning rod in the American culture war, but it has a surprisingly uncontroversial side effect: economic growth. Despite a slowdown in birth rates, immigration is helping the US population grow — enriching the country’s economy and helping it steer clear of a recession. And in the future, it could play an even bigger role in the country.

• The Congressional Budget Office (CBO) says that 3.3M immigrants entered the US last year, a trend expected to continue through 2026 — with new immigrants adding $8.9T to the GDP through 2034.

• The Dallas Fed says that the net immigration inflow is a byproduct of border crossings, asylum applications, and other policies in the US — which have taken center stage this election year.

What does it mean? Business leaders like Elon Musk have warned that “Population collapse is a major risk to the future of civilization,” citing the impacts on pension systems, global order, and innovation. In spite of that, birth rates have continued falling — forcing more industrialized economies to grow their population and economies with foreign workers. Countries like Germany, Italy, and Portugal would have shrunk from 2000 to 2020 if not for their immigration policies. And by the 2040s, the CBO projects immigration will drive substantially all population growth in the US. This means that policies made in 2024 could have a massive impact on the future of the economy.

$46.4B in Disney Princess potential: Films like Cinderella and Snow White are 70+ years old. But the characters are still revenue-generating machines, and Elf Labs owns their IP, in addition to several other timeless tales. Now, they’re bringing these to life with next-gen AR/VR technology, subscriptions, ads, and in-game purchases. See how you can invest in Elf Labs here.*

Markets & Economy

Trump declines to commit to Harris debate: The Trump campaign has announced it will not commit to general election debates with VP Kamala Harris, citing “political chaos” around the Democratic nomination process. Harris says she’s “ready to go” for the previously agreed Sept. 10 debate. [Read]

US solar production surges 25% in one year: Solar electricity generation rose 25.3% in the first five months of 2024 compared to the same period last year. Wind and solar now produce 1.3x more electricity than coal in the US, with a 42% jolt expected for solar in 2024. [Read]

Franklin Templeton exploring Solana ETF: After launching Bitcoin and Ethereum ETFs, Franklin Templeton ($BEN) is considering a Solana-based ETF due to its “major adoption” and potential. The firm’s Ethereum ETF just launched on Cboe, with fees waived until Jan. 2025. [Read]

Business & Wealth

Olympic protestors burn French rail network: Coordinated fires on high-speed rail lines paralyzed train travel to Paris, affecting 800K people hours before the Olympic opening ceremony. Authorities are investigating the “calculated” attacks, which targeted critical cables. [Read]

European regulators reject Alzheimer’s drug Leqembi: The European Medicines Agency recommended against Biogen ($BIIB) and Eisai’s Alzheimer’s treatment, citing concerns over “serious side effects” — like brain swelling and bleeding. [Read]

Automakers face affordability crisis: Car manufacturers like Stellantis ($STLA), Nissan ($NSANY), and Ford ($F) are grappling with excess inventory and declining profits, leading to price cuts and discounts. [Read]

*Thanks to our sponsors for keeping the newsletter free.

DIGIT OF THE DAY

Berkshire Hathaway Sells A Total $2.3B Stake In Bank of America

While Warren Buffett will always have a special place in his heart for Bank of America ($BAC), he’s dialing back his interest. Last week, Berkshire Hathaway ($BRK-A) reduced its stake in the bank to 12.5% of its portfolio, selling 52.8M shares in total. This is the first time in four years that Berkshire has cut its stake in the bank, and history indicates that when Buffett starts selling, there’s no telling when he might stop… (RIP US Bancorp and Wells Fargo).

• $BAC has risen 23% in 2024, outpacing the S&P 500’s 15% increase. However, the bank’s provisions for bad loans grew to $1.5B in the second quarter, which led to a drop in profits.

• The recent sales may be aimed at reducing Berkshire’s stake below 10%, which would cut reporting requirements and allow for more discreet transactions.

F’d up finances: Higher interest rates and increased provisions for bad loans are straining banks, as shown by the mixed earnings reports this month. Despite better performance from regional banks, the KRE ETF ($KRE), which tracks these banks, saw $820M in outflows year-to-date (YTD). However, the XLF ETF ($XLF), tracking financial firms like $BRK-A and $BAC, experienced $3.6B in YTD inflows — indicating there’s still consumer confidence in major banks.

BIOTECH

Is Biotech Back? The Risky Industry Is Waking Up After Low Interest Rates Cratered Investment, Dealmaking, and IPOs

Sometimes, even those doing the saving need a little help themselves. And the patient in need of a lifeline is the biotech industry — which is about to get another chance from a dose of falling interest rates. Since the end of the pandemic, biotech firms have been punished by higher interest rates and one of the worst sector sell-offs in recent history. But the industry might be about to get the breakthrough therapy needed to bring it back to life.

Bio, you alive? With interest rate cuts anticipated to tee off in September, investors are once again warming up to riskier growth stocks — reigniting talks of a biotech bounce after a rough three years, which saw the SPDR S&P Biotech ETF ($XBI) fall 59% from its Feb. 2021 all-time high. But since Oct. 2023, the index has rallied 58% — and there may be plenty more room for it to run.

• Analysts predict a softer market to spawn scores of biotech IPOs, sector upgrades, and billions in new mergers and acquisitions (M&A) — as pharmaceutical companies look to spend big on their next blockbuster drug.

• Ernst & Young says that pharma companies have a record $1T to spend on biotech deals, which it expects to be used as the industry seeks to replace $300B+ of products losing patent status.

DNA for a Comeback

There’s one notable reason to cheer for smaller biotech and healthcare names — they are well-represented in the Russell 2000. And if you’ve been paying attention, that’s good news. Unlike the tech-heavy S&P 500 and Nasdaq-100, the growth stock index primarily concentrates on financials, healthcare companies, and industrials. As a result, the bio bump has been waking the index up again.

• Healthcare companies are now the second-largest weight in the Russell, comprising 17.6% of the iShares Russell 2000 ETF ($IWM).

• As of Jul. 20, 15 out of the top 25 performers in the Russell are biotechs — led by Longboard Pharmaceuticals ($LBPH), Avidity Biosciences ($RNA), and Emergent BioSolutions ($EBS).

Stay tuned… Biotech’s big comeback has been a long time coming. After a tough 2022, as many as 320 biotech companies were on the brink of bankruptcy. And in 2023, a record year for biotech M&A came as many companies went on a firesale. With the Russell 2000 and $XBI down 11% and 39% from their all-time highs, 2024 could shape up differently and align the fates of both biotech firms and growth indexes.

PARTNERED WITH STANSBERRY RESEARCH

Prepare for the Election with This Stock Picking Tool

Worried about the election and the potential impact that it could have on your portfolio? Check out the Power Gauge — an award-winning stock system designed by 50-year Wall Street veteran, Marc Chaikin.

The Power Gauge isolated the top stocks of 2023, 2022, and 2021… and Nvidia as early as 2020 (NVDA), which is now up over 1,800%. But what makes it so incredible?

• It analyzes a range of fundamental and technical signals to give a stock a rating of “bullish,” “bearish,” or “neutral.”

• Bloomberg and Reuters use the tech behind the Power Gauge in their financial software — and it’s also a favorite of large brokerages, including Fidelity.

With the Power Gauge, you can protect your portfolio during a turbulent election cycle — and see through the media hype and noise.

Access the tool for free here.

LARGECAP RECAP

🌎 Immigration Could Be the Past, Present, and Future of the US Economy

For decades, immigration has been a lightning rod in the American culture war, but it has a surprisingly uncontroversial side effect: economic growth. Despite a slowdown in birth rates, immigration is helping the US population grow — enriching the country’s economy and helping it steer clear of a recession. And in the future, it could play an even bigger role in the country.

