Closing Stock Market Summary
The market had a mixed showing again today. The Nasdaq Composite (+0.3%) settled slightly higher than yesterday, boosted by gains in some mega cap constituents. The S&P 500 settled 0.3% lower than yesterday, below its 50-day moving average (5,506).
Mixed action persisted through the entire session due to a lack of conviction in front of the August Employment Situation Report tomorrow at 8:30 ET. The market's focus of late has been on labor market conditions, but this morning's data didn't garner outsized responses from equities or bonds.
The ADP Employment Change Report for August was weaker than expected, the weekly initial jobless claims report was better than expected, the revised Q2 productivity report had the right mix of an upward revision to productivity and a downward revision to unit labor costs, and the ISM Services PMI for August was better than expected but little changed from July.
The 10-yr note yield settled four basis points lower at 3.73% and the 2-yr note yield settled two basis points lower at 3.75%.
Today's lackluster action was also due to the understanding that the market has experienced quite a bit of consolidation this week. The S&P 500 is 2.6% lower than Friday's close, the Nasdaq Composite sits 3.3% lower than last Friday, and the Russell 2000 is down 3.9% from last week.
Eight of the 11 S&P 500 sectors settled with declines led by health care (-1.4%), industrials (-1.2%), and financials (-1.0%). The consumer discretionary (+1.4%), communication services (+0.5%), and information technology (+0.1%) sectors were alone in positive territory at the close, reflecting mega cap leadership.
Tesla (TSLA 230.17, +10.76, +4.9%) was a winning standout from the space after a Bloomberg report that it could introduce full self-driving technology in China and Europe, pending necessary approvals, in the first quarter of 2025.
- S&P 500: +15.4% YTD
- Nasdaq Composite: +14.1% YTD
- Dow Jones Industrial Average: +8.1% YTD
- S&P Midcap 400: +7.2% YTD
- Russell 2000: +5.2% YTD
Reviewing today's economic data:
- August ADP Employment Change 99K (consensus 150K); Prior was revised to 111K from 122K
- Weekly Initial Claims 227K (Bconsensus 236K); Prior was revised to 232K from 231K, Weekly Continuing Claims 1.838 mln; Prior was revised to 1.860 mln from 1.868 mln
- The key takeaway from the report is that layoff activity remains relatively tame; however, so does hiring activity, evidenced by the elevated stickiness of continuing jobless claims.
- Q2 Productivity-Rev. 2.5% (consensus 2.3%); Prior 2.3%,Q2 Unit Labor Costs-Rev. 0.4% (consensus 0.9%); Prior 0.9%
- The key takeaway from the report was the friendly inflation view embedded in the softening unit labor costs. They were up just 0.3% over the last four quarters, which is the lowest rate since the fourth quarter of 2013.
- August S&P Global US Services PMI - Final 55.7; Prior 55.0
- August ISM Non-Manufacturing Index 51.5% (consensus 51.0%); Prior 51.4%
- The key takeaway from the report is that overall activity in the largest sector of the U.S. economy remains in an expansion mode, which is what the market, worried about a possible hard landing, wants to see. Slow to moderate growth, the report said, was noted across many industries.
The headline event tomorrow is the August Employment Situation report at 8:30 ET.
Bank of America Shared Nonpublic Information With Investors in India, Whistleblower Says
Bank is investigating complaint, which centers on three deals since 2023
Bank of America BAC -0.91%decrease; red down pointing triangle is investigating allegations that bankers in Asia shared nonpublic information with investors before the bank sold hundreds of millions of dollars worth of stock.
The whistleblower complaint alleged that bankers shared transaction details with investors before a stock sale in India was announced this spring, according to a copy of the complaint reviewed by The Wall Street Journal—potentially enabling the investors to engage in what is known on Wall Street as “front running.”
