Unadorned Notes: October 1-4, 2024
U.S. Job Growth Surges; U.S. Port Strike Ends; Dow Hits Record High; Vance, Walz Clash in Debate; Iran Fires Missiles at Israel
Economics, Finance, and Business
U.S. Job Growth Surges: The U.S. economy added 254,000 jobs in September 2024, the largest increase in six months, while the unemployment rate fell to 4.1%. Wage growth remained strong, with average hourly earnings rising 0.4% from August 2024. Revisions to July and August 2024 employment data added an additional 72,000 jobs, suggesting a more robust economic environment. The report has led to speculation that the Federal Reserve may avoid further large rate cuts, though some turbulence is expected due to recent strikes and natural disasters. Financial markets reacted with a rise in Treasury yields and a strengthening U.S. dollar.1
U.S. Job Openings Rebound: U.S. job openings rose by 329,000 to 8.04 million in August 2024, according to the Labor Department’s JOLTS report, despite softer hiring numbers. The job openings rate increased to 4.8%, with the construction sector leading the growth. Layoffs declined, and resignations fell to their lowest in four years, indicating a cooling labor market. The slowdown is attributed to the Federal Reserve’s rate hikes in 2022 and 2023, with further cuts expected.2
Manufacturing Steady, Input Prices Fall: U.S. manufacturing remained weak in September 2024, with the ISM PMI unchanged at 47.2, indicating sector contraction for the sixth month. New orders and production showed signs of improvement, while input costs declined to a nine-month low, suggesting a potential rebound. Despite these positive indicators, factory employment continued to contract, raising concerns over manufacturing payrolls. GDP data showed manufacturing output rose at a 2.6% annualized rate in Q2 2024, up from 0.2% in Q1 2024. Further growth is anticipated as the Federal Reserve’s recent interest rate cuts may stimulate activity.3
U.S. Port Strike Ends: U.S. dock workers and port operators reached a tentative deal, ending a three-day strike that had halted shipping along the East and Gulf Coasts. The agreement includes a 62% wage increase over six years, raising average wages to about $63 an hour. The master contract will be extended until January 15, 2025, as both sides return to negotiations on unresolved issues, including automation. President Joe Biden’s administration played a key role in mediating the deal, pressuring employers to raise their offer. The strike affected 36 ports and was estimated to cost the economy $5 billion per day.4
Dow Hits Record High: The Dow Jones Industrial Average closed at a record high following a strong U.S. jobs report, with the unemployment rate falling to 4.1%. Investors reacted positively, though it tempered expectations for further aggressive Federal Reserve rate cuts. The S&P 500 rose 0.9%, and the Nasdaq gained 1.22%, while small-cap stocks and financials outperformed. Airline stocks showed mixed performance, with Spirit Airlines plunging amid bankruptcy concerns, while competitors saw gains. Despite Middle East tensions, the S&P energy index surged 7% for the week, marking its largest weekly gain since October 2022.5
Active Funds Lag Behind S&P: Despite a solid 20% return, large-cap U.S. equity funds are underperforming the S&P 500, which has returned 22.1% in 2024, including dividends. This 2.1% shortfall is the largest since at least 2019, according to UBS. The primary reason for the lag is active managers’ underweighting of mega-cap stocks, particularly Nvidia, which alone accounts for 1.43% of the underperformance. Approximately 77% of U.S. stockpickers are below their benchmarks in terms of market size. Active managers are now hoping for a decline in Nvidia's stock while the broader market remains strong.6
OpenAI Secures Record $6.6B Funding: OpenAI has raised $6.6 billion in a funding round led by Thrive Capital, bringing its post-money valuation to $157 billion. The round included investors such as Microsoft, SoftBank, and Nvidia, pushing OpenAI’s total raised to $17.9 billion. The funds will support AI research, compute capacity, and expansion efforts, amid competition from Anthropic, xAI, and others. Investors reportedly have a clawback option if OpenAI does not transition from its current nonprofit governance within two years. OpenAI’s financial demands are driven by its costly operations, including AI model training and talent acquisition.7
Equinix Forms $15B Data Center JV: Equinix has formed a joint venture with GIC and the Canada Pension Plan (CPP) to raise over $15 billion for the development of its xScale hyperscale data centers in the United States. The JV aims to add over 1.5GW of new capacity through several 100MW data center campuses. Equinix will hold a 25% stake, while GIC and CPP will each have 37.5%. The venture plans to address the increasing demand for digital infrastructure driven by advancements in AI and technology. Equinix and GIC have previously invested $7.5 billion in xScale facilities across various global markets.8
India’s Swiggy Plans $15B IPO: Swiggy, backed by SoftBank and Prosus, is targeting a $15 billion valuation in its upcoming Mumbai IPO, aiming to raise up to $1.25 billion. The company lags behind its profitable rival Zomato in user base and revenue growth but has shown recent financial improvements, including adjusted EBITDA profits in its food delivery segment. Its target valuation represents a 10 times forward sales multiple, offering a discount to Zomato’s 14 times. Top shareholders, including Prosus, will partially sell their stakes, while SoftBank retains its holdings. The IPO will test the Indian market’s capacity for another major deal following recent successful listings.9
U.S. Politics and Geopolitics
Vance, Walz Clash in Debate: U.S. vice presidential candidates J.D. Vance and Tim Walz debated key issues, with Vance presenting himself as a moderate while emphasizing his working-class background. Vance avoided direct attacks, even acknowledging some merit in Walz’s policies, particularly on housing. Walz, however, landed significant blows by questioning Vance’s stance on the 2020 election and highlighting former President Donald Trump’s record on healthcare. Vance’s approach contrasted with Walz’s, who appeared less prepared to confront tougher topics and missed opportunities to press Republican vulnerabilities. The debate highlighted differences in campaign strategies, with Vance more experienced in handling challenging interviews.10
Iran Fires Missiles at Israel: Iran launched approximately 180 ballistic missiles at Israel, prompting Israeli air defenses and U.S. forces to intercept the projectiles. Israeli Prime Minister Benjamin Netanyahu condemned the attack, warning of retaliation, while Iran claimed it was in response to the recent assassinations of key figures in Hezbollah and Hamas. The barrage caused no reported fatalities within Israel’s borders, though one Palestinian man was killed in the West Bank. The situation heightened tensions, with both sides contemplating further actions, while international condemnation of the strike poured in.11
Netanyahu Maneuvers Amid Middle East Tensions: Israeli Prime Minister Benjamin Netanyahu has maintained control in the Middle East, outmaneuvering U.S. President Joe Biden amid rising tensions with Iran. Israel’s recent retaliation against Hezbollah and Iran has boosted Netanyahu’s political standing despite earlier setbacks. The situation complicates Biden’s attempts to prevent escalation and could impact the upcoming U.S. presidential election. Netanyahu’s refusal to support a two-state solution and his unpredictable actions have frustrated U.S. Democrats. With Biden’s goals for Gaza governance and regional stability faltering, his legacy risks being marred by Middle East conflict.12