Cover:
-Tesla, once a leading car innovation company, is at risk of becoming just another auto maker. Elon Musk's vision of Tesla as the Apple of autos has led to its rapid growth, with the company building electric vehicles and selling everything from self-driving technology to solar panels and energy storage batteries. However, Tesla's EV lead has narrowed, and the company's aura of inevitability has diminished. Companies like Ford Motor, General Motors, Volkswagen, BMW, BYD, NIO, Toyota Motor, and Hyundai Motor make EVs, including hybrids, which Tesla has no desire to match. Tesla's high-tech gadgets and features are available in cars from Mercedes-Benz Group's Mercedes EQE to the more affordable Chevy Equinox. Tesla stock is currently 40% below its record high as EV growth decelerates globally.
Interview:
-Roger Ferguson, a former vice chair of the Federal Reserve (Fed), has a unique perspective on interest-rate cuts and hikes. Ferguson, who served from 1999 to 2006, was the only member of the Board of Governors in Washington after the 9/11 attacks. During the chaos and fear, Ferguson had to make key decisions to ensure the US banking system did not seize up. He refused to declare a bank holiday and instead stated that the Federal Reserve System was open and operating. Ferguson's early life was atypical for a Fed board member, as he grew up in a segregated neighborhood in northeast Washington, DC His mother was a public elementary-school teacher, and his father was a civilian cartographer. His father's upbringing during the Depression influenced his fascination with financial literacy, which he emphasized at the kitchen table.
Tech Trader:
-Alphabet's NotebookLM, part of Google Lab's NotebookLM project, is an AI-powered podcast tool that transforms content into a dialogue between two hosts. The tool, which sounds like science fiction, is available to users today. The feature has sparked a viral response on social media, with early adopters posting their favorite custom-made AI podcasts. NotebookLM product lead Raiza Martin suggested that the attention had overwhelmed Google's AI chip infrastructure. Andrej Karpathy, Tesla's former director of AI and OpenAI co-founder, wrote about his AI creation, describing it as his favorite podcast. NotebookLM has been steadily improved since its introduction last year, becoming a personal AI research assistant. The service allows users to upload up to 50 sources, including website links, PDF documents, MP3 audio files, and YouTube videos. After uploading sources, users can ask model questions based on the information in those sources. NotebookLM is powered by Google's most advanced AI model, Gemini 1.5 Pro, which offers greater memory capacity and the ability to take in more context from users.
The Trader:
-ResMed stock has been rallying since July, when Eli Lilly released data showing that one of its GLP-1 obesity drugs had significantly reduced the severity of obstructive sleep apnea (OSA). The market feared this would reduce demand for ResMed's various CPAP airflow machines, which patients wear during sleep to relieve the condition. However, the market realized that GLP-1 drugs were unlikely to damage ResMed's business, as less than half of the GLP-1 population has OSA and not all sufferers use face masks. ResMed's data shows that GLP-1 patients are more likely to use its machines when they start to focus on their respiratory health. The company has also acquired small software firms that provide data to patients and doctors, generating a small portion of total revenue but enabling patients to better understand the condition and limit their healthcare costs.
-The S&P 500 index has dropped 0.4% this week, while the Nasdaq Composite and Dow Jones Industrial Average have fallen 0.7% and 0.5% respectively. Military tensions in the Middle East have raised oil prices, but the market remains confident in the economy. The US added more jobs than expected in September, and the Federal Reserve is not afraid of the Fed's continued interest rate cuts. The S&P 500 is on track to close the week at 5717, still within reach of its record high of 5762. Several factors contribute to this, including the Fed cutting its federal-funds rate by a half-point in September to keep the economy growing, lower rates on bonds making stocks more attractive, and Nvidia's 1.1% gain after CEO Jensen Huang confirmed that the company's artificial-intelligence chips are in full production. This has pushed the S&P 500 up by double digits this year, including a 2.1% gain in September. This year's countertrend sets the stage for more gains throughout the rest of the year. After September gains, the market has risen in the fourth quarter 79% of the time, averaging an advance of 5.1%, according to Bank of America. If the S&P 500 rises in line with this average for the fourth quarter, it would end the year at just over 6000.
