3rd June 2023 – 9th June 2023 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 4,298.86 | 13,259.14 | 13.83 | 33,876.78 | 2,353.53 | 15,499.91 |
| 0.39% | 0.14% | -5.27% | 0.34% | 0.39% | 1.01% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 18,563.40 | $1,975.70 | $24.40 | $75.04 | 82.42 | 88.60 |
| 0.16% | -0.97% | 1.73% | 0.97% | 0.03% | 0.40% |
Source: MarketWatch
Hello Saturday,
This week, the S&P 500 recovers from a bear market, the Securities and Exchange Commission (SEC) puts crypto exchanges on notice after suing Coinbase and Binance, and Apple unveils the Vision Pro.
- The SEC sues Coinbase and Binance, two of the world’s biggest crypto exchanges, for allegedly operating illegally; its argument is that nearly all crypto assets are securities, and companies enabling the trade of securities must have a licence.
- The S&P 500 comes out of a long bear market, but this might be deceptive, as a relatively small number of mega-stocks are dictating the movements of the index.
- Apple CEO Tim Cook unveils the Vision Pro mixed-reality headset, which users can control through a combination of eye movements, vocal commands, and hand gestures; it’s set to launch next year with a price tag of $3,499.
- GameStop sees its fifth change of CEO in a span of five years as the company fires Matt Furlong and appoints Ryan Cohen as executive chairman; its stock plunged 19% after the news of this executive shake-up.
- Meta’s stock witnesses an impressive rally this year with its stock up 120% year-to-date, thanks to several growth opportunities and effective cost-cutting measures.
Taking stock | Insecurities | Bearly out of it | Cooked and served | Musical chairs | Metamorphosis | Invest wisely
Taking stock
This Thursday, the S&P 500 exited its longest bear market since 1948, with a gain of over 20% from its October 12 low. While this may officially signal the start of a bull market, investor sentiment still remains fairly bearish. For the week, the S&P 500 rose 0.39%, the Nasdaq gained 0.14%, and the Dow climbed 0.34%.
Insecurities
The crypto ecosystem in the US, which was already fragile with an unclear regulatory framework, was hit with back-to-back lawsuits early this week. The Securities and Exchange Commission (SEC) sued Coinbase and Binance, two of the world’s largest crypto exchanges, in a span of 24 hours for allegedly running illegal exchanges.
According to the SEC, virtually all crypto exchanges that are operating in the US are illegal. But the thing is, this is still a grey area. The SEC considers all crypto tokens, excluding Bitcoin, to be securities, and to be able to trade securities in the US, a company needs a licence. Trading without a licence is equivalent to the illegal trading of unregistered securities. So the SEC has sued Coinbase for allowing users to trade 13 crypto assets, including tokens like Solana, Cardano, and Polygon, that should have been registered as securities.
On Tuesday, Coinbase’s stock plunged more than 12%, while Binance’s customers withdrew about $800 million from the platform. Coinbase and Binance are not just facing penalties: the SEC wants a judge to order these exchanges to follow US securities law. The SEC is relying on a US Supreme Court case from 1946 to argue that crypto assets are securities. As per this case, a security is an investment of money in a common enterprise with profits to come solely from the efforts of others. Hence, determining whether digital tokens are securities or not is crucial to these lawsuits.
Interestingly, Bitcoin is not considered a security. Since it is anonymous and has open-source origins, investor profits are not dependent on the efforts of the developers or the managers. And this is why despite the regulatory crackdown, Bitcoin surged on Tuesday.
Bearly out of it
While the S&P 500 officially got out of a bear market this week with 20% gains from its October lows, investors still remain fairly bearish. And rightly so — a majority of these gains come from a small bunch of tech and AI companies that are outperforming the market. For some context, just two stocks, Microsoft and Apple, account for around 15% of the benchmark index.
Due to this consolidated power and the way market indices are constructed, a small number of companies can dictate the direction of the index in a way that is not an accurate representation of the broader market. For instance, despite the S&P 500’s exit from a bear market, a lot of cyclical and smaller companies are struggling, and are still not in the clear.
An interesting and relevant fact, as reported by CNN recently, is that the number of public companies in the US is shrinking. Back in 1996, there were over 8,000 publicly listed companies trading on US exchanges, while today, this number has dropped by more than half to 3,700. More and more companies remaining private has not only reduced the market’s overall transparency but has also led to a lack of competition. This, in turn, has led to power consolidation, allowing a small number of companies like Apple to have an outsized effect on the market.
Cooked and served
On Monday, Apple CEO Tim Cook finally unveiled the company’s mixed-reality headset, the Vision Pro, at Apple’s annual developer conference. These headsets combine virtual and augmented reality, and users can control all of its features through a combination of eye movements, hand gestures, and voice commands, without the need for any other device. For instance, users can tap their fingers to select and scroll using their eyes. This is probably one of Apple’s most ambitious products ever, and is set to launch in 2024 with a hefty price tag of $3,499.
Just a week earlier, rivals Meta and Lenovo had announced new versions of their existing virtual reality headsets. But the question most investors have is if these companies might be rushing to dominate a market that barely even exists yet. AR/VR technology might be a little overhyped, and at Apple’s price point, it might not attract mainstream consumers. While Apple’s stock hit an intra-day trading high on Monday, it dipped after the company unveiled the Vision Pro, and closed down 0.76%.
Musical chairs
On Wednesday, GameStop fired its CEO Matt Furlong and appointed Ryan Cohen as executive chairman. This was the company’s fifth CEO exit in the last five years, and probably one of the only consistent things about this meme stock is its executive shake-ups. GameStop stock plunged as much as 19% on Thursday as investors absorbed the news. Since its 2021 highs, this stock has dropped almost 80%.
Source: Reuters
GameStop did not publish the reason for firing Furlong. This news came along with the company’s quarterly earnings report. The company’s net loss came down from $157.9 million from a year ago to $50.5 million, while the revenue too dropped from $1.38 billion to $1.24 billion.
GameStop has significantly increased its margins by slashing costs, and has undertaken massive restructuring efforts in Europe. While the transition costs related to the restructuring efforts amounted to $14.5 million, sales in Europe increased 26.7% year-over-year. Its sales in the US, Canada, and Australia, however, dropped by 16.4%, 18.5%, and 8.9% respectively.
Metamorphosis
Meta stock has been rallying this year — the stock is up 45% over the last three months and 120% year-to-date. And some analysts believe there’s still room for it to go higher, for several reasons.
First, Meta’s cost-cutting measures over the past few months have proven to be quite effective. Second, more and more TikTok users are transitioning to short-form video content on Instagram Reels. Hence, revenue opportunities from Reels are increasing, as brand advertisers are giving positive feedback. Third, Advantage+, Meta’s automated advertising product that leverages AI for campaigns, seems to be another area that can help drive revenue growth. Lastly, there are still many takers for Mark Zuckerberg’s belief in the long-term potential of the Metaverse.
Invest wisely
Big Tech companies like Meta and Apple have consistently outperformed the broader market and given investors massive returns. To benefit from such stocks, you need to invest in the US market. And you can easily do this through the Appreciate app. Appreciate makes investing in the US stock market as easy and convenient as investing in domestic stocks. Download the app today to enhance your returns.
Warm regards,
Another week
in the markets
