In today’s edition
- X Holdings’ valuation slump
- BYD’s global disruption
- VC funding dwindles
- Gas giants merge
During the first week of the new year, US stock indexes ended with mixed results, breaking the S&P 500® index’s nine-week winning streak, amidst investor concerns over strong job market data challenging expectations of Federal Reserve interest rate cuts. The Labor Department’s report showed a surprising increase in Nonfarm Payrolls and wage growth, suggesting a resilient labor market despite high interest rates.
The S&P 500 index ended the week by losing 1.6%. The Dow Jones Industrial Average finishing the week with a 0.6% loss, while the Nasdaq Composite faced a 3.2% weekly drop.
Market closing data for the week from January 1st to 5th, 2024
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Fidelity Investments has drastically reduced its valuation of X holdings, the parent company of X (formerly Twitter), by 71.5%, as per their latest November 2023 disclosure. This follows a tumultuous period for the company under Elon Musk’s ownership, including significant advertiser withdrawal after Musk’s controversial comments and actions, such as reinstating previously banned accounts. Fidelity’s markdown reflects the company’s struggles, with a potential loss in advertising revenue up to 50% and a workforce reduction of 80%. Despite these challenges, X Holdings is attempting to diversify revenue streams and reduce costs to counter the advertising drop. However, the company’s value has significantly diminished, indicating a steep decline in market confidence and a major shift in its financial standing since Musk’s takeover.
Chinese automaker BYD, backed by Warren Buffett, has significantly disrupted the global auto industry, particularly in the electric vehicle (EV) sector. Despite the challenges of US sanctions, BYD has surpassed Tesla in sales, indicating China’s growing dominance in EV manufacturing. With exports nearing 250,000 cars last year, Chinese automakers like BYD are expanding their global footprint, targeting markets with lower-cost, high-tech EV models. This expansion poses a potential threat to established Western automakers, leading to considerations of tariffs and trade barriers in Europe and the US. While BYD’s success stems from its expertise in lithium-based batteries and competitive pricing, western governments are increasingly wary of Chinese incursion into their markets. As Chinese companies eye expansion in regions like Europe and the US, they face potential trade barriers and consumer skepticism, yet their cost advantage remains a significant competitive factor in the evolving global auto market.
US venture capital (VC) firms experienced a significant decline in fundraising in 2023, reaching a six-year low with only $67 billion raised, marking a 60% drop from the $173 billion peak in 2022 and signaling a challenging environment for startups. This downturn, attributed to cautious investment strategies amidst rising interest rates and a decrease in lucrative exits like IPOs and acquisitions, has led to a funding drought for startups, many of which are now facing valuation cuts and increased pressure to secure funding under less favorable terms. With limited partners pulling back and a reduction in start-up exits, VCs are left with less capital to deploy, leading to a shift in investment dynamics where firms with substantial funds from previous years become key players in a market now dominated by lower valuations and stringent investment criteria. This trend indicates a significant shift in the VC landscape, affecting both start-ups seeking funding and investors looking to sustain their portfolios amidst the market’s downturn.
Chesapeake Energy and Southwestern Energy, significant players in the US natural gas sector, are nearing a merger agreement to create the nation’s largest single gas producer, with an estimated combined market value of around $17 billion. This potential merger, part of a broader trend of consolidation in the oil and gas industry, would mark the first major gas-focused union amid recent high-profile, oil-centric deals like ExxonMobil’s $60 billion purchase of Pioneer Natural Resources and Chevron’s $53 billion acquisition of Hess. Chesapeake, rebounding from a 2020 bankruptcy with a refocused commitment to gas, and Southwestern, a key player in gas-rich regions like Appalachia and the Haynesville shale, together would surpass current leading producer EQT’s output. This move reflects the industry’s strategic shift towards building scale and securing premium drilling acreage, amidst a wave of mergers and acquisitions reshaping the US energy landscape.