Wall Street Breakfast: What Moved Markets

- Stocks rallied Friday, led by technology and communication services, but the major averages finished lower for the week on escalating inflation fears. The October consumer price index released Wednesday showed inflation running hotter than at any time in 30 years, but Friday's report on plunging consumer sentiment prompted hope among traders that the Federal Reserve would delay any interest rate hikes. The major averages ended the week with modest losses of less than 1%, but all remain within striking distance of their all-time highs. U.S. Treasury prices tumbled, driving the benchmark yield on the 10-year note up 13 basis points on the week to 1.58%
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Stocks rallied Friday, led by technology and communication services, but the major averages finished lower for the week on escalating inflation fears. The October consumer price index released Wednesday showed inflation running hotter than at any time in 30 years, but Friday's report on plunging consumer sentiment prompted hope among traders that the Federal Reserve would delay any interest rate hikes. The major averages ended the week with modest losses of less than 1%, but all remain within striking distance of their all-time highs. U.S. Treasury prices tumbled, driving the benchmark yield on the 10-year note up 13 basis points on the week to 1.58%
     
On The Move
In his first sales in more than five years, Elon Musk this week let go of $5B of stock in Tesla (NASDAQ:TSLA). It came just days after he promised Twitter he'd sell a 10% stake in the electric carmaker, with 58% of respondents voted "Yes" in a highly-publicized poll. While the new SEC filings reveal that Musk knew in mid-September that some of his shares were slated for sale this week (as part of a pre-arranged trading plan), it's unclear if those sales would be included as the first installment in making good on his Twitter promise. Here's a breakdown of the transactions:

Monday: Exercised 2.1M stock options to "satisfy tax withholding obligations" and sold more than 934K of them to raise $1.1B.

Tuesday and Wednesday: Sold more than 3.5M shares worth $3.9B in a series of trades that were not part of a pre-planned stock sale, known as a 10b5-1.

Shares of Tesla plunged 16% in the two days following the Twitter poll as investors worried about the effects of shedding such a big block of stock. The 4.5M share sale from Musk equates to about 3% of his total holdings in Tesla, which makes up the majority of his estimated $281.6B fortune.

Thought bubble: Musk is the PR Technoking, often taking to Twitter to troll his critics or expand his sphere of influence. The way he framed the recent poll, and related tweets, is that he's willingly paying taxes at a time when there's a debate whether billionaires should pay taxes on unrealized gains. By agreeing to pay his "fair share," he received the approval of the Twitter mob who says he's avoiding taxes, while at the same time giving him the ability to sell his stock.

Go deeper: Current and former board members including chairwoman Robyn Denholm, Elon Musk's brother Kimbal Musk, Ira Ehrenpreis and Antonio Gracias also sold hundreds of millions of dollars worth of TSLA shares after the EV maker's market cap topped $1T on Oct. 28. Among the insider sales, Kimbal's was the only transaction that was not listed as a 10b5, or planned sale. He even sold around $109M worth of shares a day ahead of his brother's poll on Twitter. (154 comments)
     
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Industrials
Unveiling one of the biggest changes in the industrial giant's history, General Electric (GE) announced plans on Tuesday to split into three global public companies:

Aviation: Helping customers achieve greater efficiency and sustainability and invent the future of flight.

Healthcare: Driving innovation in precision health to address critical patient and clinical challenges (spinoff targeted for early 2023).

Renewable Energy and Power: Supporting customers and communities seeking to provide affordable, reliable, and sustainable power (spinoff targeted for early 2024).

Backdrop: After CEO Larry Culp took the reins in 2018, he went on to apply a similar philosophy he used to revamp diversified conglomerate Danaher (DHR). In one of his first moves, he slashed GE's valued dividend to a token penny a share. Two years later, he sold off GE's BioPharma business to his former employer for $21.4B, and in March, he combined GE Capital Aviation Services with AerCap (AER). He also implemented a 1-for-8 reverse stock split, which went into effect in July, to reduce the number of shares outstanding to an amount "more typical of companies with comparable market capitalization."

"By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees," Culp said in a statement. "Through the transition, GE will be able to monetize its stakes in AerCap and Baker Hughes (BKR), prioritizing further debt reduction. Each of the three resulting independent companies will be well capitalized with investment-grade ratings."

Bottom line: Following the transactions, General Electric will be an aviation-focused company. Culp will serve as non-executive chairman of GE Healthcare upon its spinoff and will remain chairman and CEO of GE until the second spinoff, when he will lead the GE "pure play" aviation company going forward. The company expects to incur ~$2B in one-time separation, transition and operational costs, and less than $500M in tax costs. (232 comments)
     
Earnings
The magic faded at Disney (DIS) on Wednesday as shares of the company fell nearly 5% in AH trading. Subscription growth for Disney+, its flagship streaming service, slowed in the latest quarter, fueling fears that the days of big subscriber counts have plateaued. Only 2.1M subscribers were added during the fiscal fourth quarter (for a total of 118.1M), down from the 12.6M new subs notched in FQ3.

What it means: Slowing growth among rival streaming services like HBO Max, Paramount+ and Peacock suggests strong pandemic gains are disappearing as more people seek entertainment outside the house (only Netflix (NFLX) bounced back last quarter).

"I believe that there will be a couple players at the end of the day that will both be able to do well and be very robust direct-to-consumer services," noted CEO Bob Chapek. "I certainly think that Disney is going to be one of them. When you have the combination of our brands, our franchises, great storytellers, plus our commitment to this marketplace, I think we'll be there in the end."

