Last Week on Wall Street

The volcanic 10-year US Treasury yield has been threatening to cross a 5% threshold for a good few weeks now, sucking the sugary highs out of the major Wall Street indices.

But last week for a moment the theoretical magnetic poles between bonds and equities reversed.

The previously unstoppable US 10-year yield fell 0.16 points to 4.63%, leaving the S&P 500 up +0.6% for the week, the Dow Jones Industrial Average +0.8% and the Nasdaq Composite ahead by +0.3%.

There’s a much-loved conceptual inverse correlation between rising bond yields and falling stock prices – and this at least gave markets something consistent to hang on to during a wild week.

Now with Q3 earnings season a happening thing, hopes are riding on a strong showing from the Magnificent Seven and what they might be able to do during what is historically supposed to be Wall Street’s strongest period of the year – the run into Christmas – where the S&P 500 has risen 70% of the time going back to October 1953, with an average gain of 6.8%.

This of course brings the familiar big names into play, seven ludicrously large tech players we know and love/loathe collectively as Big Tech and now represent very close to 30% of the entire S&P 500.

As their share prices have increased this year, the consternation about their strength has only grown.

The share prices of Messrs Apple (AAPL), Amazon (AMZN), Google parent Alphabet (GOOG, GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) have enjoyed the benefits of AI excitement, and after pulling back hard over the ascension of the bond yield are now more attractively priced than at any time in this half.

Consider that so far this year, the Mag 7 have averaged somewhere around a 95% gain year to date.

Even the worst of the bunch – Microsoft and Apple, are still ahead by about 37% each. That’s almost as good as x3 the benchmark’s YTD rise of 13%.

Morgan Stanley’s US equities man, Andrew Slimmon, told Dow Jones over the weekend that equities markets are looking good for a Q4 rally after the past two awful months.

“The ideal setup going into earnings season is when there’s a high level of worry, which there is now…   The worst setup going into earnings is when the market is red hot and ripping higher.”

Legendary Wedbush analyst Dan Ives is one of a decent number of US observers sensing opportunity.

“Our view is that 3Q earnings over the coming weeks will be an eye opener for the Street as the transformational AI growth and stabilizing IT spending environment will create a massive tech rally heading into year end in which we expect tech stocks to be up another 12%-15% in 4Q.”

OFC a new blue streak for tech depends very much on the earnings numbers they can deliver over the next sessions.

Tesla is up in a few days, so there will not be long for punters to wait.

While the big names might be a bloody expensive buy, it’s a good reminder to look back at what they can do and where they’ve come from. Expensive as they are, the big 7 are still cheaper than where they left the bull run in 2021.

The 7 share prices trade on average @ 33 x 12-month forward earnings, which is heavily down from more than 51 when things went off the boil at the end of 2021.

Group analysts expect earnings to grow almost across the board this third quarter, and if that happens, you’d reckon it’d go a long way to guaranteeing the S&P 500 moves ahead in the near-term.


Tech company news

Sensible stuff first:

Variety last week said it feared “Taylor Swift: The Eras Tour” could reap US$100-$125 million in a domestic opening weekend of box office receipts.

With that other pop icon Beyoncé working with AMC Entertainment Holdings Inc (AMC) to release her own Film of the Tour, of the Album , the industry suddenly has two films that weren’t even on the radar a couple months ago likely to contribute 10s of millions, if not 100s of millions of dollars to the US domestic box office bottom line.

AMC has been tapped to serve as the Swift/Beyoncé distributor. It previously described that development as the “inaugural step of a new line of business” for the company.

The company is also playing the movie at its own theatres, offering four daily showings of “Taylor Swift: The Eras Tour” at a minimum Thursday through Sunday.

AMC stock dropped 13% on Friday.

Meanwhile, Groupon (GRPN) shares jumped on Friday after a surprisingly upbeat broker call out of Roth MKM, which initiated coverage of the comparison website with a Buy rating and a stonking US$30 target price, nearly three times what the price was at the close of the previous session  at circa US$12.