Sharing nonpublic information ahead of a major sale of publicly traded stock is illegal in many countries because it can give the recipients an advantage over others. Investors with advance knowledge could “front run” bets on how shares would perform and profit if the market moved as predicted. The practice is illegal in India, and sharing nonpublic information about deals is prohibited under Bank of America’s policies.
Company records shared with the Journal showed that bankers in Asia contacted investors in March ahead of the deal cited in the whistleblower complaint, a roughly $200 million sale of stock for a subsidiary of Indian conglomerate Aditya Birla and financial firm Sun Life. People familiar with the sale said that bankers contacted investors via WhatsApp to share details of the transaction before it was announced.
A Bank of America spokesman said, “We take complaints seriously and thoroughly investigate them. At this time we have not found anything to support these allegations.”
The whistleblower’s complaint, filed in June, also cited separate concerns about the bank’s conduct in a roughly $500 million initial public offering of stock for SoftBank-backed retailer FirstCry and a $300 million rights offering for Carlyle-backed housing company PNB Housing Finance, according to the complaint reviewed by the Journal.
The bank has retained British law firm Clifford Chance and Indian firm J. Sagar & Associates to investigate the whistleblower complaint, people familiar with the investigation said. Lawyers from the firms have recently interviewed senior and junior bankers involved in the transactions, the people said.
Company records reviewed by The Wall Street Journal show that ahead of the $200 million public sale of stock for Aditya Birla, bankers sought meetings with investors including quantitative-trading firm Jane Street, Norges Bank and life-insurance company HDFC Life. The sale was announced on March 18 and completed around March 20.
Many of the firms declined to, or didn’t, respond, but HDFC Life met with bankers and company executives to discuss the terms of the stock sale around a week before the sale occurred, the people said. The meetings with HDFC Life were set up via WhatsApp, the people added.
The bankers also kept unofficial records of the communications and meetings that took place but didn’t report them on the official roadshow system for the deal, the people said.
Large trades of stock for corporate clients in India are a large source of revenue for Bank of America’s investment-banking franchise in Asia, bankers working there said.
Bankers on the $200 million transaction filed a memorandum in early March to Bank of America’s equity commitment council, which evaluates whether prospective deals are in line with the risk requirements of the bank. The bankers said, “there will be no deal roadshows or deal-related meetings related to this deal,” according to a copy of the memorandum reviewed by the Journal.
Bank of America’s internal policies state that “deal roadshows or one-on-one deal related meetings must not be conducted” for public stock sales, according to the memorandum. The bank mandates a “cooling-off” period of two-to-four weeks if bankers speak for any reason to investors that might participate in the deal, according to a copy of the memorandum seen by the Journal.
Banks have paid fines to settle allegations that they improperly shared information with investors ahead of stock sales. In January, Morgan Stanley paid $249 million in the U.S. to settle criminal and regulatory investigations into allegations that some employees improperly shared information about clients’ stock sales.
Unilever agrees sale of Russia business to Arnest
Planned exit awaits state approval and would mark a major U-turn for FTSE 100 consumer goods giant
Unilever is set to sell its Russian assets to the Arnest chemical group owned by businessman Alexey Sagal, in a major U-turn for the FTSE 100 consumer goods giant.
The parties have submitted the deal for approval to the Russian government subcommittee on foreign investments, which has become a required step for western companies exiting Russia since its invasion of Ukraine.
The sale could bring Unilever up to $500mn, Russian media reported.
The government has already approved the deal, Russian business outlets Kommersant and RBC reported, citing unnamed sources.
Two people involved in western companies’ exit from Russia told the Financial Times that no formal approval has been issued yet but the state is ready to greenlight the sale.
Unilever declined to comment. Arnest did not immediately respond to a request seeking comment.
The deal includes Unilever’s subsidiary Unilever Rus LLC, which owns the domestic rights to the company’s brands, including Knorr, Dove, Domestos and Axe.
According to media group RBC, the deal is expected to bring Unilever Rbs35—40bn ($340-500mn), reflecting the required 50 per cent discount on asset sales under Russian law. The giant will also have to pay 10-15 per cent exit tax from it.
