Silver banana goes to…

In this issue of the peel:

• 📈 After early losses, the major indices rebounded in late market hours with the S&P 500 and the NASDAQ both rising 0.41% and 0.67%, respectively.

• 🛠️Manufacturing activity in the U.S fell for the third month in a row as economic indicators seem to be pointing towards the contraction of the American economy.

• 🏦 Oil stocks performed well today as the price of oil rose, but what could this increase in oil prices indicate about the future of the American economy?

Market Snapshot

Banana Bits

• The U.S dollar has officially hit its lowest mark since 2023 as bond prices continue to fall.

• Asian manufacturing activity has slowed down as a result of American tariffs.

• Highly rated Asian bonds are witnessing rising yields and decreasing costs as a result of investor reluctance surrounding U.S treasuries.

• The European Central Bank (ECB) is expected to cut rates on Thursday due to uncertainty surrounding tariffs.

• The rebounding of the major indices leaves pricing out of line with geopolitical risks.

• Why Nvidia is going to continue operations in China despite an $8 billion loss during their last fiscal quarter in China due to tariffs.

The Daily Poll

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Macro Monkey Says

Cooling Factories, Cooling Economy?

Yesterday, it was reported that manufacturing productivity fell for the third consecutive month, as indicated by the Institute for Supply Management's (ISM) manufacturing index. 

The index fell 0.2 points to 48.5, where any score below 50 represents a contraction in manufacturing. A significant reason for this continued contraction in manufacturing is simply the general economic uncertainty surrounding tariffs. 

Tariffs will not only disrupt the supply chains of manufacturing businesses but also increase production costs and reduce margins, ultimately decreasing total productivity.  Something else quite significant to note is that the ISM’s manufacturing import measure dropped 7.2 points to 39.9, one of the most substantial monthly decreases to date. 

Given that the productivity of manufacturing businesses is declining, what does that indicate for the future of the American economy? These metrics indicate clear signs of economic deceleration, and investors can likely expect a reaction to the Employment Situation Summary, releasing this Friday by the BLS (Bureau of Labor Statistics).

The employment report coming out Friday will be indicative of how the overall labor market has responded to not only economic uncertainty but also the slight contraction of the American economy.

Furthermore, Susan Spence, the chair of the ISM, had a somewhat optimistic outlook regarding tariff uncertainty. She cited that she was “hopeful that the tariff uncertainty can come to a conclusion.” Unfortunately, that might not be the case, as relationships between America and China appear to be souring amid allegations of dishonoring trade deals. 

The Takeaway?

The American economy is seemingly contracting, which is to be expected given the levels of economic uncertainty associated with tariffs. Additionally, if trade talks between China and the U.S. smooth out as Susan Spence hopes, that will certainly propel the markets.

On the contrary, if the opposite were to take place, then we may be looking at a major stock market sell-off. Regardless, the employment report set to be released Friday should be an accurate gauge of the unemployment expectations for the American labor market in the coming months. 

Career Corner

Question

I have a question about applying for positions on the website and networking. Should I apply to a firm first and then reach out to employees to set up calls, or should I contact employees at the firm, establish a connection, and schedule a call before applying for a position? What would be the best strategy?

Answer

It depends on specific roles and timelines. Ideally, it's great to network before applying, but if the application is open, you need to submit it. You don’t want to be left out of the process just because you were too late! Most of these applications are rolling, so if you wait too long to apply, you could miss it entirely.

Head Mentor, WSO Academy

Check out WSO Academy!

What's Ripe

Vera Therapeutics Inc. (VERA) 67.5% 

• Vera Therapeutics, a clinical-stage biotechnology company, saw tremendous gains of 67.49% yesterday despite being down almost 25% YTD. The stock price surge occurred after they announced positive results during the clinical trials of atacicept, a treatment for a specific kind of chronic kidney condition. 

Applied Digital Corporation (APLD) 48.5% 

• Applied Digital Corporation, a designer and builder of AI infrastructure, experienced significant gains yesterday after announcing a partnership with CoreWeave, a Nvidia-backed cloud services provider. 

• This deal involves CoreWeave providing approximately 250 MegaWatts of power to one of Applied Digital’s AI data centers, according to Applied Digital. 

What's Rotten

Science Applications International Corp (SAIC) 13.3%

• Science Applications International Corporation, an engineering and IT solutions company, reported significant losses yesterday as it released its earnings. SAIC’s margins decreased, in addition to missing EPS and free cash flow estimates. As a result of the earnings miss, analysts across Wall Street decreased their price target for SAIC.

Pony AI Inc. (PONY) 9.4%

• Pony AI, an autonomous driving technology company, experienced a significant decline in its share price, despite the stock having risen nearly 70% in the past month. This dip was in part due to a robotaxi catching fire in Beijing, bringing into question the safety of Pony AI’s product. 

• Additionally, there were significant valuation concerns as a result of Pony AI’s recent growth, with a sales/growth ratio of over 70x, causing investors concern regarding overvaluation. 

Thought Banana

Pain at the Pump: Trouble Ahead?

First of all, if you like low gas prices, you might be in some hot water. 

Rising oil prices will likely cause the general cost of transportation to increase, assuming these prices don’t come back down. In addition to higher costs for consumers, this will also likely take a hit on businesses that use any form of oil or gasoline, potentially raising prices. 

The fact that oil is a core commodity will likely push the U.S over the edge into an inflationary environment, which some economists are forecasting before rising oil prices. Furthermore, if Friday’s unemployment report comes out worse than expected, an oil supply shock propelled by tariffs and inflationary pressures could push the American economy into stagflation. 

This is an especially concerning prospect, considering President Trump’s newly announced tariffs on steel and aluminum, which will significantly impact oil companies, particularly in terms of their drilling costs. 

Despite President Trump’s efforts to localize the steel industry, these tariffs will likely result in even higher oil costs, driving up the costs of energy for businesses and consumers alike. 

Although unlikely, a potential scenario that could unfold is an oil supply shock due to rising input costs that could result in stagflation. A more probable scenario would be that rising input prices for oil companies would result in more significant inflationary pressures on Americans. 

These inflationary pressures would then cause some businesses to cut costs (through layoffs), increasing unemployment while also increasing inflation, therefore causing stagflation. 

While it is difficult to predict the degree to which the oil price increases will affect the American economy, there is already plenty of economic uncertainty surrounding inflation, and this certainly doesn’t help. Additionally, rising oil prices can be slightly attributed to increasing tensions between Ukraine and Russia, introducing newfound supply risks. 

The Takeaway?

Since these oil prices rose just yesterday, these increased costs of products like gasoline will likely take a few weeks to take effect, but Friday’s unemployment report should be a solid indicator of the macroeconomic state of the U.S. Regardless, only time will tell the effects the rising oil prices will have on the American economy. 

The Big Question: Can the U.S. avoid stagflation if both unemployment and inflation rise at the same time?

Banana Brain Teaser

Previous

60% of the members of a study group are women, 45% of those women are lawyers. If one member of the study group is to be selected at random, what is the probability that the member selected is a woman lawyer?

Answer: 27%

Today

Club X has more than 10 but fewer than 40 members. Sometimes the members sit at tables with 3 members at one table and 4 members at each of the other tables, and sometimes they sit at tables with 3 members at one table and 5 members at each of the other tables. If they sit at tables with 6 members at that one table, how many members will be at the table that has fewer than 6 members?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
Chris, Vyom, Ankit, Mithun, Colin & Patrick

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