• The Congressional Budget Office (CBO) says that 3.3M immigrants entered the US last year, a trend expected to continue through 2026 — with new immigrants adding $8.9T to the GDP through 2034.

• The Dallas Fed says that the net immigration inflow is a byproduct of border crossings, asylum applications, and other policies in the US — which have taken center stage this election year.

What does it mean? Business leaders like Elon Musk have warned that “Population collapse is a major risk to the future of civilization,” citing the impacts on pension systems, global order, and innovation. In spite of that, birth rates have continued falling — forcing more industrialized economies to grow their population and economies with foreign workers. Countries like Germany, Italy, and Portugal would have shrunk from 2000 to 2020 if not for their immigration policies. And by the 2040s, the CBO projects immigration will drive substantially all population growth in the US. This means that policies made in 2024 could have a massive impact on the future of the economy.

$46.4B in Disney Princess potential: Films like Cinderella and Snow White are 70+ years old. But the characters are still revenue-generating machines, and Elf Labs owns their IP, in addition to several other timeless tales. Now, they’re bringing these to life with next-gen AR/VR technology, subscriptions, ads, and in-game purchases. See how you can invest in Elf Labs here.*

Markets & Economy

Trump declines to commit to Harris debate: The Trump campaign has announced it will not commit to general election debates with VP Kamala Harris, citing “political chaos” around the Democratic nomination process. Harris says she’s “ready to go” for the previously agreed Sept. 10 debate. [Read]

US solar production surges 25% in one year: Solar electricity generation rose 25.3% in the first five months of 2024 compared to the same period last year. Wind and solar now produce 1.3x more electricity than coal in the US, with a 42% jolt expected for solar in 2024. [Read]

Franklin Templeton exploring Solana ETF: After launching Bitcoin and Ethereum ETFs, Franklin Templeton ($BEN) is considering a Solana-based ETF due to its “major adoption” and potential. The firm’s Ethereum ETF just launched on Cboe, with fees waived until Jan. 2025. [Read]

Business & Wealth

Olympic protestors burn French rail network: Coordinated fires on high-speed rail lines paralyzed train travel to Paris, affecting 800K people hours before the Olympic opening ceremony. Authorities are investigating the “calculated” attacks, which targeted critical cables. [Read]

European regulators reject Alzheimer’s drug Leqembi: The European Medicines Agency recommended against Biogen ($BIIB) and Eisai’s Alzheimer’s treatment, citing concerns over “serious side effects” — like brain swelling and bleeding. [Read]

Automakers face affordability crisis: Car manufacturers like Stellantis ($STLA), Nissan ($NSANY), and Ford ($F) are grappling with excess inventory and declining profits, leading to price cuts and discounts. [Read]

*Thanks to our sponsors for keeping the newsletter free.

DIGIT OF THE DAY

Berkshire Hathaway Sells A Total $2.3B Stake In Bank of America

While Warren Buffett will always have a special place in his heart for Bank of America ($BAC), he’s dialing back his interest. Last week, Berkshire Hathaway ($BRK-A) reduced its stake in the bank to 12.5% of its portfolio, selling 52.8M shares in total. This is the first time in four years that Berkshire has cut its stake in the bank, and history indicates that when Buffett starts selling, there’s no telling when he might stop… (RIP US Bancorp and Wells Fargo).

• $BAC has risen 23% in 2024, outpacing the S&P 500’s 15% increase. However, the bank’s provisions for bad loans grew to $1.5B in the second quarter, which led to a drop in profits.

• The recent sales may be aimed at reducing Berkshire’s stake below 10%, which would cut reporting requirements and allow for more discreet transactions.

F’d up finances: Higher interest rates and increased provisions for bad loans are straining banks, as shown by the mixed earnings reports this month. Despite better performance from regional banks, the KRE ETF ($KRE), which tracks these banks, saw $820M in outflows year-to-date (YTD). However, the XLF ETF ($XLF), tracking financial firms like $BRK-A and $BAC, experienced $3.6B in YTD inflows — indicating there’s still consumer confidence in major banks.

SPORTS

Paris Olympics Are Reigniting Debate on Whether Hosting the Games Is Worthwhile for Cities

Since the pandemic, Europeans have been inundated — and agitated — by hordes of tourists. But this year, the residents of Paris, France, might get a break from the influx of visitors, thanks to the Olympics, kicking off later today. The 2024 Games have set plenty of records with over 10.7K athletes across 329 events and 32 sports and more than 9.7M tickets sold between the Olympics and Paralympics. Yet, the Olympics have been suffering both inside and outside the arenas — with some records proving less impressive.

Wrong place, wrong time: This year’s Summer Olympics are the first since the pandemic’s end — but a bumper few years for overseas travel, sporting events, and the experience economy are not translating in the City of Love. Although ticket sales are record-breaking, the Games also have a record number of resale tickets — over 270K. Gallup predicts that the Olympics will have record-low viewership, leading some to worry whether the Games have lost their appeal.

• Delta’s CEO notes that the Olympics have deterred some travelers from visiting Paris this summer — prompting hotels and airlines to lower prices to meet reduced demand.

• The local economy has also seen a “sharp drop in sales,” indicating that foot traffic has actually declined heading into the 2024 Games.

Ready for the Close-Up

Paris 2024 might fall short on fan engagement, cultural permanence, and local impact compared to previous Olympics. But despite these gaps, it’s still set to rake in billions. Organizers expect over $1.3B from partnerships with more than 60 companies.

• LVMH ($LVMUY), Google ($GOOG), and Roblox ($RBLX) are among the 250+ brands making a presence at this year’s Games — with Nike ($NKE) marking its “largest media spend” ever for this event.

• NBCUniversal ($CMCSA) has sold a record $1.2B in ads, including $350M from first-time Olympic advertisers, with coverage spanning 5K hours.

Justifying the cost: The Olympics have come under fire for their high costs relative to returns. However, one thing is for sure: the Games aren’t going anywhere, even after the costly Rio, Sochi, and Beijing Olympics. Instead, Paris’s edition is expected to be one of the cheapest in modern history. This could offer valuable insights for the US, which will host the 2028 Summer Olympics and 2034 Winter Olympics in Los Angeles and Salt Lake City.

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The Biggest Disruption to IP Since Disney

Disney Princess IP generates $46.4B in revenue. Elf Labs also owns IP rights to Cinderella, Snow White, Rapunzel, Little Mermaid and more, thanks to historic trademark victories & strategic copyright acquisitions.

Led by award-winning talent from Disney, Warner Bros, DC Comics and Marvel projects, Elf Labs is using next-generation technology to breathe new life into these timeless characters.

This is also an opportunity for you. Elf Labs is democratizing their iconic IP, which means you can own a piece of these characters and their technology as they unlock multiple revenue streams including streaming subscriptions, licensed merchandise, ad revenue, and in-game purchases.

Join these creative and tech geniuses and become an official Elf Labs shareholder here.

LARGECAP RECAP

🎵 Universal Music Streaming Revenue Hits a Wrong Note with Analysts

Streaming helped save the music industry from piracy, but it’s now posing threats to the industry’s biggest names. Universal Music Group ($UNVGY), the world’s largest record label, reported half the streaming revenue growth analysts were looking for in the latest quarter — and no amount of Taylor Swift or Post Malone could save them.

• The label’s subscriptions and streaming revenue rose 4%, well below the 10%+ industry analysts had forecasted.