Groupon’s ability to generate cash when its business is growing is “severely under-appreciated,” MKM Roth says, with some $245 million in the pocket left on an existing stock repurchase plan – lying dormant since pre-pandemic days.

Groupon shares fell sharply after the company revealed last week a deal to sell a wee bit of its stake in SumUp for a price that implied a much lower valuation than investors had expected.

Imagine – it’s been almost 22 months since Microsoft revealed plans for their largest acquisition ever – and late last week MSFT was told by EU and Brit regulators it can chew and swallow its $69 billion absorption of Call of Duty game publisher Activision Blizzard, according to a regulatory filing late last week.

It’s Microsoft’s largest deal in its 48-year history and comes after the company quelled concerns about competition from UK and European regulators and gained a favourable ruling from a US district judge.

The Brit’s Competition and Markets Authority gave its nod to the deal earlier Friday, clearing the way for the close. The agreement, high-fived back in January 2022, gives Microsoft a blockbuster portfolio of video game franchises, including Call of Duty, Crash Bandicoot, Diablo, Overwatch, StarCraft, Tony Hawk Pro Skater and Warcraft.

The game developer generated US$7.5 billion in revenue in its latest fiscal year, a small fraction of the US$212 billion in sales reeled in by Microsoft.

Tech player Jabil is offloading its manufacturing business in China to BYD Electronic, a subsidiary of the Chinese EV maker BYD, in a deal reportedly worth a handy US$2.2 billion.

In a statement, the contract electronics manufacturer called the sale its largest ever.

“If completed, the proceeds from this transaction will enable us to enhance our shareholder-centric capital framework, including incremental share buybacks,” said the JBL boss Ken Wilson.

Wilson says the cash will go directly into “opportunities for further investment in electric vehicles, renewable energy, healthcare, AI cloud data centres.”

Jabil shares were up 8% on the news.

Finally, Birkenstock (BIRK) began its listed life on Wednesday in New York, at US$41 per share after its highly-anticipated IPO launched at $46 a pop, valuing the company at US$8.6bn.

The super sandle-maker’s stock stumbled throughout the session, finally ending 12.6% lower at $40.20 a share. Based on Birkenstock’s (BIRK) SEC filings, the stock began trading with a higher price-to-earnings multiple than sector peers such as Skechers (SKX), Crocs (CROX), and Steve Madden (SHOO).

Wider concerns regarding Birkenstock’s financials remain, given the premium valuation it’d sought in the IPO. SA analyst Douglas McKenny called it a “dangerous” stock to buy on account of its weak profitability.


Elon Watch

Elon’s Starlink satellite network now numbers a customer base of circa two million across 60 countries. That’s a decent headstart, but there’s a flotilla of telco-sounding global competitors en route to outer space already with their own constellations of internet-generating space drone  satellites.

State-backed telcos in China, Europe, Taiwan, Canada and Germany, usually under some genre of public-private partnership, are long on the case. And you know it’s going mainstream when Amazon has gone and launched the first two satellites of what Jeff’s Jungle has promised will soon ‘be thousands’ in a network that will go head-to-head with Musk’s offering.

Elon Musk’s X broke the law in firing an employee who criticised management’s return-to-work policy, the National Labor Relations Board alleged, in its first formal complaint against X, the funny company formally known as Twitter.

The claim is X violated the US National Labor Relations Act by sacking Yao Yue, a software engineer, which came pretty quick after Elon took hold of Twitter in October 2022r. The NLRB alleged that X fired Yue after she tried in vain to organise other X workers who were upset about Musk’s sudden change to the company’s work requirements.

CNBC says Musk emailed Twitter staff outlining his usually made expectations: ie: “…any manager who falsely claims that someone reporting to them is doing excellent work or that a given role is essential, whether remote or not, will be exited from the company.”

