👨🏻💻📲 Big Tech Keeping the Market Afloat
Hey friends,
In last week’s YouTube video, I discussed the prevalence of the four-figure ($1,000+) car payment. I got so many comments from viewers saying that their car payments have been getting inflated over time, and that car loan terms are longer than they’ve ever been.
If you’re shopping for a car, used or new, consider the 20-4-10 Rule which is linked in the video, but essentially you want to keep your total car payments to less than 10% of your gross monthly income. So if your payment is $500 a month, ideally you are making $5000 gross per month ($60k per year). Another good resource to figure out what the true cost to own a vehicle is, the Edmunds True Cost calculator, which can give you good estimates for how much a car truly costs to own.
For example, consider the two examples here - the BMW costs $30,089 but the true cost to own over 5 years is $83,292 - nearly $28k more than the Toyota 4Runner, which had a larger cash price at the start. These are all things we need to consider when purchasing a vehicle that are not always included in the list price.
If you’re interested in watching the full video, it will be linked at the end of this newsletter! In personal news, I spent the afternoon watching the Warriors-Kings basketball game on TV, and just getting ready for the week. It’s going to be May tomorrow, so we’re nearing summer. I hope you’re having a great weekend.
— Humphrey, Tim & Rick
Market Report
Big Tech Surprises Wall Street
Microsoft, Alphabet, Meta Platforms, and Amazon all recently reported strong earnings for the quarter, surpassing analysts' expectations and showcasing the resilience of their businesses despite broader economic challenges. Each of these tech giants has been focusing on different strategies to boost growth and maintain their market dominance.
Microsoft's Q3 profit and sales exceeded projections, driven by robust corporate demand for its core cloud-computing software and services. The company reported a 7.1% increase in sales to $52.9 billion and revenue from its Azure cloud-computing business rose 31%. The strong performance is attributed to deal renewals, improved customer acquisition for new products, and significant investments in AI, including a reported $10 billion in OpenAI and a new Bing internet search chatbot. Microsoft is also awaiting clearance for its $69 billion acquisition of Activision.
Alphabet Inc., Google's parent company, reported first-quarter results that surpassed analysts' expectations, with sales reaching $58.07 billion. Google's closely watched cloud unit reported a profit for the first time, earning $191 million. The search advertising segment showed healthy growth during the quarter, potentially easing concerns over the vulnerability of Google's search advertising business due to OpenAI's ChatGPT. Additionally, the company authorized share buybacks of up to $70 billion.
Meta Platforms, formerly known as Facebook, reported better-than-expected Q1 revenue of $28.6 billion, up 3% from a year prior. The increase is attributed to a recovery in digital advertising, and the company anticipates Q2 revenue could reach as much as $32 billion. To cope with a slowdown in ad demand, Meta has been cutting costs, slashing headcount, and reducing spending while continuing to invest in strategic areas such as AI and the metaverse. Meta has also been working to overcome Apple's privacy changes, which impacted its ability to gather user information outside its platforms.
Amazon recently reported Q1 revenue of $127.4 billion, a 9.4% increase, surpassing expectations of $124.7 billion. The company's profit exceeded estimates at $3.2 billion, driven by cost-cutting measures and strong sales in its cloud-computing and advertising divisions. Amazon Web Services (AWS) sales rose 16% to $21.4 billion, while advertising sales grew by 21% to $9.51 billion. The company has been focusing on reducing costs, cutting 27,000 jobs, and streamlining its businesses to adapt to slowing sales growth in online shopping and AWS.
Big Oil Stays Strong
Exxon Mobil and Chevron reported strong earnings, with profits not seen since oil reached $145 a barrel in 2008. Both companies have adapted to oil-market collapses by cutting costs and streamlining portfolios, resulting in robust financial positions and cash flows that secure dividends for shareholders. Exxon reported a first-quarter net income of $11.4 billion, while Chevron's profit rose to $6.6 billion. These impressive earnings are attributed to increased oil production and a rebound in oil-refining profits amid growing fuel demand.
Exxon has focused on rewarding investors through dividends and share buybacks, making it the best-performing energy stock in the S&P 500 Index this year. Chevron, on the other hand, has committed to maintaining investor payouts even as it faces pressure to fund new projects crucial for expanding production.
First Republic Up For Grabs
The FDIC recently requested bids for First Republic Bank from banks such as JPMorgan, PNC, US Bancorp, and Bank of America. This move comes after weeks of unsuccessful talks among banks and their advisers, and authorities are stepping in due to a significant drop in First Republic's stock, which has fallen 97% this year.
The FDIC's bidding process could lead to a more orderly sale of First Republic than the auctions that followed the failures of Silicon Valley Bank and Signature Bank last month. However, it remains unclear whether regulators will opt for an open-market solution that avoids officially declaring First Republic a failure and seizing it.
Forecast Ahead
Big Number: 2,400%
Investors are betting on the possibility of the US government defaulting on its debts, as there are increased concerns over the US's ability to reach a deal to lift the debt ceiling in time.
The amount of money tied to credit-default swaps (CDS), which reward investors if the US misses any payments, has increased approximately eight-fold since the start of the year. In the event of a default, CDS holders receive the face value of the bonds minus their current market value. When the market value of long-term US bonds is low, the difference between the face value and the market value increases, leading to a higher payout for CDS holders in the case of a default. The potential payout of this trade could exceed 2,400%, according to Bloomberg’s calculations.
CDS spreads represent the cost to insure a borrower's debt against default. The spread on one-year credit-default swaps for the US has surged in recent days, reaching a record 1.75 percentage points. This means it now costs $17,500 to insure $1 million of US debt against default for a year. The increase in CDS spreads indicates that Wall Street is becoming increasingly nervous about the prospect of a US default.
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