• This disappointing performance led to the company’s worst trading day since its 2021 IPO, with shares dropping over 23% amid concerns about potential analyst downgrades.

Spotify vs. everybody: For years, rights holders like UMG enjoyed double-digit revenue growth thanks to a decade-long rebound in recorded music revenue. To keep it going, streaming services like Spotify ($SPOT) have increased prices. However, much of the extra income from these price hikes has gone to Spotify itself, as the company has used its influence to lower payouts to rights holders. Labels are fighting back in court, which could decide the fate of the industry — and their revenues.

The “sure thing” for investors: There are 53 stocks that have increased their dividend payments year over year for 50+ years. Yup, you read that right: Increased dividend payments since the 70s — making them some of the best dividend growth stocks for building passive income. Want to know more about these Dividend Kings? Get the free spreadsheet from Sure Dividend.*

Markets & Economy

Grayscale faces ETF competition: Grayscale’s $9B ETH trust is converting to an ETF as major financial firms launch competing products with lower fees, echoing its January bitcoin ETF battle. Grayscale now offers ETH ETF options with both the highest (2.5%) and lowest (0.15%) fees. [Read]

NextEra Energy sees renewable surge: NextEra ($NEE) added 3K MW of new renewable energy projects in Q2, including an 860 MW deal with Google. The company is benefiting from a rise in power demand for data centers due to AI growth. [Read]

Fed rate cut expectations: A Bank of America survey shows 55% of investors anticipate two Fed rate cuts this year. Investors are now pivoting to convertible bonds, seen as a beneficiary of lower interest rates. [Read]

Business & Wealth

Autonomous vehicles gain momentum: The robotaxi industry is accelerating, with Alphabet committing $5B to Waymo, a pioneering driverless taxi service. Companies like Waymo and Tesla ($TSLA) now complete hundreds of thousands of rides weekly and are teasing new services. [Read]

Southwest Airlines shifts strategy: Starting in 2025, Southwest ($LUV) will end its open seating policy and introduce assigned seating and premium seats with extra legroom. The airline looks to boost revenue amid disappointing earnings and activist investor pressure. [Read]

Mega-backdoor 401(k) gains traction: High earners are saving up to $69K annually through this strategy, with over half of Fortune 500 companies offering the option. This allows employees to potentially double their max 401(k) contribution. [Read]

*Thanks to our sponsors for keeping the newsletter free.

DIGIT OF THE DAY

NBA Scores Record $76B in New TV Deal

The (media) match of the season is here, and the NBA has picked some new star players. The league has signed its long-awaited 11-year media rights agreement worth over $76B, partnering with ESPN, NBC, and Amazon. This move is set to significantly increase the league’s annual revenue while attracting younger viewers — making it an appealing opportunity for advertisers.

• Disney ($DIS), Comcast ($CMCSA), and Amazon ($AMZN) will each pay the NBA annually: $2.62B, $2.45B, and $1.8B+, respectively — more than double the value of the current rights deals.

• The WNBA will also benefit, receiving $200M annually from these deals, plus an additional $60M from other agreements, boosting its total funding to roughly six times the current amount.

Foul play: In 2022, Warner Bros. Discovery ($WBD) CEO David Zaslav commented, “We don’t have to have the NBA.” But now that their wish has been granted, they’re not too happy. WBD’s TNT Sports, which has aired NBA games since the 1980s, was recently outbid by Amazon. The NBA rejected WBD’s attempt to match Amazon’s bid, citing a lack of legal standing. It’s a common theme with tech companies, with Amazon and Apple ($AAPL) securing rights for major sports leagues like the NFL and MLS. WBD, feeling the rejection was unjust, has threatened to take “appropriate action.”

RUSSELL 2000

The Russell 2000 Is Having An Unexpected Breakout After Years In Bear Market Territory

It used to be, “Go big, or go home,” but Wall Street is shifting gears. Since late 2023, mega-caps have been the place to go to beat the market — with large-cap stocks like Nvidia ($NVDA) and Microsoft ($MSFT) driving the S&P 500 to new highs. But in recent weeks, investors have adopted a new motto: Go small or risk missing out on the next major rally.

Small-cap comeback: Investors are suddenly embracing small-cap companies after two and a half years of underperformance. Over the past month, the iShares Russell 2000 ETF ($IWM), which tracks the Russell 2000 index, has surged 9% — while large-cap competition such as the S&P 500 and Nasdaq-100 have remained relatively flat. Analysts have long anticipated the breakout but are still surprised by it — citing high large-cap valuations, potential interest rate cuts, and political uncertainty as possible reasons for the rally.

• The Russell 2000’s ten largest components represent just 3.33% of the index — offering more diversification compared to large-cap indices.

• Top performers in the Russell 2000 include Longboard Pharmaceuticals ($LBPH), Avidity Biosciences ($RNA), and Emergent BioSolutions ($EBS), which are up 496%, 398%, and 366% year-to-date.

Can Small-Caps Take The Next Big Leap?

Despite recent gains, the Russell 2000 is still 8% below its Nov. 2021 peak. However, there’s optimism that smaller growth stocks may soon recover. Historically, small-caps have outperformed large-caps two-thirds of the time since 1927. And some analysts believe the index will rally on.

• DataTrek attributes the Russell’s recent performance to a “dramatic shift in investor sentiment” that could drive further gains.

• Fundstrat’s Tom Lee predicts a potential 40% rally for the Russell 2000 by the end of summer.

Too much, too soon? Almost all of the Russell 2000’s gains this year came in the last ten trading days, raising BlackRock analysts’ concerns that the index might “lose some steam.” Additionally, the Russell 2000’s price-to-earnings ratio has climbed to 28x, surpassing the S&P 500’s 24.2x, suggesting it may be becoming overpriced.

PARTNERED WITH SURE DIVIDEND

The Best Dividend Growth Stocks for Building Passive Income

Here’s a well-kept secret: There’s a legendary class of stocks that have been increasing their dividends year-over-year since the 70s. (Yes, you read that right: 50+ years of increase… every year.) Despite inflation, wars, pandemics, you name it — they’re still paying shareholders more annually, no matter what.

Only 53 stocks are in this class. And they’re known as the Dividend Kings.

Of the thousands of public companies paying dividends, only a handful are able to increase their dividend payments every year. Sure Dividend’s dedicated team of analysts research the best dividend growth stocks for building passive income — just so you can get in on the action.

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LARGECAP RECAP

👨‍💻 Google’s AI Investments Aren’t Paying Off Yet. Their Solution? Spend Even More.

“You have to spend money to make money,” but Google’s ($GOOG) AI investments are still struggling to make the math work. This week, parent company Alphabet’s earnings exceeded Wall Street forecasts by just 0.6% — the smallest margin in over five years. Despite cost-cutting and a reduced workforce, Google continues to pour funds into what Alphabet CEO Sundar Pichai calls a “transformative area” — artificial intelligence.

• Google plans to increase its capital expenditures to $52B by 2025 to boost its AI technology, even though it still hasn’t realized a substantial financial return.

• Pichai defends this spending, stating, “The risk of underinvesting is dramatically greater than the risk of overinvesting for us here.”

Race to AI-ndependence: OpenAI CEO Sam Altman and Co-Founder Ilya Sutskever expected their AI technology to stay ahead by one to two years. However, as many companies increase spending and investments in AI, their prediction seems off. Today, open-source, publicly accessible AI systems match the performance and capabilities of privately developed, closed AI systems. While ChatGPT-4 remains a leading model in chatbots, competitors like Anthropic’s Claude 3.5 Sonnet and Google’s Gemini are quickly catching up.