Features:
-Port workers in the US have been granted a 62% wage increase by port operators over the next six years, allowing ports from Maine to the Gulf of Mexico to reopen. The agreement, which ended a three-day port strike, will lift pay for some workers to levels similar to doctors. However, the situation is more complex than that. Dockworkers, represented by the International Longshoremen's Association, have some of the highest wages among blue-collar workers, with a top-scale longshoreman earning up to $39 an hour. The 62% raise would increase this number to $131,220 per year, before overtime and other factors. Dockworkers' wages vary widely depending on skill and seniority, with many operating multi-million-dollar container-handling equipment for a mere $20 an hour. Pay also depends on the number of hours, where, and when someone works, with after-hours or overtime shifts usually paid at higher rates. A report from the Waterfront Commission, a regulator for New York Harbor, showed that annual earnings for longshore workers in 2020 ranged from less than $25,000 to above $450,000.
-Hurricane Helene has caused significant financial losses for the auto industry, with General Motors shutting down all vehicle production at two factories in Flint, Michigan, and Arlington, Texas, due to supplier impacts. The affected factories employ over 10,000 workers and produce heavy-duty trucks and full-size SUVs, including the Chevy Silverado HD and GMC Sierra HD pickups, as well as the Chevy Tahoe, Suburban, and Escalade SUVs. Stellantis, the parent company of Jeep and Fiat, said its production was not affected by Helene. Ford F did not immediately respond to Barron's request for comment. GM did not comment on whether there would be additional shift cancellations next week. The total economic losses from Helene are estimated to be in the billions of dollars, with Gallagher Re estimating total economic losses at $35B. A preliminary estimate from Moody's put the total damage between $20B and $34B, including property damage and $5B to $8B in lost output due to building closures and power outages.
European Trader:
-Wall Street has been downgrading shares of Stellantis, parent company of Jeep and Chrysler, following disappointing financial guidance. The company's 2023 record was a disappointment for the company, with its full-year adjusted operating income margins at 5.5% to 7%, and free cash flow expected to be negative $5.6B to $11.2B. Stellantis is now considering a fresh look at expansions, with CFO Natalie Knight instructing her finance team to scrutinize requests for purchases from outside vendors to rein in expenses. Several other analysts have cut their price targets while maintaining their ratings. The average analyst price target is about $18 a share, down from about $20 a few weeks ago and about $26 entering 2024. 46% of analysts covering the stock rate shares Buy, with the average Buy-rating ratio for shares in the S&P 500 being about 55%. The problem for Stellantis is not with EVs or hybrids but with dealers' inventory levels getting too high. U.S. inventories for Dodge dealers ended August at almost 150 days of sales, up from 116 a year ago. The company has blamed poor marketing among other things, but the situation has angered dealers. Wall Street now expects 2024 operating profit to be below $13B, down by almost 50%.
Emerging Markets:
-Emerging market stocks are gaining momentum and are expected to continue their outperformance compared to U.S. stocks. The iShares MSCI Emerging Markets ETF has seen a 11% increase to just over $46 from its September 6 low, beating the S&P 500 index's 6% return over the same period. The Federal Reserve has cut interest rates to maintain U.S. economic growth, while China has implemented measures to boost its economy, including reducing cash bank reserves and lowering mortgage rates. These factors will support the Chinese economy and Chinese stocks, which represent a quarter of the market value of the Emerging Markets ETF. However, emerging market underperformance has become legendary, with the ETF returning just 3.2% over the past 15 years, compared to the S&P 500's 14% return.
Commodities:
-The oil market is on edge following a violent week in the Middle East, with traders making a record number of bullish options bets on Brent crude oil, with many wagering it will soar above $100 per barrel, more than 25% above current prices. Israel fired missiles at Hezbollah leaders in Beirut, the latest on targets in Lebanon after Israel killed Hassan Nasrallah last month. Hezbollah is backed by Iran, a major energy producer, which retaliated by bombing Israel earlier this week. President Joe Biden is discussing possible Israeli strikes on Iranian oil facilities in response. Brent crude, the international standard, gained 1% to $78.40 a barrel, the largest weekly gains since early 2023. The war in the Middle East has had minimal impact on oil prices for most of the past year, with oil production and refinery operations under threat.
Streetwise:
-CVS Health is facing challenges due to a decline in shares and a Federal Trade Commission report highlighting the expansion of profits by healthcare conglomerates and their middlemen in the drug business. The company should split into at least seven pieces, aggressively recombine, and cross-sell synergies into total addressable markets. If this doesn't work, CVS should consider turning the company off and then on again. The Magnificent Seven, a group of tech companies that recently led the US by stock market value, is not the case. The Pharma-Filled Five, including CVS, UnitedHealth, Cigna Group, and Humana, had combined revenue that equaled 22% of America's total healthcare spending last year, up from 14% in 2016. CVS is not lacking for business, as it has a similar revenue projection of $369B and $398B for this year. However, CVS's lost decade has left its market value at just $78B, indicating a need for a more strategic approach.