This Week In Markets ⚡️ 07/22 - 07/26

Good Afternoon! A new research paper examined 29,078 companies publicly traded in the US from December 1925 to December 2023. Surprisingly, 51% of these companies generated losses for their investors. On the flip side, 17 stocks delivered total returns exceeding five million percent—translating to $50,000 for every $1.00 invested.

Leading the pack is Altria Group, formerly Philip Morris. Shareholders of the tobacco giant have enjoyed a staggering cumulative return of 265,000,000% over the stock's lifetime.

In comparison, Nvidia’s impressive 150% return over the past 12 months seems almost modest.

MARKETS

• Stocks showed mixed performance for the second week in a row, with small-cap continuing to outperform large-cap growth stocks, which have dominated the market for much of the year. As of Thursday's close, the tech-heavy Nasdaq Composite 100 Index was trailing the broader S&P 500 Index and barely ahead of the small-cap Russell 2000 Index for the year. However, large-cap growth shares rebounded by the week's end.

• This week saw the S&P 500 Index experience its first sell-off of more than 2% since February 2023 on Wednesday, while the Nasdaq suffered its worst loss since October 2022.

ECONOMY
🥇Going for Gold or Going Broke? The $9.7 Billion Question for the Paris Olympics

The Olympics are a dazzling display of athletic prowess and an equally massive drain on the host country’s wallet. Paris is set to spend a whopping $9.7 billion on the 2024 Games, with local and national governments covering about half the tab. French officials are touting these Games as the most economical in recent history, but Parisians—and history—might beg to differ.

Financial Strain of Hosting

Hosting the Olympics brings shiny new infrastructure, a boost in tourism, and a surge in national pride. But the benefits can be short-lived. Most Olympic jobs are temporary, and the costs often outweigh the gains. Many host cities end up with costly, seldom-used sports facilities and mountains of debt.

• Montreal 1976: Left with decades of debt and the infamous Big Owe stadium.

• Athens 2004: The $11 billion expenditure is cited as a contributor to Greece’s debt crisis.

• Beijing 2008 & Sochi 2014: Despite major infrastructure improvements, these events, costing $40 billion and $50 billion respectively, were marred by corruption.

Yet, not all Olympic stories end in financial ruin. Los Angeles made a profit in 1984 by using existing facilities and capitalizing on TV revenue. Barcelona, too, saw long-term tourism boosts after beautifying its cityscape for the 1992 Games.

Paris's Plan for Economical Games

Inspired by past overspending, the International Olympic Committee (IOC) now emphasizes frugality. Paris is following this trend, aiming to be more cost-effective:

• Private Sector Involvement: 96% of the operational costs (excluding infrastructure) are covered by private funds.

• Minimal New Construction: Paris is leveraging existing facilities and focusing on sustainable use for new builds.

• Community Benefits: The Olympic Village is set in a low-income area, with plans to convert it into mixed-income housing and other community resources post-Games.

Future-Proofing the Olympics

To keep costs in check, there are suggestions like hosting the Games in high-income countries only or selecting a permanent host city. Whether these ideas will take root remains to be seen, but for now, Paris is hoping its strategic planning will pay off.

The grand question remains: Is the investment worth it? As history shows, the answer is usually no, but Paris is banking on breaking that trend with a frugal and future-focused approach. Let's see if they can stick the landing.

NEWS
Citron's Andrew Left, Wall Street's New Villain in $20M Fraud Case

Federal prosecutors and the SEC have charged Andrew Left, a well-known short seller and founder of Citron Research, with securities fraud. Allegedly, Left manipulated the stock market through his public platform, reaping at least $16 million in illegal profits from 2018 to 2023. His firm, Citron Capital, faces similar civil charges, accused of a $20 million scheme involving false stock trading recommendations.

What's the Deal?

Left, a frequent guest on financial news channels like CNBC, allegedly used sensationalized headlines to influence stock prices, then quickly reversed his positions to capitalize on the resulting market moves. The SEC's complaint highlights 23 companies across 26 instances of fraudulent conduct, including major names like Nvidia, Tesla, Meta, and Beyond Meat.

The Details

According to the indictment, Left coordinated with hedge funds, sharing his planned announcements in advance, allowing them to trade and profit before the information was public. In return, these hedge funds shared a portion of their trading profits with Left.

Left, who resides in Boca Raton, FL, is facing a 19-count criminal indictment and is expected to be arraigned in Los Angeles federal court. If convicted, he could face up to 25 years in prison for the securities fraud scheme alone.

Left's lawyer argues that the charges threaten market integrity, claiming Left always believed in the truth of his published information and disclosed his trading activities. However, the FBI states that Left used his credible media presence to mislead investors for personal gain.

Investor Takeaway

This case is a clear warning for investors to question the motives behind financial advice, especially from well-known media figures. The SEC's efforts to fight market manipulation highlight the need for transparency and honesty in stock trading.

