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mXa Roundup - Volume 24

February 12th - 16th, 2024

Unanticipatedly high inflation data muddies the rate cut picture, prompting a bond selloff and equity rally

  • The S&P 500 is up 0.58%, the Nasdaq is up 0.30%, and the Dow Industrials is up 0.91% WTD; a week of favorable earnings in consumer goods and industrials has supported equity growth amongst a higher-than-expected CPI report

  • The 10-Yr U.S. Treasury yield has decreased 0.029% to a current yield of 4.254%, whereas the 30-Yr U.S. Treasury yield decreased 0.017% to a current yield of 4.426%; Tuesday’s CPI report highlighted a longer road for potential rate cuts

  • Crude oil prices increased 1.87% to a current $78.07/bbl while bitcoin increased 7.98% to a current $51,741.65/coin; institutional bitcoin ETFs have spurred on outside investors, leading to recent high from 2021

  • In January, inflation moderated slightly but still exceeded Wall Street's expectations, with consumer prices rising 3.1% from a year earlier, marking the lowest reading since June [WSJ]

  • Coca-Cola reported solid fourth-quarter results with a 12% increase in organic sales, driven mainly by price rises but also showing a 2% rise in underlying case volume [WSJ]

  • Baylor University's endowment, led by investment chief David Morehead, has outperformed Ivy League endowments over the past five years by actively seizing on market movements to adjust its asset allocations [WSJ]

Rising interest rates and inflation concerns weigh on commercial bond portfolios, while AI stocks benefit from continued growth expectations

  • When the bell rang to open the stock market on Monday morning, it marked the first time the S&P 500, an index that tracks the largest companies in the US, began the trading day above 5,000 points; the latest surge has been dizzying, with the S&P rallying 20% from early November [WP]

  • There is an indirect way to get a picture of the pressures building on some banks’ loan books: commercial mortgage-backed securities; a troubling picture has emerged in looking at a list of 220 troubled loans that have recent reappraisal data – the average valuation decline for offices is 40%, according to CRED iQ [WSJ]

  • Bitcoin is back above $50,000 for the first time since December 2021; one potential driver: inflows into U.S. exchange-traded funds that directly hold the cryptocurrency [WSJ]

  • Taiwan's stock market, led by chip stocks, surged to an all-time high on the first trading day of the Year of the Dragon [WSJ]

  • Stocks are setting repeated highs, reigniting a perennial debate about whether they are too expensive; popular valuation methods can help investors break down whether a stock or index looks cheap or pricey [WSJ]

  • The enthusiasm for artificial intelligence in the stock market hasn't translated into significant growth for insurance technology companies (insurtech), as evidenced by stagnant stock prices and a 44% decrease in global insurtech funding in 2023 [WSJ]

M&A activity continues to remain mixed, although developments within energy, healthcare, and technology prove to be encouraging

  • Diamondback Energy agreed to acquire Permian rival Endeavor Energy Resources in a cash-and-stock $26B deal [FT]

  • US drugmaker Gilead Sciences agreed to purchase liver disease treatment developer CymaBay Therapeutics for $4.3B [RT]

  • Dutch insurer Achmea is weighing the sale of its life insurance division, which could yield $3.2B [RT]

  • PE firm EQT is exploring a sale of Spanish property website Idealista, which could be valued at ~$2.7B in a sale, including debt [RT]

  • Walmart is in talks to purchase smart television-manufacturer Vizio for over $2B to help grow its advertising business [WSJ]

  • Colorado filed a lawsuit seeking to block Kroger's $24.6B acquisition of of rival supermarket chain Albertsons, citing consumer harm [BBG]

  • KKR agreed to acquire a 50% stake in Cotiviti from PE manager Veritas Capital in a deal valuing the healthcare-technology business at ~$11B; the two firms will own equal ownership stakes in Cotiviti [WSJ]

  • Japanese semiconductor maker Renesas Electronics will acquire Australia-listed software firm Altium for $5.9B [BBG]

  • Tech-focused PE firm Welsh Carson Anderson & Stowe is weighing a sale of Avetta in a deal that could value the supply chain risk compliance platform at ~$3B, including debt [BBG]

Recent developments across four key industries highlight continued energy consolidation and further job cuts in both technology and finance

