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In today’s edition,
- Investors love ETFs
- China’s economic boost
- Amazon to rival Nvidia
- MicroStrategy’s bitcoin bet
Market Snapshot
Stocks ended lower for the third week out of four, despite late-session “dip buying” and overall monthly gains for Wall Street.
The S&P 500 (SPX) fell to pre-election levels after strong economic data and cautious remarks from Fed Chairman Jerome Powell, pushing December rate cut odds below 60%. October retail sales rose 0.4%, slightly beating forecasts, but excluding autos, gains were just 0.1%. Revised September figures indicated stronger-than-expected growth.
Treasury yields remained high, with the 10-year yield below 4.5%, limiting stock rallies and echoing past concerns about tighter Fed policy.
The SPX closed at 5,870.62, down 2.30% for the week, while the Dow dropped 1.39% to 43,444.99 and the Nasdaq slid 3.49% to 18,680.12. Defensive market moves reflect concerns over potential impacts from the incoming Trump administration’s policies, such as tax cuts, tariffs, and immigration reform, which could spur inflation.
Stock market closing data for the week of Nov 11th to Nov 15th, 2024
News Summaries
Investors have poured $1.4 trillion into global ETFs through October 2024, surpassing the 2021 record of $1.33tn, largely driven by strong flows post-election and favorable economic signals. The US election and stimulus in China spurred equity ETF inflows, with $22.2bn alone on November 6, breaking past post-election records. October brought $188bn in flows, close to the July peak of $199bn. Fixed income ETFs saw inflows of $376bn, up from 2023’s $331bn, amid a push for high yields. European high-yield bond ETFs attracted $2.1bn in October due to balanced growth expectations, while gold price gains pushed commodity ETFs into positive year-to-date flows at $5.4bn. Emerging market ETF flows rose, thanks to China’s $29.4bn boost, notably through the iShares FXI and Xtrackers ASHR ETFs, which doubled in size. However, ETF uptake beyond China lagged, highlighting concentrated regional interest. Although US earnings exceeded expectations, sustaining this flow momentum may hinge on market conditions continuing to align with investor optimism.
China’s economy showed positive signs as retail sales in October rose 4.8% year-over-year, the highest in eight months, reflecting the impact of recent stimulus measures. Industrial output grew 5.3%, slightly below expectations, but the increase in consumer spending, driven by subsidies for equipment, appliances, and vehicles, highlighted improvement in demand. Home appliance sales surged 39%, the fastest pace since 2010, with categories like cosmetics and recreational goods also seeing significant growth. While Beijing aims to stabilize growth and counter domestic deflation, challenges remain due to weak underlying demand and potential external pressures, including US trade tensions. Fixed-asset investment rose 3.4% for the first 10 months of 2024, but property investment continued to decline, down 10.3%, indicating persistent caution among developers.
Amazon is set to launch its latest AI chip, Trainium 2, as part of its strategy to lessen dependence on Nvidia and boost efficiency within AWS data centers. This effort, led by Annapurna Labs, aims to cut costs for both Amazon and its clients. Already, Amazon’s Inferentia chips have proven to be 40% cheaper for certain AI tasks. AWS’s focus is on optimizing performance while diversifying offerings amid $75bn in projected tech infrastructure spending for 2024, up from $48.4bn in 2023. Despite advances, Nvidia’s grip on the AI chip market remains strong, with $26.3bn in revenue for AI data center chip sales in its recent quarter—matching AWS’s entire revenue for the same period. Amazon’s approach, while less publicized through independent benchmarks, is geared toward providing tailored alternatives that appeal to customers wanting more than just Nvidia’s dominant solutions.
From the World of Crypto
MicroStrategy has evolved from a business intelligence company to a significant bitcoin investment vehicle under co-founder Michael Saylor.
The company, once on the brink during the dotcom crash, now boasts a market cap nearing $70bn, with its stock price up sixfold this year and 20 times over five years. This success has been driven by bold capital raising, including $4.6bn from equity sales and $3.2bn from convertible bonds in 2024.
MicroStrategy is now pursuing its ambitious “21/21 plan,” aiming to raise $42bn through a mix of at-the-market (ATM) equity offerings and new debt securities. This move could allow the company to purchase around 600,000 bitcoin, nearly 3% of the total supply.
The ATM approach lets MicroStrategy sell shares gradually, capitalizing on price spikes without the discounts needed for large placements. This method aligns with the crypto ethos and leverages the company’s high trading volume, preventing market disruption and creating arbitrage opportunities where shares sold at a premium fund bitcoin purchases at lower cost.
Convertible bonds play a key role too.
This year, MicroStrategy issued $3.2bn in bonds at low or zero interest rates to buy more bitcoin. These bonds are advantageous as long as bitcoin’s price continues to rise, as the debt can be repaid with shares at a premium. However, if bitcoin’s price drops, the premium could narrow or reverse, posing risks that may force MicroStrategy to roll over debt, rely on cash flow (despite recent losses in its software business), or sell bitcoin.
Michael Saylor’s projections, including a bold forecast of bitcoin reaching $13mn per coin by 2045, influence investor sentiment and support the company’s bitcoin-centric approach. While SEC regulations limit direct stock promotion, these forecasts impact MicroStrategy’s stock value due to its significant bitcoin holdings. The success of this “21/21 plan” hinges on bitcoin maintaining or increasing in value. A sharp downturn could turn this strategy from a winning cycle into a risky one.