PAST WEEK
Market Movements

• Wiz has decided to walk away from its $23 billion deal with Google ($GOOGL) and will pursue an IPO instead. Google also scrapped plan to remove cookies from Chrome

• Disneyland ($DIS) employees union voted Friday to authorize a strike, and organizers will meet this week to decide if and when the union will hold Disneyland’s first work stoppage in 40 years.

• Meta ($META) has introduced its latest Llama AI model, developed with assistance from Nvidia and various cloud partners

• Tesla ($TSLA) sets robotaxi reveal date for October 10, Elon Musk wants Tesla to invest $5 billion into his newest startup, xAI, pending shareholder approval

• The Federal Trade Commission is investigating companies like Mastercard ($MA), JPMorgan Chase ($JPM), and Accenture ($ACN) for “surveillance pricing,” where companies charge different customers different amounts

• Berkshire Hathaway ($BRK.A) dumps $2.3 billion of Bank of America ($BAC) shares in a 6-day sale

• Disney ($DIS), Warner Bros. ($WBD) launch streaming bundle with access to Disney+, Max, and Hulu; plans set for $16.99 (with ads) and $29.99 (without ads)

• CrowdStrike ($CRWD) outage costs Fortune 500 companies $5.4 billion

• Alphabet ($GOOGL) to invest $5 billion in self-driving car unit Waymo

• OpenAI has launched SearchGPT, an AI-powered search engine that can summarize its findings and provide links, positioning it as a competitor to Google.

RESTAURANTS
Fast Food’s $5 Face-Off — The Battle for Budget Diners

Once upon a time, Subway’s $5 footlong was the king of cheap eats. Fast forward to 2024, and it’s a whole new ball game. From McDonald’s ($MCD) to Taco Bell, fast-food chains are rolling out $5 meal deals in a high-stakes bid to woo back low-income diners who have been scared off by rising menu prices.

With McDonald's extending its $5 meal deal beyond the initial four-week run, it’s clear these chains are banking on value meals to drive traffic. But while Ronald and friends might see more footfalls, investors aren’t convinced this strategy will translate to a sales boom without cutting into profits.

The Fast-Food Dilemma

Fast food usually weathers economic downturns better than other sectors, but recent price hikes have changed the game. Over 60% of respondents in a LendingTree survey said they’ve cut back on fast-food spending due to cost. 

Shares of McDonald’s, Wendy’s, and Burger King parent Restaurant Brands International ($QSR) have all taken a hit this year, while the S&P 500 has seen a 14% rise. Analysts like KeyBanc’s Eric Gonzalez expect a rough second quarter for the big chains, who will need to prove that these value meals can do more than just maintain current customer levels.

The Bottom Line

It’s not just Wall Street that's skeptical. Franchisees are wary of these discount deals, which often eat into their profits. At McDonald’s, franchisees initially balked at the $5 meal deal until Coca-Cola ($KO) chipped in with marketing funds. Now, 93% of McDonald's U.S. locations have voted to extend the promotion, with data showing an 8% increase in foot traffic on launch day.

While $5 deals might bring in more customers, the real test will be whether these diners spend more on add-ons. Without upselling those fries and shakes, these discounts risk becoming unsustainable. As McDonald’s and others report their earnings, all eyes will be on whether these value meals can do more than just prevent diners from straying to the competition.

In the end, the fast-food value war is a double-edged sword. Chains need to balance drawing in customers without slicing away their profits.

Calendar
On The Horizon

Upcoming Week

Next week will be crucial for the markets as we reach the peak of earnings season and await the Federal Open Market Committee's decision on interest rate cuts. Following today's PCE announcement, Wall Street is largely expecting a rate cut in September, though some hope for an earlier move. Additionally, key employment reports are due, including the JOLTS report on Tuesday, ADP on Wednesday, and the US jobs report on Friday.

Earnings Next Week:

Monday: McDonald's ($MCD), ON Semiconductor ($ON), Chesapeake Energy ($CHK), Tilray Brands ($TLRY), and Sprouts Farmers Market ($SFM).

Tuesday: Procter & Gamble ($PG), Merck ($MRK), Pfizer ($PFE), Microsoft ($MSFT), Advanced Micro Devices ($AMD), BP ($BP), PayPal ($PYPL), Corning ($GLW), Starbucks ($SBUX), and Pinterest ($PINS).

Wednesday: Mastercard ($MA), Meta Platforms ($META), Qualcomm ($QCOM), T-Mobile ($TMUS), Boeing ($BA), Marriott International ($MAR), Wingstop ($WING), and eBay ($EBAY).

Thursday: Apple ($AAPL), Amazon ($AMZN), Intel ($INTC), Toyota ($TM), The Cigna Group ($CI), Shell ($SHEL), Dominion Energy ($D), Coinbase ($COIN), Doordash ($DASH), and Ferrari ($RACE).

Friday: Exxon Mobil ($XOM), Chevron ($CVX), Squarespace ($SQSP), and Church & Dwight Co. ($CHD).