US dollar is at risk of falling: Want to know the secret to securing your wealth against the dollar's decline? Discover the asset that could be your financial lifeboat in 2024's stormy economic seas. Get your free wealth protection guide.*

Markets & Economy

Small banks defend real estate loans: Community banks argue that their commercial real estate portfolios focus on smaller, fully leased local properties instead of troubled office towers in major cities. Regulators continue to monitor banks exceeding loan thresholds. [Read]

Green bonds hit record highs: Green bonds, used to invest in sustainable projects, hit new issuance highs in the first half of 2024. Most G7 countries are participating, with Japan and Italy making notable contributions, though the US remains an outlier with no issuance. [Read]

Coinbase gets Citi rating upgrade: Citigroup ($C) upgraded Coinbase ($COIN) to “buy,” citing potential regulatory shifts benefiting crypto. This has led to the most favorable analyst consensus in two years, with a price target of $345. [Read]

Business & Wealth

Job market cools from pandemic highs: US unemployment rose to 4.1% as the pandemic hiring surge subsides. While still considered strong, the job market shows signs of normalizing with slower wage growth and increased competition for positions. [Read]

Visa reports rare revenue miss: The payments giant fell short of Q3 revenue expectations due to reduced consumer spending, particularly among lower-income Americans. Despite this, Visa ($V) maintains substantial payment volumes and reaffirmed its annual forecast. [Read]

Meta removes romance scammer accounts: Facebook’s parent company took down ~63K accounts linked to the “Yahoo Boys” sextortion group. Meta ($META) also banned future content from the group and is testing new safety features. [Read]

*Thanks to our sponsors for keeping the newsletter free.

PARTNERED WITH PRIORITY GOLD

Wealth Preservation Strategies In Uncertain Times

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DIGIT OF THE DAY

More Than 270K Unwanted Olympic Tickets Available On Resale Websites

What do the Paris Olympics and poker have in common? Both are hoping for a full house. Despite the excitement around the world’s biggest sporting event, there are more tickets than fans might use. Initially, fans had to buy ticket bundles for three events, with the promise of easy resale for any unwanted tickets. But with lower demand on the resale market and additional tickets being released, a surplus has emerged.

• Over 270K tickets for various Olympic events are currently up for grabs on resale sites, a sharp rise from the 180K tickets available just a month ago.

• However, Paris has set a new record by selling 8.85M tickets — with premium seats for the opening ceremony fetching up to ~3K EUR each.

Ticket troubles: Many hotels and apartments that anticipated a boost from the Olympics are now lowering prices. Airlines are seeing fewer summer bookings to Paris as the Games have dampened the usual tourist interest. Disappointed fans on platforms like Reddit have vented their frustration over not being able to offload their tickets — describing their situation as dealing with “sunk costs” due to non-refundable booking fees.

AIRLINES

Record Flying Demand Could Be On The Rocks Amid A “Fare War” Between Global Airlines

Revenge is a dish best served cold — just like revenge travel, which seems to be cooling off. After a years-long recovery for the airline industry, which saw sky-high airfare prices and record travel demand, the post-pandemic travel boom is starting to wane. Airlines are now warning shareholders about the challenges they face.

Ground hold: Despite American airports being busier than ever, the surge in travelers hasn’t been all good for airlines. In recent weeks, carriers like United ($UAL), Alaska ($ALK), and Delta ($DAL) have narrowed their earnings outlook and cautioned that “overcapacity” on domestic routes is costing airlines during the peak travel season.

• Airlines have reported that a “fare war” is driving ticket prices down and hurting profits — stemming from an influx of new seats on the market.

• United’s CEO Scott Kirby mentioned that airlines are “trimming their schedules” to reduce flights, which United hopes will help stabilize fare cuts.

When the Grass Isn’t Greener

In the US, airfares have dipped 5% compared to last year — a development that might thrill travelers but unsettle investors. And the situation across the Atlantic isn’t any brighter. Oddo BHF analysts, in a note downgrading Europe’s largest airlines, observed that “the vigorous post-COVID recovery in global demand is now running out of steam.”

• Yesterday, Europe’s largest airline, Ryanair ($RYAAY), reported a 46% decline in profits and warned that it expects “materially lower” airfares during peak summer travel.

• Even major events like the Paris Olympics and a record €800B in projected spending from international tourists in Europe this year have done little to help airlines like Air France-KLM ($AFLYY) and Lufthansa ($DLAKY), down 41% and 25% year-to-date.

Technical turbulence: Making matters worse, the fare war and shifting consumer behaviors aren’t the only hurdles they have to face. Last week’s CrowdStrike ($CRWD) outage left airlines with hours-long delays and technical headaches. Although most airlines have recovered, Delta’s troubles extended into Monday, with nearly one-third of its Friday and Saturday flights canceled and over 5.5K flights canceled since the outage began. Delta now faces the added burden of reimbursing customers for accommodations and alternative travel, which could further impact its already wavering profits.

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LARGECAP RECAP

📈 Prediction Markets Saw Biden’s Exit Coming Long Before Eventual Departure from 2024 Race

It starts with a whisper and grows into a roar. In prediction markets like PredictIt and Polymarket, those who whispered about Biden’s exit from the presidential race first have reaped the rewards. For months, bettors placed long-shot bets on Biden stepping down — a move that proved accurate and underscored the impact of these betting platforms.

• Bettors were more confident about Biden’s departure than many Washington insiders — with the odds of his exit exceeding 20% on PredictIt and Polymarket in the weeks leading up to the first presidential debate.

• After his poor debate performance, these unlikely wagers began paying off — with record betting activity on these platforms focused on Biden’s exit and Kamala Harris becoming the Democratic nominee.

They knew something: In May, regulators raised concerns about political betting platforms, suggesting they might undermine election integrity. Despite this, Polymarket has seen impressive growth, with daily volume hitting over $28M on Sunday — nearly six times the $4M to $5M daily volume from the previous month. These markets, driven by highly engaged “degens,” remain a valuable tool for gauging political perceptions (and profiting from their outcomes). Journalists and analysts increasingly refer to them as a leading indicator, and recent events have further confirmed their usefulness.

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Markets & Economy

US workers flex labor power: Bethesda Game Studios employees have formed a union amid rising labor movements in gaming. Disneyland ($DIS) workers authorized a strike after stalled contract negotiations, highlighting ongoing labor challenges in the entertainment industry. [Read]

Guaranteed income program shows positive results: Research backed by OpenAI’s Sam Altman found that a basic income positively impacted mental health, financial stability, and employment. The three-year study provided $1K monthly payments to low-income participants in Stockton, California. [Read]

Buffett shaves Bank of America stake: Berkshire Hathaway ($BRK.A) trimmed its Bank of America ($BAC) stake for the first time since 2019. The conglomerate sold almost $1.5B of shares after a 27% rally this year, sparking speculation about the financial sector’s outlook. [Read]

Business & Wealth

“Twisters” dominates box office: The sequel to 1996’s “Twister” opened to $80.5M domestically, exceeding expectations and becoming 2024’s third-biggest debut — ranking only behind sequels for “Dune” and “Inside Out 2.” Nostalgia and star power contributed to its success. [Read]

Parents can help children unlock 700+ credit scores: Parents are adding their children as authorized users on their credit cards, helping 18-year-olds start with credit scores over 700 — well above the 666 Gen Z average. However, easy access to debt can prove dangerous to young adults. [Read]

Drug shortages persist: Active drug shortages fell to 300 in Q2 2024, down from a record 323 — marking six straight quarters with over 300 drugs in shortage. Critical medications, including ADHD and cancer drugs, remain among the most affected. [Read]

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DIGIT OF THE DAY

Apple to Cut Back on Spending for Apple TV+ After $20B Investment in Original Content

Budgets have been so tight in America that even Apple ($AAPL) has decided to quit spending. Since the launch of Apple TV+, Apple has poured over $20B into original TV shows and movies. Yet, despite these hefty investments, the returns have been disappointing, with low viewership and poor box-office performance — prompting Apple to rethink its spending strategies.