In 2023, the Russian business contributed approximately 1 per cent of Unilever’s turnover and net profit, and it had approximately €600mn of net assets, including four factories in the country, according to the company.
“At Russia’s current standards this is not a bad deal at all, and the buyer is not hit by sanctions, which is hard to find,” a person working on another exit told the FT.
Until now Unilever — which is under pressure from shareholders including activist investor Nelson Peltz to shake up the company and boost growth after years of lacklustre financial performance — has continued to trade in Russia, attracting controversy as many western brands have pulled out since the invasion of Ukraine.
Peltz’s Trian Partners declined to comment on Unilever’s proposed sale.
The FTSE 100 company was labelled as an “international sponsor of war” by the Ukrainian government, which published a list of companies it deemed to be indirectly contributing to the war.
In February the company said it reviewed its position in Russia during 2023 and concluded that “the containment actions we put in place at the beginning of the war minimise our economic contribution to the Russian state”.
While still trading there, Unilever has stopped advertising and halted imports and exports from Russia, and in July chief executive Hein Schumacher told reporters that the company had “localised operations”.
Arnest, meanwhile, has long been Unilever’s contract manufacturer in Russia. Founded by Russian businessman Sagal in the 1990s, the group initially produced Dichlophos, Russia’s top insecticide at the time, but soon expanded using western financing.
After Russia’s February 2022 invasion of Ukraine, Arnest acquired around $1bn worth of assets from western companies that had left Russia, including the Dutch brewing group Heineken and factories belonging to Ball Corporation of the US, the world’s largest producer of aluminium beverage cans.
Peltz, who is on the Unilever board, told the FT this year he had pressed the consumer goods group, which had previously explored options for a sale, not to leave Russia. “If we pull out of Russia, they will take our brands for themselves. I don’t think that’s a good trade,” Peltz said at the time. “Why the hell should we?”
Elon Musk’s just fired up Colossus—the world’s largest Nvidia GPU supercomputer built in just three months from start to finish
Say what you will about Elon Musk, but when the technological disrupter sets his mind to something, he plays to win.
Founded only in July of last year, his latest artificial intelligence startup, xAI, just brought a new supercomputer dubbed Colossus online during the Labor Day weekend designed to train its large language model (LLM) known as Grok, a rival to Open AI’s better known GPT-4.
While Grok is limited to paying subscribers of Musk’s X social media platform, many Tesla experts speculate it will eventually form the artificial intelligence powering the EV manufacturer’s humanoid robot Optimus.
Musk estimates this strategic lighthouse project could eventually earn Tesla $1 trillion in profits annually.
Located in Tennessee, the new xAI data center houses 100,000 Nvidia benchmark Hopper H100 processors, more than any other individual AI compute cluster.
“From start to finish, it was done in 122 days,” Musk wrote, calling Colossus “the most powerful AI training system in the world.”
This weekend, the @xAI team brought our Colossus 100k H100 training cluster online. From start to finish, it was done in 122 days.
Colossus is the most powerful AI training system in the world. Moreover, it will double in size to 200k (50k H200s) in a few months.
Excellent…
— Elon Musk (@elonmusk) September 2, 2024
It doesn’t end there for xAI, either: Musk estimates he will double Colossus’s compute capacity in a matter of months once he can procure 50,000 chips of Nvidia’s new, more advanced H200 series, which are roughly twice as powerful.
Musk and xAI did not respond to requests from Fortune for comment.
Built to train Grok-3, potentially the next leader in AI models
The pace at which Colossus has been set up is blistering given xAI had selected its Memphis site only in June.
Moreover, several heavy-hitting tech firms, including Microsoft, Google, and Amazon, are competing to acquire Nvidia’s prized Hopper series AI chips in the current AI gold rush alongside Musk.
But the AI entrepreneur is a valued customer of Nvidia and pledged to spend $3 billion to $4 billion this year on CEO Jensen Huang’s hardware—just for Tesla alone.
