🤖🔋 Cybertrucks On The Way!
Happy Sunday!
Earlier this week, Rickie flew down to SF to do some sightseeing and to play some golf as part of our work “retreat”. We’ve been doing a lot of touristy stuff and I learned that the SF experience can be either really good or really bad.
Knowing the city, I booked him a hotel outside the downtown core (which is where SF gets a lot of its bad rep from). A lot tourists come, stay in a sketchy area, visit Fisherman’s Wharf and Pier 39, and that will be their entire impression of SF. It really is a beautiful city with so much to do and see; so if you have a chance, definitely make a stop in the Bay.
Here is my short list of S-tier activities to do when you come to SF:
See the Golden Gate Bridge!
Take the historic cable car across town!
- Humphrey, Tim, and Rickie
Market Report
Bank Earnings!
Earnings season has officially kicked off and we recently got some updates from the banking sector, including JPMorgan and Wells Fargo, who both beat Wall Street expectations. Amid fears of economic headwinds, JPMorgan celebrated a remarkable 67% YoY profit jump, partially attributed to the acquisition of First Republic Bank. Wells Fargo also performed solidly, with its profits increasing 57%. Even Citigroup, despite suffering a 36% drop in profit, surpassed the expectations of Wall Street. It attributed this slump to a slowdown in deal-making, not troubled customers. A rising tide of interest rates proved beneficial for these banks, contributing to an impressive collective net interest income of $49 billion without having to increase interest payouts to depositors.
Despite this, the banks still face some notable headwinds from the aftermath of this spring's regional banking crisis. The Federal Reserve is now pressing banks to hold more capital in reserve as a safeguard against potential problems limiting their lending ability and capital returns.
Student-loan Payments Set to Resume
Millions of federal student-loan borrowers are set to resume repayments after a pause of more than three years due to COVID relief measures. Recent research indicates that the temporary pause of payments, which provided an influx of cash, led to increased spending rather than saving.
Wells Fargo estimates that the typical monthly loan payment will range from $210 to $314, equivalent to about 4% to 5% off the median U.S. household income before taxes. According to the Federal Reserve Bank of New York, around 37 million borrowers benefited from the payment pause, saving approximately $195 billion as of April 2022. With the return of loan payments, many borrowers' budgets are likely to be more significantly impacted than they were by the previous year's inflation rates, which decreased the average household income by only 1% when adjusted for inflation.
Tesla’s Cybertruck Begins Production!
Nearly four years after its initial announcement, Tesla has constructed its first Cybertruck. Tesla CEO, Elon Musk, has previously cautioned about the challenges posed by the truck's unconventional design and the use of stainless steel, which can be difficult to mold and weld. Despite this, the company initially announced three variants of the truck, with prices ranging from $39,900 to $69,900. However, in October 2021, Tesla removed pricing and specifications from its Cybertruck order page without providing a reason.
The launch of the Cybertruck enters an increasingly competitive EV market, with Ford, General Motors, and Rivian introducing their electric pickup models.
Deutsche Bank predicts that Tesla will deliver just 2,000 Cybertrucks this year, a fraction of the 1.78 million total vehicles projected. The bank voiced concerns about the vehicle's potential impact on Tesla's profitability, given the production optimization challenges and the requirement for larger battery packs to facilitate towing. These factors could introduce headwinds to Tesla's profit margins in the latter half of the year.
The Recession Debate Takes a New Turn
The probability of a recession occurring in the next 12 months has been reduced to 54% from 61% according to a poll conducted by The Wall Street Journal, surveying business and academic economists. This drop, the largest since August 2020, is largely due to easing inflation, a resilient labor market, and consistent economic growth, even as the Federal Reserve increased interest rates. Economists predict that the U.S. GDP will experience growth of 1.5% in Q2 2023, an improvement from the previous forecast of 0.2% growth. They also expect a slower economic contraction in the later quarters, followed by a 1% growth in 2023.
A "soft landing", the reduction of inflation without a recession, seems to be a viable possibility, after a decrease in inflation rates and forecasts predicting job additions in Q2 and Q3 of next year, suggesting a milder potential downturn. However, economists believe that stronger economic growth this year might result in the Federal Reserve maintaining higher interest rates for a prolonged period.
Forecast Ahead
Big Number
S&P 500 companies are predicted to experience a 9% decline in profits for the second quarter of 2023, marking the most significant slump since 2020, based on data by Bloomberg. The situation in Europe could be more severe, with an expected downturn of 12% in profits.
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