- The Peel
- Posts
- Markets Catch Their Breath
Markets Catch Their Breath
š Markets stayed relatively flat after big gains on Tuesday as tech performed well.
Silver banana goes toā¦
In this issue of the peel:
š Markets stayed relatively flat after big gains on Tuesday as tech performed well.
š¢ļøThe Fed plans to relax an important capital rule that limits the amount of U.S treasuries large banks can hold.
š Even the Fed is unsure how Trumpās tariffs have impacted consumer prices as Powell and the FOMC try to plan for the future of interest rates.
Market Snapshot
Banana Bits
Zohran Mamdani, a democratic socialist running for Mayor of NYC, is threatening Wall Street as he upsets Andrew Cuomo in the primary for the democratic party.
The NASDAQ 100 climbs to new highs as investors continue to remain bullish on tech stocks.
Tax hikes on āmega millionairesā could be a part of Trumpās new tax bill as the Senate continues to debate.
J.P. Morgan traders are getting shut out of the private credit market as top companies in the space maintain their hold on the business.
The U.S government has accused 3 different Mexican financial institutions of aiding the trafficking of fentanyl into the U.S.
An investment platform is selling everyday investors exposure to SpaceX, in an effort to give investors the ability to invest in private companies.
Big Pharma Fumbled. We Picked Ran It In For 6.
What happens when a biotech company skips venture capital, skips Wall Street, and lets you invest instead?
Cytonics is doing just that. Weāre developing what could be the first disease-modifying therapy for osteoarthritis, a $393B global market that Big Pharma hasnāt cracked in 30 years.
Our drug, CYT-108, targets the root molecular cause of OAāsomething painkillers and steroids donāt touch. Itās based on a naturally occurring protein thatās already helped over 10,000 patients in our first-gen therapy. Now weāve engineered a next-gen version, and itās already in human trials. That's right, de-risked development - a massive competitive edge over pharma's drug development paradigm.
Weāve raised over $25M from everyday investors (no VC, no PE, no bankers in Patagonia vests). Just people who believe in scienceāand the upside that comes with being early.
This is your shot to invest in a clinical-stage biotech on your terms.
Macro Monkey Says
Fed Gives Big Banks More Breathing Room
The stock price of large bulge bracket banks like Goldman Sachs and Bank of America rose as the Fed announced that they were going to ease up on the enhanced supplementary leverage ratio rule.
This rule essentially states that holding companies must meet a certain capital requirement, with a ratio of approximately 5%, whereas banks must meet a requirement of 6%. In simpler terms, this rule means that they must hold a minimum of 6% (or 5%) of their total leverage exposure (loans, derivatives, etc.) in tier 1 capital (which is common stock and some types of preferred stock).
The revision by the Fed suggests that both banks and holding companies would only have to hold 3.5-4.5% of their total leverage exposure in tier 1 capital. This policy would enhance resilience within the U.S. Treasury markets, which have experienced significant fluctuations recently due to fiscal concerns.
This policy would build resilience in the market for U.S treasuries because it would allow banks to hold more of them. Additionally, loosening the policy could also help banks stay engaged when there are mass treasury selloffs, and not be limited to passive trading due to regulations.
This policy could also encourage more repo trading of U.S treasuries from banks that wonāt be as limited by capital restraints.
On the other hand, former Federal Reserve Governor Michael Barr objected to the plan, stating that it would reduce the capital of large banks by $210 billion. Barr also said that due to the reduction in capital, it would significantly increase the chances one of these banks could go under, a scenario that hasnāt happened since 2008.
The Takeaway?
What the Fed must ensure is that the revision of this policy addresses how bulge bracket banks can assist the Treasury Market while simultaneously ensuring their financial stability. As the whole world saw in 2008, nothing good happens when bulge bracket banks collapse, and the entire point of the policy is to prevent that from happening.