Moreover, xAI enjoyed a head start by helping itself to Tesla’s supply of AI chips already delivered to the EV manufacturer.
The Memphis cluster will train Musk’s third generation of Grok.
“We’re hoping to release Grok-3 by December, and Grok-3 should be the most powerful AI in the world at that point,” he told conservative podcaster Jordan Peterson in July.
An early beta of Grok-2 just rolled out to users last month.
It was trained on only around 15,000 Nvidia H100s graphic processors, yet by some standards, it is already among the most capable AI large language models, according to competitive chatbot leaderboards.
Upping that GPU count nearly sevenfold suggests Musk has no intention of surrendering the race to develop artificial general intelligence to OpenAI, which he helped cofound in late 2015 after becoming worried that Google was dominating the technology.
Musk later fell out with CEO Sam Altman and is now suing the company a second time.
To help even the odds, xAI raised $6 billion in a Series B funding round in May, with the help of venture capitalists like Andreessen Horowitz and Sequoia Capital, as well as deep-pocketed investors like Fidelity and Saudi Prince Alwaleed bin Talal’s Kingdom Holding.
Tesla could be the next company to invest in Musk’s xAI
Musk has also indicated he would propose to Tesla’s board a vote on whether to invest potentially $5 billion into xAI as well, a step welcomed by a number of shareholders.
xAI’s supercomputer cluster has caused alarm in Memphis, however, given the extreme haste with which city officials agreed to the project, which brings economic activity back to a part of the city that last housed an Electrolux factory for white goods.
One main concern is the strain it will create on the city’s resources. Officials of municipal utility MLGW estimate that Colossus requires up to 1 million gallons of water per day to cool the servers and will consume as much as 150 megawatts of power.
But Musk is someone who only thinks big, and anything worth doing is worth doing fast—otherwise you risk falling behind the competition.
Speaking to Lex Fridman after the podcaster visited xAI’s rapidly growing operations, Musk said speed was a key part of his five-step management process.
“Any given thing can be sped up. However fast you think it can be done,” he said last month, “it can be done faster.”
Japan Bid for U.S. Steel Runs Up Against U.S. Politics
With its $14 billion offer likely blocked, Nippon Steel now must find another way to counter glut from China
Japan’s biggest steelmaker hoped it could counter China’s export onslaught with a deal in the U.S., where it would enjoy protection from Chinese rivals. Instead, it found U.S. politics was an equally challenging foe.
The already-slim prospects for Nippon Steel’s 5401 -0.38%decrease; red down pointing triangle $14 billion proposed takeover of U.S. Steel X 3.47%increase; green up pointing triangle have narrowed further with President Biden poised to use his executive powers to block the deal, according to a person familiar with the matter.
Like many steelmakers in Asia and around the world, Nippon Steel has been hammered by Chinese competition. China is flooding global markets with steel it doesn’t need at home because of a real-estate bust, and it is stepping up supply of minerals in which it holds dominant positions. That has helped push down prices.
In a quarterly report last month, Nippon Steel said it faced an “unprecedentedly harsh business environment” because of low profit margins triggered by a glut of Chinese steel exports. In the 12 months through July, China’s exports reached 101 million metric tons—more steel than the U.S. consumed all last year.
China produces around half the world’s steel and accounts for around half of global steel consumption, according to the World Steel Association. Its exports have triggered a backlash in countries that can’t hope to compete with China’s scale. Brazil, Chile, South Africa and Turkey have raised or are considering raising tariffs on imported Chinese steel.
“It’s a little bit scary,” said Shinichiro Nakamura, president of Daiwa Steel Tube Industries, which makes steel tubing used for scaffolding in Japan. His firm doesn’t compete with Chinese rivals directly but is feeling the pressure on prices from Korean competitors that are using Chinese steel. “They have more room to squeeze costs and lower the price,” he said.
