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In today’s edition,
- India curbs derivatives boom
- Amazon ramps up Prime ads
- SoftBank’s $500M OpenAI investment
- Tesla misses vehicle delivery target
- Bitcoin’s quick recovery potential
Market Snapshot
Major U.S. stock indexes rallied on Friday after the September nonfarm payrolls report showed the economy added 254,000 jobs—the highest in six months and significantly above analysts’ expectations of 140,000. The unemployment rate fell to 4.1% from 4.2%, and July and August job growth was revised upward by a combined 72,000 positions. This robust labor market data alleviated concerns about a potential slowdown and boosted investor confidence.
In response to the strong jobs report, market participants adjusted their expectations for Federal Reserve interest rate cuts. Wall Street now anticipates a total of 50 basis points in rate cuts before year-end, down from the 75 basis points expected prior to the report.
However, potential headwinds remain. WTI Crude Oil had its best week in months amid geopolitical tensions, particularly concerns over possible military actions involving Israel and Iran.
For the week, the S&P 500 index rose 0.43%, the Dow Jones Industrial Average gained 0.15%, and the Nasdaq Composite increased by 0.38%.
Stock market closing data for the week of Sep 30th to Oct 4th, 2024
Special Coverage: Curb on India’s Equity Derivatives Boom
In just five years, India has leapt from being a minor player to becoming the world’s biggest market for equity derivatives, with trading turnover blasting past $6 trillion earlier this year—that’s more than the total economic output of the entire country!
This growth is largely fueled by retail investors, many of whom are pretty new to the game and willing to take on quite a bit of risk.
Since 2019, the number of these retail investors diving into options trading has grown from under a million to a whopping 4.5 million. They’re attracted by the possibility of betting on stock price movements without having to put down a lot of cash upfront.
Equity options and futures have really caught on as popular tools for these speculative plays.
Investors can control sizable positions—up to five times their actual investment—by paying just a small premium, sometimes as low as ₹10. The shift to weekly-expiring contracts in 2019, instead of the traditional month-end expirations, also spiked trading volumes. These shorter contracts are cheaper and less risky in terms of time, drawing in retail traders looking for quick profits.
But here’s the twist: this booming market has regulators on edge about the potential risks to financial stability.
A study by the Securities and Exchange Board of India (SEBI) revealed a staggering fact: 93% of retail investors lost money in derivatives from 2020 to 2023, with a total loss hitting around $7.3 billion just last fiscal year.
The buzz really went global when a U.S. firm made headlines with a $1 billion profit from trading in India, shining a spotlight on how these markets can be pretty tough for small players against the big, seasoned pros.
To tackle these issues, SEBI is stepping in with some new rules starting this November.
They’re putting the brakes on index options with weekly expiries and requiring brokers to ask for more cash upfront on the day options expire. Plus, the government’s cranking up taxes on quick trading profits for the first time in 15 years and doubling the tax on transactions in futures and options. These moves aim to cool down speculative trading and shield retail investors from big losses.
Analysts think these changes will shake things up significantly.
They predict that a third of the current equity options volume might vanish, which could hit revenue for stock exchanges hard—especially the National Stock Exchange of India, which has really benefited from the rush on short-term options. Even global high-frequency trading firms and local trading funds could feel the pinch with higher costs that might slim down their profits and make the Indian market less attractive.
The hope here is that these measures will bring some stability to the market and protect inexperienced investors from getting in over their heads.
News Summaries
Amazon is planning to ramp up ads on Prime Video by 2025. Even after starting to show ads eight months ago, subscriber numbers haven’t taken a hit. They kicked off with just a few ads—no annoying breaks mid-show—which really helped keep viewers around. In fact, less than 20% have gone for the ad-free option. Right now, ad-supported Prime Video is pulling in around 200 million viewers a month worldwide, with over half in the U.S. and about 19 million in the UK. That’s nearly a third of the UK population! Ad revenue jumped 20% to $12.8 billion in the second quarter of 2024 from last year. Amazon is also introducing interactive ads that let you shop right from your screen. Even with the industry worried about cutbacks on content, Amazon is actually spending more on Prime Video. They’re buying more live sports rights and investing in new shows and events, like U.S. election coverage and NFL’s Thursday Night Football. Their careful strategy of slow ad rollout and boosting content is really working, showing in low churn rates and rising ad revenue.
Masayoshi Son from SoftBank thinks we’ll have artificial general intelligence (AGI) in just a couple of years. He sees a future where AI handles everything from health monitoring to tutoring kids at home. SoftBank’s pouring money into this idea, including a hefty $500 million into OpenAI’s $6.6 billion fundraising, valuing OpenAI at a whopping $157 billion. Son’s impressed by the latest from ChatGPT and isn’t shy about his plans to drop maybe $100 billion on AI tech like chips and robots. SoftBank’s stock is up almost 40% this year, despite its array of struggling startups. Son’s taking a huge gamble, but he’s all in, betting that this will completely change how we live and work.
Tesla just reported its latest vehicle deliveries, and they’re a tad below expectations. They delivered 462,890 vehicles worldwide this quarter, up 6.4% from last year but just shy of the 463,000 Wall Street was hoping for. This caused their stock to drop over 6%. Tesla is still the king of electric cars, but the competition is getting stiffer. China’s BYD is hot on its heels with strong sales, especially in hybrids. Tesla did well in China, thanks to new subsidies, but Europe was a bit sluggish. The lower demand for Tesla’s pricier models and some hiccups with the Cybertruck might be to blame. Now, as Tesla pushes towards self-driving tech and plans for robotaxis, there are big questions about how soon and how smoothly this will all pan out, with plenty of challenges ahead in tech, regulation, and market acceptance.
From the World of Crypto
Figure 1: Return comparison of S&P500, gold, and bitcoin through major events by BlackRock
Bitcoin’s price recently dropped due to rising tensions in the Middle East. Fear over geopolitical events often causes markets to dip, and this was no exception. Investors reacted by selling assets, leading to a downturn not just in Bitcoin but across the board.
But here’s the interesting part: Bitcoin usually recovers (see Figure 1) faster than other major assets after such events.
Since 2020, Bitcoin has bounced back an average of 37.5% within 60 days following geopolitical incidents. In five out of six cases, it outperformed Gold and the S&P 500 over the same period.
For example, after previous geopolitical events, Bitcoin didn’t just recover—it surged ahead of other assets. The recent drop brought Bitcoin to prices we last saw just two weeks ago. If history is any guide, we can expect Bitcoin to rebound quickly.
So, while things might look bleak right now, it’s important to remember the context. Past patterns suggest that Bitcoin’s recovery should outpace most other major assets. That makes the current dip less worrisome than it might seem at first glance.