Career Corner
Question
Most job descriptions have "must obtain Series 7 and 63 in 90 days." What happens if you don't? Does the company fire you?
Answer
Yes, typically you need to obtain a license, and it will be a condition of employment. Depending on the role and org, it may be the SIE, S79, S7, or S63.
Head Mentor, WSO Academy
What's Ripe
QuantumScape Corporation (QS) 31.0%
QuantumScape, a company that produces lithium batteries primarily for electric vehicles, had a big day in the markets after they announced the successful development of their lithium batteries.
More specifically, QuantumScape successfully integrated their āCobraā separator, which is a crucial component for commercial viability.
AeroVironment (AVAV) 21.6%
Shares of AeroVironment soared yesterday after they absolutely crushed their fiscal Q4 earnings report. The technology solutions provider had an adjusted EPS of $1.61, over the expected $1.44, and their revenue increased 40% YoY, ahead of the expected 30%.
What's Rotten
SiTime Corporation (SITM) 15.7%
SiTime, a manufacturer of silicon-based timing solutions, scared investors away due to fears of dilution, causing a significant decrease in stock price. SiTime announced a $350 million follow-up offering in order to raise new capital, which was enough for many investors to sell.
Paychex Inc. (PAYX) 9.4%
Paychex, a payroll services company, saw a substantial decrease in stock price after falling short of fiscal Q4 earnings. Paychexās revenue increased 10% YoY, just shy of analyst estimates. Net income decreased 22% YoY, partially attributed to slipping margins, especially Paychexās operating margin, which fell about 7%.
Thought Banana
Is the Fed Struggling to Make the Correct Moves?
Yesterday, Jerome Powell testified in front of the Senate Banking Committee, which was a part of his semi-annual testimony regarding the logic behind the Fedās recent decisions to hold the FFR (Federal Funds Rate).
Powell emphasized that the Fed is adopting a āwait and seeā approach to interest rates because they don't know how these tariffs are going to affect consumer prices. Thus far, CPI metrics have not alluded to any signs of inflation, coming in below the predictions of economists.
Furthermore, Powell and many other economists also believe that inflation has yet to come, but the question regarding the timing of inflationās arrival is one that has yet to be answered. Additionally, there is still the question of whether inflation will come at all, which is definitely still up in the air.
If Juneās CPI reading (set to release in July) comes out as higher than economists expected, then that will ensure that the Fed will not cut rates, and could possibly consider hiking them given the actual CPI metric and other inflationary indicators.
On the other hand, if CPI comes out lower or at par with economistsā expectations, then the FOMC could definitely cut rates. Members of the FOMC, including Fed Governor Michelle Bowman, have stated that they would be in favor of a rate cut in July if inflation remains calm.
If the Fed cuts rates prematurely and right before inflation, that could amplify the effects of inflation and make it significantly more difficult for the U.S economy to dig themselves out of that hole.
The Takeaway?
Nobody, not Jerome Powell or anybody on the FOMC, knows if inflation is coming or not. Powell and the FOMC are taking the cautious route regarding cutting rates because a premature rate cut could be devastating for the American economy. Whereas most were confident that Juneās FOMC meeting would result in holding rates, the status of Julyās FOMC meeting is likely going to be dependent on inflationary indicators set to be released in the coming weeks.
The Big Question: Will a premature rate cut be the Fedās biggest blunder since ātransitoryā inflation?
Banana Brain Teaser
Previous
If a two-digit positive integer has its digits reversed, the resulting integer differs from the original by 27. By how much do the two digits differ?
Answer: 3
Today
What is the difference between the sixth and the fifth term of the sequence 2, 4, 7, ā¦ whose nth term is n + (2^(n-1))?
Send your guesses to [email protected]
The ability to outperform in the financial markets requires creativity, vision, and the ability to see things others cannot see.
How Would You Rate Today's Peel?
Happy Investing,
Chris, Vyom, Ankit, Mithun, Colin & Patrick