Executives at Nippon Steel and U.S. Steel pitched the deal as a way to combat China’s rise, describing it as a commercial counterpart to the military alliance between the U.S. and Japan that dates back seven decades.
Accentuating its focus on the U.S., Nippon Steel this summer withdrew from a decadeslong alliance with China’s Baoshan Iron & Steel. In recent years, the two had been fighting a legal battle over Nippon Steel’s allegations of intellectual property theft, which Baoshan denied. The relationship, once celebrated as a symbol of Japanese-Chinese cooperation in industrial development, ended with a coldly worded two-paragraph news release.
U.S. Steel’s chief executive, David Burritt, said in a June podcast that the combination with Nippon Steel would “strengthen the alliance for us to be able to take on China, not just from a military-type standpoint with somebody in the Asian theater, but also because of the steel that they actually produce in China.”
The opportunity was attractive to Nippon Steel because it could expand its U.S. business without having to worry much about Chinese competition. In May, the Biden administration raised tariffs on Chinese steel to 25%, on top of a separate 25% tariff on steel imposed under the Trump administration and other tariffs imposed over the past decade. For the first seven months of this year, imports of Chinese steel to the U.S. were down 26%, according to the Census Bureau and the American Iron and Steel Institute.
Both administrations have pushed for a manufacturing revival in the U.S. including more steelmaking at home.
Nakamura said the U.S. needed technology from allies such as Japan to revive its steel industry, which is centered on electric-arc furnaces that use recycled scrap metal rather than forging new steel. Nippon Steel promised to invest billions of dollars to upgrade U.S. Steel’s aging plants.
But Nippon Steel repeatedly miscalculated the political implications of a foreign company taking over a major employer in Pennsylvania, one of the most important swing states in this year’s neck-and-neck presidential race. Trump and Biden both came out against the deal, following the lead of local politicians and the United Steelworkers union.
Takahiro Mori, the Nippon Steel executive in charge of pushing the deal, said last month that “I believe the momentum will change” because “certain politicians have been very supportive of this acquisition.”
Vice President Kamala Harris, the Democratic presidential candidate, threw cold water on such hopes this week. She said at a Labor Day campaign stop in Pittsburgh that U.S. Steel should remain domestically owned.
Takahide Kiuchi, an economist at Nomura Research Institute, said the politicians’ statements ran counter to Washington’s push to line up allies to tame China. A move to bar the acquisition “will sow the seeds of future trouble and have bad effects on trust between Japan and the U.S.,” he said
A Japanese government spokesman declined to comment on reports that Biden would reject the deal.
Nippon Steel is on the hook for a $565 million breakup fee if the deal falls apart. Its bigger challenge would be finding a growth engine to replace U.S. Steel because its home market in Japan isn’t likely to expand.
AI’s Big Day — Startup Safe Superintelligence Raises $1B At Reported $5B Valuation
Artificial intelligence research lab Safe Superintelligence raised $1 billion from a litany of big-name investors including Andreessen Horowitz and Sequoia Capital.
The round valued the Palo Alto, California-based company at $5 billion, per Reuters, which first reported the round.
SSI, co-founded by OpenAI‘s former chief scientist Ilya Sutskever, is looking to develop safe artificial intelligence systems — something that has been in the news a lot recently as fears increase of AI tech being harmful to humans and society.
A proposed California bill that has proven controversial in the industry is looking to put safety regulations and guardrails on AI — although many companies, including OpenAI, worry it may be too burdensome to many AI firms.
The 3-month-old startup will look to add computing power and hire new talent.
More money
SSI’s big raise was not the only big raise of the day.
Japan-based startup Sakana AI locked up a $100 million round led by Khosla Ventures, Lux Capital and New Enterprise Associates. The round also included an investment from Nvidia — which has been intensely active in the AI space investing in startups.
Sakana is looking to train low-cost generative AI models with small datasets — a very different approach from OpenAI. The company previously raised a $30 million round in January led by Lux Capital.