Energy & Natural Resources

  • Diamondback Energy's merger with Endeavor Energy forms a Permian pure play with an enterprise value of approximately $60 billion and a pro-forma production of 816,000 barrels of oil equivalent per day, positioning Diamondback as one of the largest independents after ConocoPhillips [RZ]

  • OPEC kept its global oil-demand growth expectations unchanged while raising its economic forecast, citing easing inflation and anticipated interest-rate cuts [WSJ]

  • America's residential solar companies are facing challenges including high interest rates and reduced state incentives, leading to bankruptcies, layoffs, and restructuring plans among major players like Sunlight Financial, SunPower, Enphase Energy, and SolarEdge Technologies [WSJ]

  • The International Energy Agency (IEA) forecasts weaker global oil demand growth at 1.2 million barrels a day this year due to slower economic growth, while anticipating a rise in oil supply by 1.7 million barrels a day, led by countries outside the OPEC+ group [WSJ]

Technology, Media, & Telecommunications

  • The rise of generative AI is leading to layoffs in white-collar jobs across various industries, with companies like Google, Duolingo, and UPS already experiencing cuts [WSJ]

  • Microsoft's Azure cloud infrastructure is rapidly closing the gap with Amazon Web Services (AWS) with AI being the main contributor [CNBC]

  • OpenAI Chief Executive Sam Altman is proposing to reshape the semiconductor industry by investing trillions of dollars into building and operating new chip factories, aiming to address the shortage of cutting-edge chips needed for AI systems [WSJ]

  • ZoomInfo Technologies’s stock soared almost 25% on Tuesday after its revenue and earnings beat estimates in the fourth quarter [WSJ]

  • Airbnb shares fell ~5% on Wednesday despite reporting better-than-expected Q4 revenue and issuing an optimistic forecast [CNBC]

  • Lyft shares jumped ~18% after beating Q4 earnings and revenue estimates and forecasting higher-than-expected Q1 bookings; the stock initially jumped 60% due to an earnings typo regarding margin expansion [CNBC]

Healthcare & Life Sciences

  • Companies offering private Medicare plans are facing revenue and cost pressures and need to make some tough decisions; they can either sacrifice profit margins to continue growing or pull back on benefits to boost profitability [WSJ]

  • The Federal Trade Commission (FTC) is launching an inquiry into recent shortages of chemotherapies and other drugs, focusing on the role of companies that facilitate drug purchases for hospitals [WSJ]

Financial Services

  • Warren Buffett's Berkshire Hathaway slightly reduced its stake in Apple by about 1% in the fourth quarter of 2023, leaving it with a 5.9% stake valued at approximately $167 billion [WSJ]

  • The yen weakened to ¥150 per U.S. dollar for the first time in nearly three months, prompting a senior Japanese official to threaten action to stabilize the currency amid concerns over its negative impact on the economy [WSJ]

Outside of standard macroeconomic updates and M&A developments, the super bowl set viewership record, Putin backed Biden for 2024, and the senate approved $95.3B in aid

  • The Senate passed a $95.3 billion aid package supported by President Biden, which includes assistance for Ukraine, Israel, and Taiwan, despite objections from some Republicans [WSJ]

  • China has emerged as the world's leading shipbuilder, with more than half of the world's commercial shipbuilding output coming from Chinese shipyards [WSJ]

  • Ian Jacobs, an heir of the Reichmann real-estate dynasty, is bucking the trend by investing in San Francisco's downtown real-estate market, aiming to buy office buildings at significant discounts amid the city's commercial real-estate collapse [WSJ]

  • The Super Bowl, featuring the Kansas City Chiefs' victory over the San Francisco 49ers, attracted a record-breaking 123.7 million viewers in the United States, marking the largest viewership for any event since the moon landing in 1969 [RT]

  • Kelvin Kiptum, the 24-year-old who holds the world record for the men’s marathon, died in a car crash in his home country of Kenya, along with his coach [BBC]

  • Morgan Stanley, under new CEO Ted Pick, plans to cut several hundred jobs in its wealth-management division, representing less than 1% of the unit's total employees [WSJ]

  • The proliferation of artificial intelligence technology has made it easier to spread deceptive content online, posing unprecedented challenges for policing such content in the 2024 U.S. presidential election [WSJ]

  • Russian President Vladimir Putin expressed a preference for President Biden to win the 2024 U.S. election over former President Trump, citing Biden's experience and predictability [AX]

Gavin McManus

Feb 16, 2024

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