Pen and calendar on a wooden table

Rate cut hopes

7th June 2024 – 14th June 2024 | Another week in the markets

S&P 500Nasdaq VIXDJIARussell 1000NYSE
1.58%3.24%3.60%-0.54% 1.43%-0.54%
Nifty 50GoldSilverBrent crudeUSD-INREUR-INR
0.75% -1.61%-1.21%4.03%0.03%-0.17%

Source: MarketWatch 

Hello Saturday,

This week, Amazon and Netflix wage a fierce fight over advertisers, Tesla shareholders reinstate a $46 billion pay package for CEO Elon Musk, and US markets touch new highs as mild CPI data kindles hope for one rate cut this year.

  • Netflix is backed into a corner courtesy of Prime Video’s aggressive tactics, which are forcing the former to reduce its advertisement rates and embrace product placement.
  • Tesla shareholders give the go-ahead to a $46 billion pay package for CEO Musk but his legal troubles are far from over.
  • Vodafone Group plans on selling its entire $2.3 billion stake in Indus Towers.
  • Mild CPI report drives Federal Reserve officials to project one rate cut this year.

Taking stock | Ad wars! | Salary scuffles! | Stake sale! | Rate cut hopes! | Invest wisely | Another week in the markets

Taking stock

The overhang of the mild CPI numbers continued to spur all three major indices on Friday as well. The tech-heavy Nasdaq Composite rose 0.1% to a fresh high helping it log a weekly gain of 3.2%. The S&P 500 slipped from its record highs but ended the week with a weekly gain of 1.6% and the Dow pared 0.5% gains for the week.

Ad wars! 

Amazon’s Prime Video is giving Netflix a run for its ad money. 

As a consequence of Prime Video’s new advertising blueprint, Netflix has been forced to charge less for its ads and embrace new facilities like product placement to keep its ad revenue ticking upwards. 

Prime Video disrupted the level playing field earlier this year when it transitioned its Prime Video subscriber base to ad-supported versions. The streaming platform now offers its subscribers a chance to go ad-free by paying an extra $2.99 per month.

It doesn’t help Netflix’s cause that Prime Video has a massive subscriber base. A large subscriber base means that Prime Video has built up a massive ad inventory, which is, consequentially, pushing other players like Netflix, YouTube, TV networks and other platforms into a corner as far as ad pricing is concerned. 

Netflix is now asking brands to fork out $29 to $35 to reach 1000 viewers contrasted with  the $39 to $45 that it charged some advertisers last summer. Analysts believe that the reduced charges offered by Netflix are what Prime Video is offering on its platforms to advertisers. However, advertisers are pushing Prime Video to offer lower ad charges.

Ad buyers said that negotiations are ongoing and ad prices could change. Advertisers pay different charges for different types of ads; the pay being largely determined by the timing and placement of the ads.

As per analysts, Netflix is offering larger premium-price ad packages which lets companies integrate their brands and products into certain programs. The streaming platform is also exploring the option of offering sponsorship of live and in-person events.  

Although Amazon does not disclose its subscribers figure, it has declared earlier that its ad-supported tier of Prime Video reaches 115 million monthly viewers in the US. Netflix, on the other hand, reached 40 million global monthly active users. 

Salary scuffles!

There is good news and bad news for Tesla CEO Elon Musk.

First, the good news: Tesla shareholders voted on Thursday to reinstate a $46 billion pay package which a Delaware judge had earlier overturned.

The bad news: The shareholders’ decision is unlikely to put the matter to a categorical rest, and legal complications are likely to persist even after the decision.

Tesla shareholders had first greenlit the pay package in 2018. However, a Delaware judge, Chancellor Kathaleen McCormick overturned it earlier in the year on the ground that the board of directors were conflicted when negotiating it. In the aftermath of the judgment, Tesla asked its shareholders to reapprove the same pay package arguing that their support will help CEO Musk receive the pay that Tesla says he earns.

Legal experts said that even with the shareholders’ decision favouring Musk, it is still unclear when Musk will get paid.

What’s worse is that the shareholders’ decision might not put an end to the legal battles. 