Disney talks Metaverse: Chapek also outlined a vision to use the Disney+ platform for an immersive experience that several big companies have been investing in and touting. While the platform wouldn't be limited to virtual reality headset and goggles, it would "blend our digital beings with our physical beings." Pressed for a better definition, Chapek said it "would create a 3D canvas for creative storytellers to paint, to create experiences that have otherwise been defined [exclusively] as a 'park experience,' 'movie experience' or a 'book experience.'" (77 comments)
     
IPOs
Also on Wednesday... The next EV maker to hit the public markets made an electrifying debut. Rivian Automotive (RIVN) priced its IPO at $78/share, above an already-elevated range of $72 to $74, raising a whopping $11.9B for the biggest share sale of 2022. The stock finished its first session up 28% at $100 and continued climbing for the rest of the week.
Backdrop: Rivian was founded in 2009 by RJ Scaringe, the same year he finished his doctorate in mechanical engineering at MIT. The EV maker originally set out to make a sports car, but pivoted to electric pickup trucks and SUVs due to their growing popularity among consumers. Over the past two years, the company has burned through cash (about $2B in 1H21 alone) to retool its factory and prepare for large scale production. Rivian hopes to launch three models by year's end, including an electric pickup called the R1T (deliveries began in September), a midsize SUV called the R1S and an electric delivery truck designed and built for Amazon (AMZN).

Rivian outlined its ecosystem in advance of the IPO, which includes vehicle technology, the Rivian Cloud, product development, analytics, accessories and services. The ecosystem, which also details plans for a charging network, is described as competitive in comparison to peers. Rivian estimates its total addressable market at $9T, and its serviceable available market at $1T.

On watch: Tesla (TSLA) is mentioned in the IPO filing by Rivian due to a trade secret lawsuit that is currently underway between the two companies. With Amazon a big backer of Rivian (it has a 22.4% stake), the sometimes edgy battle between Elon Musk and Jeff Bezos will extend to a degree from the space race to the electric vehicle industry. Rivian also wants to skip dealership sales like Tesla, selling directly to consumers and asking for a refundable deposit when people order their vehicles on its website. (28 comments)
     
Economy
Inflation is looking a lot less "transitory" after CPI numbers for October showed that consumer prices jumped 6.2% from a year ago, while notching the fifth straight month of a figure higher than 5%. It's also the fastest rate since 1990, and while that might cause some worry in the general population, Wall Street appears to be discounting the effects. Many continue to argue that the Fed won't get too aggressive, inflation could moderate next year, while some think stocks could even benefit along with a rise in asset prices.

Snapshot: Businesses are passing on higher costs to consumers, with 60% of small business owners raising prices in the previous 90 days, according to a November survey of 560 firms by Vistage Worldwide. Companies are struggling to get materials and are delaying orders, adding to demand pressures, while a labor shortage is putting upward pressure on wages. Some feel that will need to prompt a shift in U.S. economic strategy, which sought to jolt pandemic demand through unprecedented fiscal stimulus, though others say supply logjams are at the heart of the issue and targeted spending could help ease those problems more broadly.

"Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me. With the [infrastructure] bill we passed last week, and the steps we're taking to reduce bottlenecks at home and abroad, we're set to make significant progress," President Biden said in a statement. "Very soon we're gonna see the supply chain start catching up with demand, so not only will we see more record-breaking job growth, we'll see lower prices, faster deliveries as well. This work is going to be critical as we implement the infrastructure bill and as we continue to build the economy from the bottom up and the middle out by passing the Build Back Better plan."

Outlook: The hot inflation figures continue to worry West Virginia Sen. Joe Manchin, who has been warning of fiscal spending and serious price pressures since the summer. That could further endanger the economic agenda of the White House, which has not yet given into business demands to ease tariffs on Chinese imports and failed to persuade OPEC+ to increase oil production. "From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day," tweeted Manchin, who must vote for the coming $1.75T social spending package if it has any chance of passing the Senate. (164 comments)
     
U.S. Indices
Dow -0.6% to 36,100. S&P 500 -0.3% to 4,683. Nasdaq -0.7% to 15,861. Russell 2000 -1.1% to 2,411. CBOE Volatility Index -1.2% to 16.29.

S&P 500 Sectors
Consumer Staples -0.3%. Utilities -0.9%. Financials +0.1%. Telecom -2.1%. Healthcare +0.2%. Industrials -0.4%. Information Technology -1.%. Materials +1.8%. Energy -1.4%. Consumer Discretionary -3.6%.

World Indices
London +0.6% to 7,348. France +0.7% to 7,091. Germany +0.3% to 16,094. Japan 0.% to 29,610. China +1.4% to 3,539. Hong Kong +1.8% to 25,328. India +1.% to 60,687.

Commodities and Bonds
Crude Oil WTI -0.7% to $80.72/bbl. Gold +2.8% to $1,867.9/oz. Natural Gas -13.3% to 4.78. Ten-Year Treasury Yield -0.9% to 130.67.

Forex and Cryptos
EUR/USD -1.05%. USD/JPY +0.46%. GBP/USD -0.56%. Bitcoin +3.7%. Litecoin +25.2%. Ethereum +2.7%. Ripple +2.4%.

Top Stock Gainers
Pioneer Pwr Sol (NASDAQ:PPSI) +155%. Nuzee Inc (NASDAQ:NUZE) +146%. Evgo Inc (NASDAQ:EVGO) +89%. Tdh Holdings Inc (NASDAQ:PETZ) +64%. Everspin Technologies Inc (NASDAQ:MRAM) +59%.

Top Stock Losers
Cn Energy Group Inc (NASDAQ:CNEY) -65%. Acutus Medical Inc (NASDAQ:AFIB) -53%. Oncorus Inc (NASDAQ:ONCR) -48%. Amyris Inc (NASDAQ:AMRS) -43%. Yumanity Therapeutics Inc (NASDAQ:YMTX) -41%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.
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