• Apple TV+ captures just 0.2% of US TV viewing. Only four series have made it into Nielsen’s weekly top 10 in five years, and its monthly viewership lags far behind Netflix’s 9.9%.

• Bloomberg Intelligence analysts Geetha Ranganathan and Kevin Near believe Apple TV+ has struggled because its “original content [offers] a fraction of what rivals offer” (BBG).

Apple’s new plan: To turn things around, Apple plans to be more selective about its projects. The core strategy to stay in the steaming game involves controlling costs by peeling back upfront payments for shows, postponing some productions, and increasing content licensing from other sources.

TECH

CrowdStrike’s Outage Reveals the Cracks in the Centralized Internet’s Foundation — and the Consequences for Businesses Who Don’t Heed the Warning

For most devices, fixing an issue is as simple as turning it off and on again. But last Friday, for airlines, hospitals, and banks without a reset button, it turned into a tech armageddon that threatens to wipe out billions in revenue. Blue screens of death swept the globe, interrupting business, commutes, and the weekends of IT workers worldwide — offering an isolated taste of what Y2K could’ve been like.

Year 2024 problem: A Windows update led to what security consultant Troy Hunt called “the largest IT outage in history.” Cybersecurity company CrowdStrike ($CRWD) caused chaos with an overnight update, leading to widespread outages for hundreds of businesses, including banks, travel, and tech firms. Without a quick fix for the flawed update, some operations came to a standstill.

• The global travel industry was one of the most affected industries, with airlines canceling over 2K flights — and United Airlines ($UAL) and Delta ($DAL) issuing ground stops due to “schedule disruptions.”

• Health systems like Epic Systems, brokerages like Charles Schwab ($SCHW), and logistics giants like UPS ($UPS) also experienced issues as a result of the outage.

Centralization Station

While CrowdStrike’s IT hiccup is significant, it’s not the first major incident to disrupt IT departments’ Friday plans. Businesses have become extremely reliant on infrastructure dominated by a handful of companies, so when those companies have problems, everyone does.

• In 2022, a Cloudflare ($NET) outage reportedly took down 90% of the internet, highlighting the problem with centralized services.

• Hosting platforms like Amazon Web Services ($AMZN) and Fastly ($FSLY) have also experienced outages in recent years, disrupting large swaths of the internet.

Solve for x: Thankfully, most issues with infrastructure providers are quickly resolved. Despite the widespread problem with CrowdStrike, business operations were anticipated to return to normal by end of day Sunday — assuming IT staff worked through their weekend. However, the inconveniences to millions of affected customers and employees are expected to cost businesses billions of dollars.

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LARGECAP RECAP

🎦 Breakups Are Hard, but It May Be Exactly What Warner Bros Needs to Save Its Stock

The unexpected plot twist is here — but for those following, it feels like another sequel no one asked for. Warner Bros Discovery ($WBD) is reportedly considering separating its profitable streaming and studio operations from its less lucrative cable network business. This move comes weeks after flailing competitor Paramount announced a deal to merge with Skydance Entertainment.

• The split could lead to the two businesses trading under separate names — a strategy that has been used in recent years by conglomerates like 3M ($MMM), Pfizer ($PFE), and Johnson & Johnson ($JNJ) to help boost stock prices.

• Executing a spin-off would be challenging since “most of the company’s cash flow comes from the linear television business, while most of the cash is used by the streaming and studio business,” according to Barclays Capital’s Kannan Venkateshwar.

Split decision: Warner Bros Discovery has tried everything to improve its share price, which has dropped ~27% this year and is down ~65% since its 2022 merger with Discovery. Despite layoffs and debt reduction efforts, Bank of America’s Jessica Reif Ehrlich told Deadline that the “current composition as a consolidated public company is not working,” but she still sees their balance sheet as “perhaps the most underappreciated asset within the company’s portfolio.”

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Markets & Economy

Education Department pauses payments: The US Department of Education has halted student loan payments for the SAVE program while it faces legal challenges. This affects ~8M borrowers, highlighting the political battle over student debt relief. [Read]

Biden dropout speculation intensifies: Betting markets show record-high odds of President Biden withdrawing from the 2024 race, following reports of key Democratic leaders urging him to step aside. This reflects growing concerns within the party about Biden’s electability. [Read]

Teen employment hits 17-year high: Nearly 6M teens worked in Jun. 2024, the highest since 2007. Economists cite a strong labor market, rising wages, and higher education costs. However, automation could threaten teen jobs in food service and retail. [Read]

Business & Wealth

FTC criticizes Xbox Game Pass changes: The Federal Trade Commission (FTC) blasts Microsoft’s ($MSFT) new Xbox Game Pass, criticizing the price hike and “degraded product.” The FTC argues this shows Microsoft’s abuse of market power following its Activision Blizzard acquisition. [Read]

Costco offers 25-year ‘apocalypse bucket’: Costco’s ($COST) viral ReadyWise Emergency Food Bucket contains 150 freeze-dried and dehydrated meal servings, lasting 25 years. It is priced at $79.99 and provides over 25K calories. [Read]

Bud Light falls to third place in US beer sales: Following a 2023 boycott, Anheuser-Busch InBev’s ($BUD) Bud Light has slipped behind Modelo Especial and Michelob Ultra. The brand now represents 6.5% of beer dollar sales, down from its top spot, reshaping the US beer industry. [Read]

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DIGIT OF THE DAY

China’s Carbon Output Might Finally Be Declining for the First Time in Eight Years

The world might soon breathe a sigh of relief (along with clean air). China, the largest source of greenhouse gases for the past two decades, accounted for 30% of global emissions in 2022. However, emissions are expected to fall this year — marking the first decline since 2016 and indicating that emissions may have peaked. The anticipated 7.2% to 8.2% decline is mainly due to China’s reduced coal and oil consumption.

• Last year, China outpaced the entire history of solar panel installations in the US and now hosts nearly two-thirds of major global wind and solar construction projects.

• In May, coal’s contribution to China’s electricity fell to its lowest in decades at 53%. Li Show from China Climate Hub noted significant cooling in real estate and construction, which previously made up one-third of emissions.

Global phenomenon: Chatham House’s Bernice Lee believes, “Clean energy growth is larger than demand growth.” China’s $16T commitment to reach carbon neutrality by 2060 could inspire other nations to hasten their sustainability efforts. Ember’s Dave Jones noted to the NYT, “When China’s emissions stop growing, it likely follows that the world’s stop growing, too.”

TRENDS

Cost-Cutting, Conservative Backlash, and the Labor Market Is Killing Companies’ Diversity Targets

BWas diversity, equity, and inclusion (DEI) a low-interest rate phenomenon? All it took was four years and a labor market downturn to put it on life support — and companies are no longer afraid to prioritize profits over people, especially given the rising political stakes of DEI efforts.

Goodbye DEI, we hardly knew ya: In the aftermath of the nationwide Black Lives Matter protests, companies committed to becoming more inclusive. But four years later, many firms have decided that DEI is simply not worth the money. Large employers have significantly cut their DEI budgets — some by up to 90%. And now, some firms are abandoning diversity commitments entirely, with Microsoft ($MSFT) announcing this week that it eliminated an entire DEI team, calling it “no longer business critical.”

