Cover:
-The rising cost of parenthood is becoming prohibitive, which could negatively impact the economy. The falling birthrates and tighter immigration policies could lead to a population decline, causing a decline in the US economy. Both political parties have proposed policies to ease the financial burden on parents, with Ohio Sen. JD Vance proposing an increase in the federal child tax credit and Vice President Kamala Harris proposing initiatives to restore and expand tax credits for parents and increase the US housing supply. This could lead to a falling fertility rate, shrinking labor supply, diminished productivity and innovation, and declining wealth, all of which could threaten the US economy's long-term growth and vitality. The economics of child-rearing are looming large, with the crisis reaching a boiling point.
Interview:
-Dan Close, head of municipal fixed income at Nuveen, first became interested in the bond market while working as a caddie in 1995. He was convinced that the bond market held the keys to the global economy and that fixed income, not stocks, was where the true masters of the universe toiled. Close, who started in 2000 and has since moved from analyst to fund manager, is now the head of the $190B municipal bond complex at Nuveen. He spoke with Barron's about risks and rewards in the municipal market today, the potential impact of the coming presidential election, and some of Nuveen's best bond picks.
Tech Trader:
-Nvidia, a tech giant worth $3T, reported a year-over-year revenue growth of 122% to $30 billion in its fiscal second quarter, ending in July. The company's data-center business, driven by AI demand, grew even more at 154%. Nvidia's earnings report and commentary on its Blackwell graphics processing unit suggest that investors should ignore stock volatility tied to the near-term results and focus on the improving backdrop for the artificial-intelligence boom and Nvidia's next-generation GPU, which is well-suited for AI applications. The company's strong outlook for the current quarter and an additional $50 billion stock buyback program are expected to further boost growth.
The Trader:
-DexCom's stock has plummeted due to mismanaged investments in new growth opportunities, but shares could rebound with the introduction of a new product, Stelo, a new continuous glucose monitoring device for noninsulin Type 2 diabetics and prediabetics. DexCom's second quarter growth disappointed analysts, with earnings per share of 43 cents beating estimates by five cents. Sales of $1B grew 15% year over year, missing analyst expectations of $1.037B. Management reduced its 2024 sales-growth guidance, implying just over $4B in revenue for the year, forcing analysts to revise their 2025 sales estimates lower by 9% to $6.4B. The stock dropped 41% to $65 on July 26, and has barely rebounded since then.
-The SPDR S&P Biotech ETF has only returned 4.6% annually over the past five years, trailing the S&P 500's 16% return. Over 80% of the companies in the ETF are losing money, making it difficult for them to raise cash for research and trials. However, relief is on the way with the Federal Reserve's upcoming rate cut, which is expected to have a 65.5% chance of a quarter-point cut and a 34.5% chance of a half-point decrease. The ETF has a strong negative correlation to interest rates, meaning that when rates rise, stocks tend to fall, and vice versa. The universe of biotech stocks has also improved, with 693 small- and mid-cap biotechs being cash-flow negative during the second quarter of 2024, down from 949 in 2022. This suggests that troubled companies have delisted, been bought, or faded away, potentially stabilizing consolidation for troubled names.
Features:
-Tesla stock closed a difficult week of trading by rising 3.8% at $214.11, while the S&P 500 and Dow Jones Industrial Average gained 1% and 0.6%, respectively. Shares rose 0.3% on Thursday after William Blair analyst Jed Dorsheimer launched coverage of Tesla with a Buy rating, calling its energy-storage business an underappreciated asset. Tesla's energy storage and generation segment accounted for about 12% of second-quarter sales, growing 100% year over year. However, shares still gave up about 3% for the week. Shares of Chinese EV peer Li Auto fell on Wednesday after reporting better-than-expected second-quarter numbers.
-Intuitive Machines, a space infrastructure and technology provider, has seen a significant increase in shares after winning more business from the National Aeronautics and Space Administration. The company announced a $117M contract to deliver six science and technology payloads to the Moon's South Pole, which was awarded by NASA. The contract is part of NASA's push to contract with private companies for services, and NASA also uses SpaceX to launch and carry astronauts to the International Space Station. Intuitive completed one mission to the Moon's South Pole in February, marking the first time the US had landed a spacecraft on the lunar surface in over 50 years. As of Friday trading, Intuitive Machines shares have risen 89% this year, with shares trading as high as $13.25 a share. The company is expected to generate sales of around $223M in 2024 and $371M in 2025. The average analyst price target for Intuitive Machines stock is just under $10 a share. Through Friday trading, Intuitive stock was up about 95% year to date.
Europe:
-No update
Emerging Markets:
-Outgoing Mexican President Andres Manuel Lopez Obrador has proposed several constitutional amendments, including instituting elections for Supreme Court judges and potentially axing autonomous regulatory bodies. His plans could undermine democratic evolution in Mexico, leading to a return to the 1980s with one-party dominance. The move could also endanger the U.S.-Mexico-Canada Agreement, the free trade pillar up for review in 2026. The shift to elected judges could threaten the historic trade relationship, which relies on investors' confidence in Mexico's legal framework. The removal of independent regulators would also violate USMCA requirements. The September offensive could also put Mexico's investment-grade sovereign credit rating at risk, with Fitch Ratings already holding the country by a thread at BBB-. The deterioration in institutional quality could lead to a negative outlook or downgrade over the next 12 months.
Commodities:
-Copper's price has dropped by about 10% due to weak global economic activity, particularly in the U.S. and China. The metal is a major component of heavy machinery, cars, and other goods, and Chinese companies contribute to global copper demand. However, there are signs that the metal should continue climbing, with its price stabilizing just over $4/lb. after bottoming around $3.95 earlier this month. Commodity strategists at 22V Research predict that the metal will continue to rise, possibly to $5/lb.. They are highlighting several "pure play" companies that primarily generate revenue from copper mining, such as Antofagasta, Lundin Mining, Southern Copper, and Freeport-McMoRan. Shares of the first three companies have more than doubled since their lows in the fall of 2022, while Freeport stock has increased by about 75% over the same period. Copper stocks tend to rise faster than the commodity price due to fixed costs for miners, such as depreciation and interest expense.
Streetwise:
-A short seller called Hindenburg Research has been accused of pursuing artificial-intelligence company Super Micro Computer, which has seen its shares drop by 2.48%. The company has a history of controversies, including a report in May last year that inflated the unit price of publicly traded Icahn Enterprises by 75%. This year, Hindenburg has found "glaring accounting red flags" at Super Micro, including undisclosed related-party transactions. Super Micro has not commented on the allegations but has said it will delay its annual report to assess the effectiveness of its internal controls over financial reporting. Shares have fallen from a high of over $1,200 in March to a recent $440. The company's founder, Trevor Milton, was sentenced to four years in prison for securities and wire fraud.