Market Snapshot

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📉 Banana Bits

• Wall Street tumbles as AI spending fears deepen, with the Nasdaq falling 2.86% and Intel plunging 28.6% on Friday.

• Oil prices drop more than 4% Monday as diplomatic efforts between the U.S. and Iran raise hopes of easing Middle East tensions.

• Binance suffers a record $6.3 billion crypto hack, raising fresh concerns over digital asset security.

• China's manufacturing activity contracts in October as its official factory PMI falls to 49.3 amid weaker export orders.

• Wall Street braces for Apple earnings, U.S. midterm elections, and Friday's jobs report after a rough finish to October.

Market News

The AI Bill Comes Due

Wall Street ended October with a brutal selloff as investors grew increasingly nervous about the enormous cost of the AI boom and whether companies are spending more than they can realistically earn back.

The Nasdaq Composite plunged 2.86% on Friday, its worst day since June, while the S&P 500 fell 1.82% and the Dow dropped 1.09%. The tech-heavy Nasdaq has now fallen 7.8% from its October 6 record, as investors reassess the valuations of companies that have powered much of this year's rally.

The biggest damage came from technology earnings. Intel cratered 28.6% after issuing a disappointing outlook and warning about weaker PC demand, dragging other chipmakers lower. Nvidia lost 4.2%, AMD plunged 10.9%, and the broader semiconductor index sank 7.2%.

Amazon added to the anxiety after reporting that its aggressive infrastructure investments had pushed trailing 12-month free cash flow to negative $42.4 billion. Even with AWS revenue growing 39%, investors focused on the company's projected $220 billion in capital spending this year and its weaker-than-expected holiday-quarter outlook.

Alphabet wasn't helping either. After plunging 12.6% on Thursday over disappointing revenue and massive AI spending, shares slipped another 1.4% on Friday.

Yet corporate earnings weren't universally terrible. About 82% of S&P 500 companies that had reported third-quarter results beat expectations, while Exxon Mobil and Chevron gained after topping profit forecasts. Investors weren't abandoning every business. They were becoming much less forgiving of expensive growth stories.

Meanwhile, Monday brought some relief. U.S. stock futures pointed higher, and several Asian markets rebounded as investors looked ahead to Apple's earnings after the closing bell.

Oil prices also retreated more than 4% early Monday, with Brent falling toward $109 a barrel as diplomatic efforts involving Iran and Qatar continued. OPEC+ also agreed Sunday to keep December production targets unchanged, although disruptions to Middle Eastern energy supplies remain a major concern.

The global economic picture wasn't entirely reassuring, either. China's official manufacturing PMI slipped to 49.3 in October, returning to contraction as domestic and export demand weakened.

And Wall Street has little time to recover. Apple and Palantir report Monday, AMD follows Tuesday, and the U.S. midterm elections take place the same day. Friday brings the October jobs report, another major test for investors weighing economic growth, inflation, and the Fed's next move.

Peel Take: October ended with two very different stories. The Dow managed to finish the month higher, while the Nasdaq lost 5.3%, showing just how uneven the market has become. Friday's selloff made that divide even clearer, with chipmakers getting hammered while energy stocks held up on strong earnings. The bigger risk now is whether weakness in tech stays contained or starts pulling the broader market down with it. And with earnings, elections, and jobs data all coming this week, Wall Street won't have to wait long for its next test.

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What's Ripe

Regeneron Pharmaceuticals (REGN) 13.33% 

• Regeneron surged 13.33% after crushing third-quarter expectations, with revenue jumping 36% to $5.12 billion and adjusted earnings reaching $20.07 per share, comfortably beating Wall Street estimates of $16.51.

• Strong drug sales and higher Sanofi collaboration revenue fueled the results, with U.S. Eylea HD sales rising 62% and global Dupixent sales, recorded by Sanofi, climbing 35%. Regeneron also expanded its partnership with Sanofi, securing a $1 billion upfront payment to be recognized in the fourth quarter.