• The news follows similar actions by tech firms like Google ($GOOG), Meta ($META), and Zoom ($ZM), which once trumpeted their diverse workforces but have now made “significant cuts” to DEI.

• Even media companies have been cutting back. Warner Bros. Discovery’s ($WBD) CNN axed its race and equality team and Snap ($SNAP) reduced DEI roles.

Mask Off

While companies insist that diversity remains an important part of their business, the death of DEI isn’t just financial — it’s another example of how companies are bowing to Conservative pressure.

• Over the last year, Republicans at the state and federal levels have filed lawsuits, passed anti-DEI bills, and proposed bans on DEI policies in the government.

• In recent weeks, agriculture giants John Deere ($DE) and Tractor Supply ($TSCO) tamed their DEI and climate goals over backlash from a Conservative activist investor.

Forward-looking: Conservatives have successfully pushed some companies to abandon climate targets, support for the LGBTQ+ community, and now DEI — marking a significant reversal of pandemic-era promises made by large corporations. These political tensions could worsen with the upcoming election, potentially exacerbating the culture war and the fabric of American society.

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LARGECAP RECAP

😎 EssilorLuxottica Is A Sight For Meta’s Sore Eyes

The future isn’t set in stone, but Meta ($META) is planning to frame it beautifully with its next investment. CEO Mark Zuckerberg is exploring acquiring a ~5% stake (valued at $4.9B) in the world’s largest eyewear manufacturer and Ray-Ban parent company, EssilorLuxottica ($ESLOY), and has already secured clearance from US antitrust authorities — sending the eyewear conglomerate’s shares up nearly 2%.

• In an April earnings call, Zuckerberg emphasized his optimistic outlook on smart glasses — stating that they are “one of the bigger areas” in Meta’s AR and VR initiatives.

• Meta and EssilorLuxottica are also planning to target younger consumers with branded smart sunglasses from Supreme, which EssilorLuxottica acquired this week for $1.5B.

More than what meets the eye: Being in the eyewear business isn’t too shabby, especially considering the high profitability in the industry that helps EssilorLuxottica generate earnings (before interest, tax, and depreciation) margins as high as 21%. But a slowdown in sales has prompted them to look beyond glasses and into complementary technology. This week, the company also announced the acquisition of an 80% stake in Heidelberg Engineering, which specializes in eye surgery technologies. Eyesight getting worse from doomscrolling IG? Try some Zuck-powered glasses… or eye surgery.

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Markets & Economy

Economists optimistic despite slowdown: A WSJ survey reveals economists remain confident in the US economic outlook, viewing recent weakness as normalization. They expect inflation to gradually hit the Fed’s 2% target, with most predicting a rate cut in September. [Read]

401(k) fees have declined significantly: Mutual fund fees in 401(k) plans have dropped from around 0.80% in 2000 to 0.31% in 2023, saving billions for retirement savers. Lower fees allow more money to stay invested and compound over time. [Read]

Publicis Groupe raises guidance: The advertising giant reported 5.6% organic revenue growth in Q2, beating Visible Alpha’s 4.6% forecast. Publicis ($PUBGY) also bumped up its revenue growth guidance to 5% to 6% for the year, citing market share gains. [Read]

Business & Wealth

Ford shifts gears on EV plans: Ford ($F) will invest $3B to expand Super Duty truck production, including $2.3B at its Oakville plant in Canada. This reverses previous plans to convert the facility into an EV hub while its commercial business thrives. [Read]

Goldman Sachs targets retail investors: Goldman Sachs ($GS) is partnering with robo-adviser Betterment to offer sophisticated investment strategies previously reserved for wealthy clients. This move aims to boost fee revenue. [Read]

WNBA media rights value rises: The WNBA is set to receive ~$200M annually in new media rights deals, up from $60M. The players’ union executive argues that the league is still undervalued, given its recent growth and popularity. [Read]

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DIGIT OF THE DAY

Amazon Bagged A Record $14.2B During Its 48-Hour Prime Day Sale

It’s that time of the year when saved wishlist items finally make it to checkout. According to Adobe Analytics, American shoppers reached a new high during Amazon’s Prime Day sale, spending $14.2B during the two-day event — an 11% increase from last year. This surge was driven by an early start to back-to-school shopping, spurred on by significant retailer discounts.

• During the event, Amazon($AMZN) captured ~60% of total online spending, from the usual 40% on regular days, with the average household spending ~$152 this year.

• Back-to-school spending soared 216% over June’s daily sales, and electronics sales grew 61% — while the top-selling items included protein shakes, Amazon’s Fire TV Stick, and Glad trash bags (BBG).

Surf, shop, spend: Amazon isn’t the only beneficiary of online shopping sprees. Retailers like Target ($TGT) and Walmart ($WMT) have also reported increased online sales, thanks to the growing shift toward online shopping. According to FTI Consulting, US online retail sales are on track to reach $1.2T this year, and e-commerce is expected to account for ~35% of total retail sales in the next decade.

ENTERTAINMENT

YouTube Is Giving Streaming Companies A Run For Their Money

Isn’t it fitting that YouTube’s logo is red? The color, symbolizing both love and hate, perfectly captures how the platform is adored by users and despised by competitors. From Cocomelon to Mr. Beast shorts, the platform’s free videos, live sports, and movies have made it a go-to source for the world’s entertainment needs — and the envy of growth-conscious investors.

Tuning to the Tube: YouTube has dominated smaller mobile device and laptop screens, but over the last year, the streaming giant has made a bid for the bigger screens. In May, YouTube accounted for a record 9.7% of TV viewing time among households tracked by Nielsen, surpassing Netflix ($NFLX) and Hulu. Its rising status — especially among younger viewers seeking high-quality, free entertainment from creators — makes Alphabet’s ($GOOG) fastest-growing business segment look even more attractive.

• Needham & Co. estimates that YouTube would be worth $455B as a standalone company — over 50% of Netflix’s market cap and more than Disney ($DIS) and Comcast ($CMCSA) combined.

• While YouTube generates most of its revenue from advertising, it has also expanded its paid YouTube Premium and Music tiers to over 100M subscribers in recent months.

YouTube’s Star Performance

YouTube’s dominance in TV streaming, extensive reach, and diverse content offerings have drawn more advertisers to the platform. The Hollywood strikes during the pandemic prompted advertisers to pivot their spending from network TV to YouTube, further boosting ad sales. YouTube’s commitment to paying out $70B to creators over three years and launching advertiser-friendly initiatives like YouTube Select has cemented its status as a key advertising hub.

• YouTube’s second-quarter advertising revenue represented 10% of Alphabet’s total revenue, surpassing $7.7B — and is on track for $42B in 2025.

• Goldman Sachs retained its buy rating on Alphabet, raising the price target from $195 to $211, expecting higher YouTube ad revenue growth in the medium to long term (BBG).

Channel surfing to Monopoly: Several tech and competition advocacy groups have called on the US Department of Justice to investigate YouTube for bolstering Google’s dominance in home entertainment. They argue that YouTube’s automatic installation on US smartphones and TVs unfairly enhances Google’s market power — stating that YouTube’s status as a top streaming service in competition with traditional cable and other streaming platforms boosts Alphabet’s “prospects for living room dominance.”

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LARGECAP RECAP

🇹🇼 Trump Suggests Taiwan, Responsible for America’s AI Stock Boom, Should Pay For US Defense

After weeks of eerie silence, Donald Trump, the Republican nominee, is once again hogging the airwaves with headlines, platitudes, and warnings. And when Trump speaks, investors listen — especially now that he’s the popular pick to win the White House. This time, AI investors have something to worry about — with the country responsible for America’s AI stock gains in his crosshairs.