“If you can physically make it to an office and you don’t show up, resignation accepted,” Musk said, according to the union.

That led several workers to express “concern and outrage” over the directive to return to the office immediately, according to the original legal charge document that was filed in March.

ASML continued to rally off lows and is up more than 4% so far this week, but the stock’s 10-week and 40-moving average lines are still potential resistance levels to watch.

Results from ASML are due Wednesday. The streets estimate for adjusted profit of $5.09 a share, up 18% from the year-earlier quarter. Revenue is seen rising 29% to $7.49 billion.

Last month, Reuters reported that Taiwan Semi told major suppliers to delay the delivery of high-end chipmaking equipment due to soft demand. Results from TSMC are due early Thursday.

The US Economic Week

Monday October 16 – Friday October 20

Empire State manufacturing survey (Oct)
Fedspeak: Philadelphia Fed President Patrick Harker
US. retail sales (Sep)
Retail sales minus autos (Sep)
Industrial production (Sep)
Capacity utilisation (Sep)
Fedspeak: Fed Gov. Michelle Bowman
Business inventories (Aug)
Home builder confidence index (Oct)
Fedspeak: Richmond Fed President Tom Barkin
Fedspeak: Minneapolis Fed President Neel Kashkari

Fedspeak: Housing starts (Sep)
Fedspeak: Building permits (Sep)
Fedspeak: Fed Gov. Chris Waller speaks
Fedspeak: New York Fed President John Williams
Fed Beige Book
Fedspeak: Fed Gov. Lisa Cook

Initial jobless claims (Oct)
Philadelphia Fed manufacturing survey (Oct)
Existing home sales (Sept)
US leading economic indicators (Sep)
Fedspeak: Fed Chairman Jerome Powell
Fedspeak: Chicago Fed President Austan Goolsbee
Fedspeak: Fed Vice-Chair for Banking Michael Barr
Fedspeak: Atlanta Fed President Raphael Bostic
Fedspeak: Dallas Fed President Lorie Logan

Fedspeak: Cleveland Fed President Loretta Mester

The Everyone Else Economic Calendar

Monday October 16 – Friday October 20


Indonesia Trade (Sep)
Japan Industrial Production (Aug, final)
Germany Wholesale Prices (Sep)
Italy CPI (Sep, final)
Eurozone Balance of Trade (Aug)
Canada Manufacturing Sales (Aug, final)

South Korea Export and Import Prices (Sep)
New Zealand CPI (Q3)
Singapore Non-oil Domestic Exports (Sep)
United Kingdom Labour Market Report (Aug)
Germany ZEW Economic Sentiment (Oct)
Canada Inflation (Sep)
Canada Housing Starts (Sep)
United States Retail Sales (Sep)
United States Industrial Production (Sep)
United States Business Inventories (Aug)

China (Mainland) GDP (Q3)
China (Mainland) Industrial Production (Sep)
China (Mainland) Retail Sales (Sep)
China (Mainland) Unemployment Rate (Sep)
China (Mainland) Industrial Capacity Utilisation (Sep)
United Kingdom Inflation (Sep)
South Africa Inflation (Sep)
Eurozone Inflation (Sep, final)
United States Building Permits (Sep)
United States Housing Starts (Sep)

Japan Trade (Sep)
South Korea BOK Interest Rate Decision
China (Mainland) House Price Index (Sep)
Malaysia Trade (Sep)
Indonesia BI Interest Rate Decision
United States Initial Jobless Claims
United States Existing Home Sales (Sep)

China (Mainland) Market Holiday
New Zealand Trade (Sep)
Japan Inflation (Sep)
China (Mainland) Loan Prime Rate (Sep)
Malaysia GDP (Q3, prelim)
Malaysia Inflation (Sep)
United Kingdom Retail Sales (Sep)
Taiwan Export Orders (Sep)
Hong Kong Inflation (Sep)
Canada Retail Sales (Aug)
Canada New Housing Prices (Sep)