The Delaware petition was filed in 2018 by Tesla shareholder Richard Tornetta, who is identified by the Wall Street Journal, as a heavy-metal drummer. Tornetta alleged that Musk influenced the board as it was negotiating his pay package and that the board also misled shareholders who gave their go-ahead to the proposal.

The Delaware judge sided with Tornetta, and threw out the pay package. She also deemed Musk a controlling shareholder and held that shareholders were not fully informed in 2018.

Readers should note that pay packages for typical CEOs require approval from either an independent board or independent shareholders. In the case of controlling shareholder CEOs like Tesla, approval is required by both.

Meanwhile, Tornetta is waiting for another key ruling from the court. His lawyers have demanded a little over 29 million shares, which were valued in 2018 at close to $5.6 million, and an additional $1 million to cover expenses. The judge will take a decision on the amount to be awarded to Tornetta.

The next hearing is on July 8.

Stake sale!

Vodafone Group is planning on selling its entire $2.3 billion stake in Indus Towers via stock market block deals next week.

Vodafone currently holds a 21.5% stake in the mobile tower operator Indus Towers through various group companies. It is looking to sell its stake to reduce the debt sitting on its books.

Sources told media agencies that the final size of the stake to be sold is yet to be decided, and the stake sold could be less than 21.5% depending on the demand. If the demand appears to be muted, then a small stake sale could also be considered.

Shares of Vodafone India shot up by as much as 4.8% after the news surfaced. On the other hand, Indus Towers’ share inched up by 0.3%.

Media reports indicate that Vodafone has hired Bank Of America, Morgan Stanley and BNP Paribas to manage the stake sale in the Indian bourses. 

Private equity funds such as KKR and Canadian fund CPPIB also counted themselves as investors in Indus Towers but exited the company by selling their entire stake in February.

Vodafone plans on repaying a part of its total net debt of $42.17 billion from the proceeds of the Indus Towers stake sale.

Price chart

Source: Google Finance

Rate cut hopes!

Markets rose on Wednesday as muted CPI data kindled hope for rate cuts in the coming quarters. The Nasdaq advanced 1.5% hitting a new record while the S&P 500 gained 0.9% to touch new highs. Benchmark 10-year Treasury yield dropped to 4.294%.

Consumer Price Index figure released by the Labour Department indicated that inflation rose by 3.3% in May and remained flat compared to April when the reading stood at 3.4%.

Analysts and economists were equally enthused by the muted inflation figure, and indicated that the reading would help bolster the Federal Reserve’s confidence that inflation was tumbling towards the 2% target, albeit gradually, and with a few bumps along the way.

New economic projections released by the Federal Reserve show that 15 out of 19 officials expect the Fed to reduce rates this year. However, the group remains split between one or two rate cuts. The median of these projections reflected one rate cut. 

The economic projections cooled rate cut expectations of the markets which rose in anticipation of more than one rate cut in the year. 

Federal Reserve Chair Jerome Powell said that the Fed had made pretty good progress on inflation, and the Wednesday inflation report “was a step in the right direction”. However, he cautioned that one “wouldn’t want to be too motivated by any single data point.”

“The 3.3% CPI reading in May was the kind of positive reading that the Federal Reserve was pinning its hope on after a disappointing first quarter this year. The reading goes on to add more grist to Chair Jerome Powell’s belief that inflation is moving gradually towards the 2% target, even if it might be doing so on a somewhat bumpy path.” Subho Moulik, Appreciate’s Founder & CEO said, adding that, “a series of cooler-than-anticipated inflation readings coupled with moderating labour market conditions in the coming months will go on to bolster the Federal Reserve’s confidence that its soft landing goal is truly attainable, and within sight.”

Invest wisely 

Investing requires oodles and oodles of patience. There is no faster method of destroying wealth than to park it in a stock after heeding a hot tip passed on by a well-meaning but ill-researched and under-qualified relative or friend. Wealth grows by zeroing in on and accumulating blue-chip stocks at discounted rates. It is here that the Appreciate app can help you find companies that hold the potential to multiply their top and bottom lines, and shoring up your wealth. With our inexhaustible research database, conducting deep fundamental and technical research has never been this simple.

Warm regards,
Another week
in the markets

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