• In an expansive interview with Bloomberg Businessweek, Trump suggested that Taiwan should pay the US for defense, saying, “Taiwan doesn’t give us anything.”

• This news moved shares of major chipmakers and AI beneficiaries, including TSMC ($TSM), Nvidia ($NVDA), and ASML ($ASML) — which fell 8%, 6%, and 13%, respectively, intraday.

Trumpeting threats: A hallmark of Trump’s ideology is that countries take too much from America — and give little back. His reelection could have tectonic impacts on the global economy. In Europe, he has proposed less involvement with NATO, and in Asia, he has suggested aggressive tariffs on countries benefiting from American economic hegemony, aiming to reverse decades of job loss and offshoring. However, experts warn that these pro-American policies could inadvertently create a “disaster,” leading to more conflicts, economic angst, or outright war.

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Markets & Economy

Adidas’ earnings surprise raises outlook: Adidas hiked its 2024 earnings guidance to €1B from €700M after better-than-expected Q2 results, pushing the stock higher. Revenue rose 11% year-over-year, with 16% growth excluding struggling Yeezy sales. [Read]

Battery storage boom attracts investors: Wall Street is funding large-scale battery projects to profit from stabilizing the power grid. Intersect Power secured $837M for three Texas battery installations, highlighting the sector’s growth potential. [Read]

Spirit Airlines guides losses lower: The budget carrier warned of a Q2 adjusted loss of $160M to $173M, worse than previously estimated. After a failed acquisition, Spirit ($SAVE) grapples with weak fares, market oversupply, and an engine recall. [Read]

Business & Wealth

Amazon ad portal crash disrupts Prime Day: Amazon’s ($AMZN) marketing portal for merchants experienced a two-hour outage on Tuesday night, affecting sellers’ ability to manage ad spending during the crucial sales event. [Read]

GitLab explores potential sale: The Google-backed software developer is working with investment bankers, attracting acquisition interest from peers like Datadog ($DDOG). GitLab ($GTLB) is valued at around $8B. [Read]

Democrats overwhelmingly favor Biden withdrawal: A new AP-NORC poll shows nearly two-thirds of Democrats believe that President Joe Biden should step aside for another candidate to take on Trump. [Read]

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DIGIT OF THE DAY

Markets Predict Nearly 100% Chance of Fed Rate Cut in September

Traders have consulted crystal balls and are eagerly anticipating rate cuts. As of yesterday, the CME FedWatch tool showed nearly a 100% probability of a Federal Reserve rate reduction by September, up from 70% last month. This expectation has driven gold to a record $2,465 per troy ounce and pushed the DOW to a new high, gaining ~4% over the past week.

• This shift follows a 0.1% drop in the June Consumer Price Index from the previous month — bringing annual inflation to its lowest in three years.

• On Monday, Powell suggested that the Fed might lower rates even before inflation hits the 2% target, given the recent encouraging inflation data.

Better times ahead: Since Oct. 2022, there have been concerns about whether major tech stocks, which have significantly risen, can keep outperforming. However, the anticipation of rate cuts has spurred a shift from tech stocks to small caps and sectors like real estate and financials. This is evident from the Russell 2000, a benchmark for small-cap US stocks, which has climbed ~7% in the past five days, while the tech-heavy Roundhill Magnificent Seven ETF ($MAGS) has fallen over 7%.

HOUSING

The Rent Market is Softening, But For Many Low-Income Americans, the Costs Are Still Too High

Ask an American what the “American Dream” means to them, and they might say a family, a house, and a luxury car out front. But dreams often differ from reality — especially when just over half of Americans are renters. For some, renting is a lifestyle choice — with more affluent Americans choosing it for its flexibility and ease of maintenance. But for many Americans, it’s the only option — and it’s never been worse.

State of the renter: Although higher-income renters drive most new apartment demand, millions of Americans with no alternatives are facing the toughest rent market of their lives. According to Rent.com’s June report, nationwide rent prices are up 0.7% year-over-year to $1,654 — the highest since 2022. A Harvard University study shows that higher rents translate to a record burden on lower-income tenants — a problem even the housing market’s mild softening is unlikely to solve.

• According to the new report, 22.4M households spent over 30% of their income on rent and utilities in 2022 — and 12.1M spent over 50%.

• Over the past year, eviction filings in six major metros are up 35%+ compared with pre-COVID levels, according to Princeton’s Eviction Lab — contributing to a record amount of people experiencing homelessness.

Where’s the Roof Over America’s Head?

Urban planners suggest building more to fix the housing crisis. Although 1.6M units are under construction across the US, some regions still struggle with a supply-demand mismatch. As a result, politicians are stepping in with solutions to the cost of living crisis.

• This week, the Biden administration proposed withdrawing tax credits from landlords who raise rents by over 5% per year, targeting larger landlords for two years.

• Democrats also plan to offer first-time homebuyers a $10K tax credit, aiming to increase access to single-family homes.

Crack in the ceiling: While both policies are well-intentioned, experts warn that these policies might not work. Rent controls have been shown to discourage housing development, limiting access and prompting landlords to hike rents by the maximum amount. The tax credits proposed by the Dems would simply subsidize demand — and increase the cost — of single-family homes, which many young people are losing interest in. Unfortunately for Americans, the only way out of the housing mess is through.

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LARGECAP RECAP

🌐 The Republican Party’s Endorsement of Crypto Is Helping It Dodge A Downturn

Conservatives and libertarians have always had a soft spot for blockchain technology and cryptocurrencies, but the American right had never officially addressed its love affair with the asset class… until now. In an effort to win over thousands of single-issue, crypto-conscious voters, the Republican Party is embracing crypto — and pushing prices up in the process.

• Last week, the Bitcoin Conference announced that Republican presidential candidate Donald Trump would be its headline speaker — sending Bitcoin prices up 11%.

• Compounding the bullish news, Trump selected Ohio Senator JD Vance as his running mate this week — adding an enthusiastic, pro-crypto candidate to the Republican ticket.

Taking the orange pill: The Republican Party’s support of crypto comes weeks after the defunct Mt. Gox crypto exchange announced it would begin repaying $9B worth of bitcoin to creditors. Investors feared this would weigh on prices — prompting a month-long decline in the world’s largest cryptocurrency and prices as low as $55K. But with the seemingly unstoppable Trump on their side, plus the anticipated approval of new Ethereum ETFs in the cards, digital gold might start to look like a golden opportunity again.

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Markets & Economy

Mortgage investors skip securitization: Firms linked to Apollo ($APO) and KKR ($KKR) are increasingly buying mortgage loans directly instead of through mortgage-backed securities, seeking better yields despite the need for sophisticated management capabilities. [Read]

DOE proposes AI initiative: The Department of Energy (DOE) unveiled plans to develop energy-efficient AI supercomputers to address energy usage concerns. The agency already oversees some of the world’s fastest supercomputers. [Read]

BofA earnings dip: Bank of America’s ($BAC) Q2 profit fell nearly 7% to $6.9B due to high interest rates affecting lending. The bank anticipates improvement in the second half of 2024 but set aside $1.5B for potential credit losses. [Read]

Business & Wealth

Apple improves Android messaging: With the release of iOS 18, Apple ($AAPL) has introduced Rich Communication Services (RCS) support, enhancing cross-platform messaging with Android devices. Features include high-res media sharing and read receipts, but encryption is absent. Green bubbles remain for non-iMessage chats. [Read]

Hydropower faces challenges: Hydroelectric generation hasn’t kept pace with solar and wind power. Changes in weather patterns and competition for freshwater have reduced output. Doubling dam construction by 2050 is needed to meet climate objectives, but progress is slow. [Read]

Social Security fears drive younger workers to save more: 47% of US workers doubt Social Security will pay them upon retirement. Despite presidential opposition to benefit cuts, this skepticism has led younger workers to bump up retirement savings. [Read]

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DIGIT OF THE DAY

Global Cinema Revenue Set to Reach $44B, Still Short of Pre-COVID Levels

Cinema isn’t dead yet… and a happy ending might be on the horizon. Last year, Hollywood faced several box office letdowns due to industry strikes. But with a 30.4% rise in box office spending in 2023 and new blockbusters like Pixar’s “Inside Out 2” and “Despicable Me 4” this year, the industry is setting the stage for a cinematic comeback.

