The hot air balloon that is this market continued to rise higher into the stratosphere this week. While the Nasdaq remained mostly flat, the S&P 500 and especially the Dow Jones Industrial Average made up some ground. With earnings announcements coming in fast and furious, the daily action has been robust. Carvana jumped 43% on better-than-expected earnings, only to drop 22% the following day when analysts read the fine print. As with most earnings seasons, some stocks surprise to the upside while others disappoint. Making it confusing are those stocks that beat expectations, raise guidance, and still sell-off. While we can try to make sense of intra-day market movements, it is sometimes confounding. On average the announcements have been good, beating expectations, and in general are rather hopeful regarding the second half of the year. I will take them at their word and choose to believe economic conditions are stronger than the data suggests. In the meantime, we will continue to rebalance portfolios and take gains where warranted.
In company news, this week Ford announced it is slashing prices on its popular F-150 Lightning. The company claims economies of scale have allowed it to cut prices by as much as $10,000 on the base EV model, but I can’t help but wonder whether competition and a weary consumer are also to blame. In other news, Microsoft hit an all-time high Tuesday after announcing it will be adding an AI offering, called Copilot, to its Office 365 platform. Satya Nadella, Microsoft’s CEO, said to think of Copilot as the “third leg” of Office after Word, Excel, and Teams. Wouldn't that be the fourth leg? While Copilot is a voluntary upgrade, the company is banking on this becoming a considerable revenue stream. And while we’re on the subject of AI, Google is exploring the use of an AI product to write news stories and is in talks with news organizations including the NYT, The Washington Post, and The Wall Street Journal to use the tool to assist journalists. If it weren’t for this story, I would have believed bots and AI were already writing many of the stories I come across each week.
I generally steer clear of anything controversial when I write this weekly update. There are some companies that are controversial for any number of reasons and we have clients and friends on all parts of the political spectrum. As with people, companies typically aren’t all good or all bad, except for maybe Nestle which, in my opinion, has done a lot of harm. In that light, I want to mention Exxon Mobil which takes a lot of heat for its history of environmental issues. Last week the company announced it will be acquiring Denbury for $5B. Denbury is a leader in carbon capture and carbon sequestration technology. Exxon hopes to bring its considerable resources to make carbon capture a profitable business in the years ahead. This week the company announced it is planning to build one of the world’s largest lithium processing facilities in Arkansas, with a capacity to produce 75K-100K metric tons per year, according to the Wall Street Journal. At scale, the plant’s production would equate to 15% of all finished lithium produced globally last year. With a burgeoning EV market and a constraint on lithium, this is essential to tip the balance toward EVs. I know fossil fuel companies are controversial for many, but they aren’t all bad. At least in the case of Exxon, it is looking toward the future.
While we’re talking about the future, let’s talk for a minute about the antiquated method we use to transfer money through the financial system. The current ACH system is a type of electronic bank-to-bank payment and is often used for paycheck automatic deposits and payments. The system was first used in the late 1960s and is fairly antiquated by today’s standards with payments taking anywhere from one to several days to settle. Enter FedNow. The Federal Reserve is about to launch a new instant-payment system that will be available 24/7/365. It will initially be supported by 57 organizations like Bank of New York Mellon, JPMorgan Chase, Wells Fargo, and U.S. Bancorp, with many more expected to get onboard this year. FedNow transactions will occur instantaneously and will put it directly in competition with private networks like Zelle and Venmo. Look for it at your bank in the coming year.
In closing, I came across an article by Consumer Affairs this week which looked at driving data to determine which cities are most dangerous. The study examined a range of data from the U.S. Department of Transportation, including the number of fatal crashes, the number of fatalities caused by bad driving, the number of fatalities due to drivers under the influence, and the prevalence of speeding in fatal accidents. While I expected Cincinnati to be top among the cities listed, it did not make the list (although Cleveland was number 6). Instead, we find in order of dangerousness: Memphis, TN, Baton Rouge, LA, Albuquerque, NM, Macon, GA, and St. Louis, MO. If you happen to live in one of these cities, or perhaps drive through one on the way to your vacation destination this summer, please pay extra attention. Now you know.Bruce J. Mason, MBA