• Peel Take: While tech stocks were getting hammered over AI spending, Regeneron reminded Wall Street what investors really like: strong earnings and actual revenue growth. A billion-dollar partnership payment doesn't hurt either. Sometimes the best way to win over investors is simply to deliver the numbers.

Global Payments (GPN) 12.97% 

• Global Payments jumped 12.97% after reports emerged that private equity giant Clayton, Dubilier & Rice (CD&R) was exploring a deal to take the payments processor private, potentially alongside GTCR, its largest shareholder.

• The potential buyout could become one of the largest leveraged buyouts in history, although discussions remain preliminary and no agreement has been announced. Analysts also warned that Global Payments' nearly $22 billion in net debt could complicate financing such a massive transaction.

• Peel Take: Nothing gets Wall Street excited quite like a potential buyout. Global Payments rallied as investors priced in the possibility of a private equity takeover, but $22 billion in debt makes this anything but a straightforward deal. For now, it's a takeover story, not a takeover.

What's Rotten

Reddit (RDDT) 29.22%

• Reddit plunged 29.22%, its biggest one-day decline on record, after warning that Google's AI-powered search features were hurting referral traffic. Search referrals fell by more than one million per week on average in October, and Reddit warned that daily active users could decline by a low double-digit percentage in the fourth quarter if the trend continues.

• The selloff came despite third-quarter revenue climbing 53% to $895 million and beating expectations. Investors instead focused on weaker user growth and fourth-quarter revenue guidance of $1 billion to $1.03 billion, below Wall Street's roughly $1.05 billion forecast.

• Peel Take: Reddit spent years benefiting from people Googling questions and clicking through to its discussions. Now Google's AI can answer those questions before users ever reach the site. That's great for convenience, but not so great for a platform that makes money by keeping people scrolling.

Intel (INTC) 28.58%

• Intel cratered 28.58% on Friday after delivering a disappointing fourth-quarter outlook despite beating third-quarter earnings expectations. Revenue rose 21% to $16.5 billion, but management forecast just $15 billion to $16 billion for the next quarter, well below Wall Street's roughly $17.1 billion estimate.

• Weakening PC demand, rising memory costs, and supply constraints overshadowed strong demand for Intel's server processors. The company also warned that it does not expect to generate positive free cash flow this year, intensifying concerns about the cost of its manufacturing expansion and turnaround.

• Peel Take: Intel managed to beat expectations for the quarter and still deliver one of its worst trading days in decades. The problem wasn't what the company earned yesterday, but what it expects to earn tomorrow. With PC demand weakening and heavy manufacturing investments still weighing on its cash outlook, investors weren't sticking around for another turnaround promise.

🧠 Technical Trip

Interview Q&A from Bank of America

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🦈 Deal Dispatch

M&A, IPOs, And Other Notable Transactions

• Blackstone-managed funds agree to acquire a stake in Mitsubishi's LNG Canada investment in a $1.6 billion deal.

• BP completes the sale of a 65% stake in Castrol to Stonepeak, generating $6 billion in after-tax proceeds.

• Lazard completes its acquisition of Campbell Lutyens, launching a combined private capital advisory business.

• Affle agrees to acquire advertising technology firm Perion in a $420 million all-cash deal.

• Valero agrees to acquire LyondellBasell's former Houston refinery for $320.5 million.

Student Success Corner

Banana Brain Teaser

Previous

A market maker quotes a stock at $99 bid and $101 ask. The stock's true value is equally likely to be $90 or $110. Of incoming trades, 30% come from informed traders who know the true value and trade accordingly, while the remaining 70% come from uninformed traders who buy or sell randomly. What is the market maker's expected profit or loss per trade?

Answer: $2 expected loss per trade

Today

A stock trades at $100, while a European call and put with the same $100 strike and expiration trade at $12 and $10, respectively. The present value of the strike price is $95, and the stock pays no dividends. Is there an arbitrage opportunity? If so, what trades would lock in a risk-free profit, and how much would that profit be per share?

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Happy Investing,
Elie, Mitchell, Fernanda, Nick, & Patrick

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