• By 2026, global cinema revenue is expected to top pre-pandemic levels — with box office revenues exceeding $40.2B and total gross eclipsing $44B.

• Although ticket sales may not fully recover, advertising revenue is projected to reach $1T by 2026 and could drive over half of the entertainment industry’s boost by 2028.

The show goes on: The global entertainment and media industry is on track to achieve $3.4T in revenue in 2028 — primarily driven by online advertising. This growth is bolstered by the return of live events like sports and concerts, and the gaming sector, projected to hit $300B by 2028. Facing fierce competition, the streaming industry is increasingly adopting ad-based revenue models, expecting these subscriptions to make up 28% of total streaming revenues by 2028.

POLITICS

Wall Street Is Embracing the Trump Trade: What That Means for Investors

It appears there’s nothing that can stop Donald Trump… not the Democrats, 34 felonies, or even an assassination attempt. And this resilience makes his fourth bid for the White House look more certain by the day.

Just one month ago, PredictIt bettors estimated Trump’s chance of winning the presidential election at 52%. By Monday, those odds had climbed to a record high of 69%. His rising popularity is now influencing broader market movements beyond meme investors — who helped pump his Trump Media ($DJT) stock by over 30% after his attempted assassination.

Trumping the opponents: Global investors now anticipate that a potential Trump presidency could bring a windfall of positive events. They’re positioning themselves for the “Trump Trade,” expecting his return to translate into deregulation, higher tariffs, and lower taxes, potentially boosting investment.

• According to Bloomberg, investors believe sectors like banking, healthcare, and oil could see gains under Trump due to expected deregulation and pro-business policies.

• On the contrary, industries reliant on government subsidies and support, such as green energy, are expected to take a hit — given Trump’s previous vocal opposition to the sector.

All Aboard the Trump Train

Not everybody is happy that America’s 45th president could also be its 47th. Goldman Sachs economists have noted that his presidency could have “profound implications” on the euro area — while Chinese analysts have suggested that his return could “spell trouble” for their economy. And those global changes could also impact Americans.

• Trump’s trade advisors have reportedly considered tariffs and trade policies that could weaken the dollar’s value, potentially increasing US exports and impacting the cost of everyday goods.

• For instance, Trump has discussed a minimum 60% tariff on Chinese imports, which the Committee for a Responsible Federal Budget estimates could generate $300B in revenue over a decade or result in a $50B loss.

And then there’s everything else… If Trump is elected, his administration and Republican allies aim to reduce the size of the federal government. Their unofficial Project 2025 proposes “an overhaul of the federal government and sweeping policy changes that would affect families’ taxes, savings and more” (CNBC). With less spending, Republicans have recommended expanding their Trump-era tax cuts, which could add $4.4T to the deficit over 11 years and primarily benefit wealthier individuals.

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LARGECAP RECAP

👝 Burberry Finds Out What’s Inside the Luxury Pandora’s Box

Cousin Greg’s date and her “ludicrously capacious bag” might have unwittingly triggered Burberry’s downfall. While major luxury brands like LVMH ($LVMUY) and Kering ($PPRUY) have dropped ~21% and ~36%, respectively, over the past year, Burberry ($BURBY) stands out like “a lunch pail” and has fallen 64% in the same time.

After yet another rocky quarterly performance, the British luxury brand slashed its dividend and fired CEO Jonathan Akeroyd — bringing in Joshua Shulman, the former CEO of Michael Kors, Coach, and Jimmy Choo, as the new leader.

• In 2022, Burberry brought on Daniel Lee, who had previously revamped Bottega Veneta, as its chief creative officer, in an attempt to take Burberry in a new direction by making it “cooler, haughtier, edgier.”

• But this shift coincided with a luxury market slowdown that led to Burberry’s retail sales declining 22% in the latest quarter — and on the wholesale side, the company expects revenue to decrease by 30% for 2025.

High fashion, low demand: The luxury spending slowdown has affected the entire industry’s sales, but Burberry’s challenges are compounded by its heavy reliance on Chinese consumers, who have cut back on luxury spending amid economic troubles. The downturn has been so severe that CFO Kate Ferry has hinted at potential job cuts as the company seeks to lower costs.

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Markets & Economy

Ethereum ETFs to launch: Bloomberg’s Eric Balchunas reports that the Securities and Exchange Commission (SEC) is requesting final changes to regulatory documents from fund issuers before the launch of Ethereum ETFs this week or early next week. [Read]

Alphabet ($GOOGL) announces its largest acquisition: Google’s parent company, Alphabet, is in talks to buy cloud cybersecurity startup Wiz for a potential $23B. This move aims to strengthen its position against Microsoft ($MSFT) and Amazon ($AMZN) as more companies shift to cloud services. [Read]

Macy’s ($M) rejects $6.9B buyout offer: Macy’s board has ended discussions with Arkhouse and Brigade over a buyout offer, citing financial issues and insufficient value. Macy’s is also closing 150 stores this year as part of its turnaround strategy. [Read]

Business & Wealth

OpenAI claims progress on AI reasoning: Researchers believe they are nearing development of artificial intelligence capable of human-level “reasoning,” aiming to advance to the second stage of their five-level artificial general intelligence (AGI) scale. [Read]

Amazon Prime Day set for record sales: Adobe Analytics forecasts Amazon’s Prime Day will generate $14B in US online spending from July 16-17, up 10.5% from last year, despite competition from other retailers’ earlier sales events. [Read]

US homebuilding permits stall: US metro areas are expected to issue fewer housing permits this year, despite a 3M housing unit shortage. This move supports higher housing prices amid ongoing interest rate and labor challenges. [Read]

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DIGIT OF THE DAY

Apple Hits $8B Sales Milestone in India As The Company Reduces Dependence on China

After hitting a great wall with its growth plans in China, Apple ($AAPL) found a new path through India’s gateway. The company’s revenue in India reached a record ~$8B for the year ending March 2024, marking a 33% increase in annual sales from the previous year. Facing trade tensions with China, Apple is working to reduce its reliance on the Chinese market and is focusing on alternative markets like India to diversify its manufacturing and revenue sources.

• iPhones drove more than half of India’s record sales — and now hold about a 3.5% share of the 690M active smartphones in the country.

• India accounts for ~2% of Apple’s total $383B in fiscal-year sales, and CEO Tim Cook sees India as “an incredibly exciting market” and a “major focus.”

The apple of analysts’ eyes: After a rocky start to 2024, Apple has been getting love from analysts — with shares rising ~27% this year. The tech giant emerged as a top pick at Morgan Stanley following the announcement of its new AI platform, Apple Intelligence. With India’s growth potential and Apple’s strategic expansion into AI, analysts see this as a bullish opportunity. Loop Capital has upgraded Apple to “buy” and set a new price target of $300, up from $170.