29th July 2023 – 04th August 2023 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 4,478.03 | 13,909.24 | 17.10 | 35,065.62 | 2,456.42 | 16,071.06 |
| -2.27% | -2.85% | 28.28% | -1.11% | -2.25% | -1.79% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 19,517.00 | $1,978.20 | $23.73 | $86.15 | 82.68 | 91.05 |
| -0.66% | 0.99% | -3.06% | 2.21% | 0.47% | 0.40% |
Source: MarketWatch
Hello Saturday,
This week, Fitch Ratings downgrades the US’s credit rating to AA+, Uber reports its first-ever operating profit, and meme traders make a return by rescuing Tupperware from bankruptcy.
- Fitch Ratings cuts the US’s long-term rating to AA+ from AAA over fiscal deterioration expectations, a growing government debt burden, and the erosion of governance standards.
- Uber reports its first-ever operating profit, but its stock falls nevertheless as the company misses revenue expectations. Amazon and Apple beat Wall Street expectations on both earnings and revenue.
- Tupperware Brands was on the verge of bankruptcy in April, but meme traders got its stock to surge over 800% in the past month.
- Paramount is in talks with KKR & Co. to sell Simon & Schuster in a $1.65 billion deal; this comes less than a year after US regulators blocked Penguin Random House from acquiring the rival publishing house in a $2.2 billion deal.
- The Big Three automakers, General Motors, Ford Motors, and Stellantis, are in a tough spot as the United Auto Workers (UAW) union asks for a 40% wage increase for workers.
Taking stock | Oh Fitch! | Destination: profit | Dabba delirium | Book binding | Autoimmune? | Invest wisely
Taking stock
Stocks closed lower on Friday after a mixed jobs report, and all major indices posted weekly losses. The S&P 500 and Nasdaq logged their worst week since March, losing 2.27% and 2.85%, respectively. The Dow dropped 1.11%. The sell-off in stocks this week was a response to Fitch’s US credit rating downgrade.
Oh Fitch!
In May, the US was at serious risk of defaulting on its debt on the ‘X date’, which was June 5. However, the crisis was averted just in time when the debt ceiling was suspended on June 2. So when Fitch Ratings downgraded the US’s long-term debt from AAA to AA+ last Tuesday, more than two months after the debt ceiling issue was resolved, it surprised investors and came as a big blow to the White House.
The agency cited its expectation of fiscal deterioration over the next three years as the reason for the downgrade. Fitch said that the repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. According to Fitch, there has been a steady deterioration in the standards of governance over the last 20 years, including on fiscal and debt matters. Furthermore, the agency pointed to the rising general government deficit, projecting an increase from 3.7% of GDP in 2022 to 6.3% in 2023. However, the White House disagrees with Fitch’s downgrade, with US Treasury Secretary Janet Yellen saying that it’s an arbitrary move based on outdated data.
In response to the downgrade, stocks saw a steep sell-off on Wednesday, and 10-year and 30-year Treasury yields rose to their highest levels since November 2022. Despite this, analysts believe that the downgrade won’t have a significant impact on the markets, especially compared to the last downgrade in 2011 by S&P.
Destination: profit
Uber, Apple, and Amazon reported their quarterly results this week. After 14 years, Uber has finally reported an operating profit of $326 million in the second quarter. While the ride-hailing and food-delivery company’s stock rallied in pre-market trading on Tuesday, there was a sharp reversal once the market opened, with the stock falling nearly 5%. That was because despite turning an operating profit for the first time ever, Uber missed revenue expectations.
Apple’s fiscal third-quarter results beat Wall Street’s expectations for both earnings and sales. However, overall, its sales fell by 1% year-over-year, with revenue from iPhones, iPads, and Macs all being lower. The good news came on the services revenue front, which reached a new all-time high of $21.2 billion. Amazon posted second-quarter results on Thursday with 11% revenue growth supported by strong demand. The company also issued optimistic guidance for the third quarter, and shares rose more than 10% in extended trading.
Dabba delirium
With Tupperware Brands’ shares surging over 800% from their low on July 19, meme traders are back in town for the time being. In April, the company had warned that it was on the brink of bankruptcy and its sales were readily declining.
Then in June, its market capitalisation fell below $50 million over a period of 30 trading days, which prompted the New York Stock Exchange to notify the company that it was in breach of the exchange’s rules. At the time, the average closing price of Tupperware shares was less than $1. The share price’s skyrocketing in the past month came without any major financial news at the company’s end. In the last week alone, its shares rose 300%.
Source: The Wall Street Journal
However, last week, the company’s shares finally had a reason to soar: Tupperware finalised an agreement with its lenders to restructure its debt, which will give it a chance to turn its business around.
Book binding
KKR & Co., a private equity firm, is reportedly in advanced talks to buy Paramount’s publishing house, Simon & Schuster, for about $1.65 billion. The company was competing against bidders like investor Richard Hurowitz and HarperCollins Publishers.
Simon & Schuster is one of the big five publishing houses, the others being Penguin Random House, HarperCollins, Hachette, and Macmillan. A US federal judge blocked Penguin Random House from acquiring Simon & Schuster last year due to concerns over reduced competition and the potential negative impact on authors’ rights.
Now, less than a year later, Paramount has put the publishing house on the market for the second time. According to experts, US regulators are unlikely to raise any competition concerns this time.
Autoimmune?
The United Auto Workers (UAW), an American labour union, is seeking double-digit pay hikes as a part of its negotiations with the Detroit Three — General Motors, Ford Motor, and Stellantis. The proposal, which represents around 150,000 workers, calls for a 40% wage increase over four years. In addition to this, the UAW is also demanding a cost-of-living allowance and pensions for all.
General Motors has expressed a willingness to increase its workers’ wages, but has raised concerns that the UAW’s demands could threaten the company’s long-term success. Ford’s spokesperson said that the company would work with the UAW to find creative solutions. Meanwhile, Stellantis said it was still evaluating the union’s demands.
The bold campaign by the union and its potential negative implications for automakers have raised concerns among investors, and the stocks of the Big Three could be affected due to the ongoing negotiations.
Invest wisely
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Warm regards,
Another week
in the markets
