Sunday Ghospel

Reflections and Outlooks. On Sundays.

Author

Philip Kurzrock
October 21, 2024 • Today's Reading Time: 8 minutes

Happy Sunday

gold continues to hit all time highs. All that glitters is in fact gold right now. Watching the price surge above USD 2,700, I cannot help but echo Austin Powers’ notorious villain (next to Dr. Evil) — Goldmember:

I love Gold

Goldmember

With the soundtrack looping in my head and the closest cash for gold shop on speed dial, I reflect on the week.

Cheers
Philip

The week in review

Taking the temperature

  • The S&P 500 eked out gains, with utilities and real estate propping it up, while energy lagged as oil retreated amid easing Israel-Iran tensions. The small-cap Russell 2000 and S&P MidCap 400 had a rare but solid week of gains.

  • The Nasdaq experienced a late-week surge, driven by TSMC's solid Q3 earnings (thanks to AI demand) which revived the tech trade. Netflix also contributed positively, with subscriptions and margins outperforming forecasts. Q3 was the most profitable in the streaming platform’s history. The company beat analyst expectations on subscribers added - highlighting: the sub count grew across all regions last year. 283m of us who log in only to scroll for hours never to select the right show to watch. Breaking down the subscription economics a bit:

    • USD 11.60 for a monthly subscription (monthly ARPU spread on the 283m subscriber count)

    • Just over USD 6 gets spent on delivering actual content — this being the cost of licenses, production content delivery

    • Marketing takes USD 0.76

    • Technology and development comes in at USD 0.87

    • G&A overheads cut in close to half a dollar

    • Netflix is left with a pretty USD 3.44 in operating profit. USD 2.79 net

  • Jobless claims declined to 241k, easing after Hurricane Helene disruptions. Continuing claims slightly missed expectations, at 1.867m. Looking at larger trends and beyond the weekly jobless claims, a tight labor market may be on the horizon. The increasing share of retirees, as the median age rises, is driving a shortage of labor supply. This has been offset by the only growth driver for the US labor force: foreign-born workers. If labor conditions are meant to improve, a prohibitive immigration policy stance, as proposed in a Trump administration, seems counterproductive.

  • The much anticipated US retail sales report came in hot. Sales up 0.4% for September (vs. 0.1% uptick registered in August) - ahead of the 0.3% estimates. The strength is broad-based. Core sales saw fastest growth in three months — +0.7%

  • While consumers are ahead of the curve, industrial production took a hit, as the September reading fell by 0.3%. The Fed is quick to attribute this drop to hurricanes and Boeing’s machinist strike. However, while IP may be down, capex expectations for manufacturing paint an opportune picture. The story goes as follows: massive and consecutive underinvestment in manufacturing, combined with increasingly aging infrastructure, is meeting a wave of re-shoring efforts. Unless manufacturing companies can magically continue competing globally with aged infrastructure, investment in these assets will need to ramp up. Clear tailwinds.

  • ECB is back to back in cutting rates. The first time in 13 years. Key rate is now down to 325bps and markets are eyeing another trim in December - despite Lagarde stating disinflation to be “well on track”. Villeroy is calling 2% inflation for early next year

  • Eurozone inflation surprises lower. Revision of the figure to 1.7% for September (vs. 1.8%). UK inflation also cooled to 1.7%, opening the door for a BoE rate cut

  • For those who missed the hiccups at ASML and the home-run earnings reports from Goldman (net: +45%) and MS (net': +32%): Q3 earnings season is now in full swing. Analysts predict 4.1% earnings growth across the S&P. Regarding earnings, the tax question has been central in the US presidential debates. Initial estimates show the impact a Harris administration (implying a tax increase of 7ppts from the 21% baseline) and a Trump administration (lowering taxes by 6ppts from the 21% baseline) may have on EPS. These figures, however, miss a vital point: the fiscal detriment this may cause. With deficits already at all-time highs, US 10Y yields have rallied, and a tax cut will surely not help.

Venture tabs

421 Completed Deals across
EUR 5.5bn in Capital Invested

No glaring AI deal cracking the top 10 this week. Like a tech buffet without the main course. So - before we dive in - here are two snacks to curve the (AI)ppetite:

Top 10 Deals

  1. Praxis | US | EUR 474m | Skill-centric residential society real estate developer

  2. X Energy | US | EUR 452m | Developer of Small Modular Reactors and Fuel Technology

  3. Treeline Biosciences | US | EUR 381m | Precision drug discovery platform focussed on cancer treatment

  4. Lightmatter | US | EUR 362m @ EUR 3.6bn pre-money | Light-powered chip manufacturer

  5. Koloma | US | EUR 267m @ EUR 541m pre-money | Data driven identification of clean hydrogen resources

  6. Blockstream | Canada | EUR 189m | Streamlined blockchain infrastructure via sidechains

  7. Eruditus Exec. Education | Singapore | EUR 136m @ EUR 2.6bn pre-money | Executive education programs

  8. Observe | US | EUR 131m | Enterprise SaaS focussed on data analytics and troubleshooting for engineering and DevOps

  9. Ocean-sky Silkroad Satellite | China | EUR 128m | Operator of satellite communication and internet

  10. Terray Therapeutics | US | EUR 108m | Precision chemical datasets to enhance drug discovery

Top 10 Investors

  1. Andreessen Horowitz | US | 5 Investments

  2. Accel | US | 4 Investments

  3. Founders Factory | UK | 4 Investments

  4. Trust Valley | Switzerland | 4 Investments

  5. Y Combinator | US | 4 Investments

  6. Firestreak Ventures | US | 3 Investments

  7. Genesis Pre-Seed | Australia | 3 Investments

  8. Google Ventures | US | 3 Investments

  9. Scale Venture Partners | US | 3 Investments

  10. Soma Capital | US | 3 Investments

The week ahead

Economic Events

Wednesday

BoC (My maple syruped friends) interest rate decision

  • Expected to cut rates by 50bps

  • Current rate: 425bps

Thursday

Manufacturing PMI for October

  • Consensus: 47.5

  • Last: 47.3

Services PMI for October

  • Consensus: 55.0

  • Last: 55.2

Friday

Durable Goods Orders for September

  • Consensus: (1.1)% MoM

  • Last: 0.0% MoM

Earnings I will be watching

The less the economic calendar has to offer, the more earnings are stepping up to the plate to secure it does not get boring. Next to Financial Services, its a big week for Semis and the readacross to AI (relevant titles in bold)

  • SAP

  • Kaspi.kz

  • Nucor

  • Sandvik

  • Logitech

  • 3M

  • Verizon

  • RTX

  • GE Aero

  • Lockheed Martin

  • Broker Hughes

  • Philip Morris

  • Texas Instruments

  • Tesla

  • Vertiv

  • Lam Research

  • ThermoFischer (especially considering Data Center HVAC)

  • Coca Cola

  • IBM

  • CME Group

  • ServiceNow

  • Boeing

  • QuantumScape

  • GE Vernova

  • Boston Scientific

  • T Mobile

  • UPS

  • American Airlines

  • Southwest

  • Nasdaq

  • Carrier (HVAC again)

  • Coursera

  • Wisdom Tree

  • Piper Sandler

  • Colgate Palmolive