Unadorned Notes: October 5-8, 2024
U.S. Trade Deficit Narrows Sharply; Insiders Cautious Despite Market Gains; Nobel Prize Honors AI Pioneers; Oil Giants Support IRA Provisions; Israel Marks One Year Since Attack
Economics, Finance, and Business
U.S. Trade Deficit Narrows Sharply: The U.S. trade deficit shrank by 10.8% in August 2024 to $70.4 billion, driven by record-high exports of $271.8 billion. Goods exports, particularly in capital goods and consumer goods, surged, though semiconductor exports declined. Imports fell 0.9%, with decreases in industrial supplies and crude oil. The narrowing trade gap suggests a neutral effect on third-quarter GDP growth, with economists maintaining forecasts of a 3.2% annualized increase. Despite strong domestic demand, economists warn global risks, especially from China and the eurozone, could affect future export growth.1
Money Market Funds See Inflows: U.S. money market funds attracted $41.32 billion in inflows during the week ending October 2, 2024, as investors sought safety amid geopolitical concerns. Equity funds saw a record $30.8 billion in inflows, led by large-cap funds, while small- and mid-cap funds experienced outflows. Sectoral funds for real estate, utilities, and industrials saw gains, while healthcare and financials recorded net selling. Bond fund demand slowed, with government and treasury funds seeing net sales of $5.03 billion. However, investment-grade and municipal debt funds continued to attract investor interest.2
S&P 500 Earnings Growth Slows: As third-quarter earnings season begins, S&P 500 earnings are expected to grow 4% year-over-year, a sharp deceleration from the second quarter’s 11%. Analysts highlight potential volatility at the single-stock level, with individual stocks likely to see significant price swings following earnings releases. Sector performance will vary, with technology and healthcare showing strength, while energy and materials are expected to decline. The “Magnificent Seven” tech companies face slowing earnings growth, while the broader S&P 493 is expected to see a recovery. Political uncertainty ahead of the U.S. election may further influence corporate behavior and investment strategies.3
Insiders Cautious Despite Market Gains: Despite the S&P 500’s strong 21% rise in 2024, corporate insiders have shown reluctance to buy shares of their own companies, with insider purchases reaching a 10-year low. Executives from major firms, including Jeff Bezos and Mark Zuckerberg, have sold billions in stock this year. Analysts believe insiders’ actions may signal concerns about a potential recession and future stock market returns. Berkshire Hathaway has also increased its cash holdings, further fueling speculation about overvalued market conditions. While some dismiss insider selling as portfolio diversification, many see it as a warning for future stock performance.4
U.S. Banks Face Profit Decline: Major U.S. banks are expected to report lower third-quarter profits due to shrinking net interest income and weak loan demand. JPMorgan Chase and Wells Fargo are projected to see earnings per share drop by 8% and 14%, respectively, while Bank of America’s EPS is expected to decline 14%. Citigroup faces a nearly 20% EPS decline, pressured by higher loan loss provisions and rising expenses. In contrast, Goldman Sachs and Morgan Stanley are forecast to post gains in EPS, driven by improved investment banking performance. Investors will closely watch the banks’ forecasts amid uncertainty surrounding future Federal Reserve rate cuts.5
Google Faces Rising Ad Competition: Google’s dominance in the $300 billion search advertising market is weakening as rivals like Amazon, TikTok, and AI-driven startups such as Perplexity gain ground. Google’s U.S. search ad market share is expected to fall below 50% next year, with Amazon continuing to capture a larger share. TikTok has introduced search-based ads, while Perplexity is set to launch sponsored AI-generated answers, intensifying competition. The rise of AI-driven search products is reshaping the landscape, further challenging Google’s position. Legal pressures, including an antitrust ruling, add to Google’s vulnerability during this transition.6
TikTok Sued Over Teen Harm: Fourteen U.S. states have sued TikTok, accusing it of contributing to a mental health crisis among teenagers through addictive features and misleading safety claims. The lawsuit, filed in New York, cites TikTok’s alerts, disappearing videos, and beauty filters as particularly harmful to young users. TikTok has called the lawsuit “disappointing” and insists that many claims are inaccurate, while defending its efforts to protect teens. The platform faces additional legal and regulatory challenges, including ongoing efforts to ban it from the U.S. unless its parent company, ByteDance, divests. Similar lawsuits have been filed against other social media platforms like Facebook and Instagram over their effects on youth mental health.7
Nobel Prize Honors AI Pioneers: The 2024 Nobel Prize in Physics was awarded to John Hopfield and Geoffrey Hinton for their groundbreaking work in machine learning, which laid the foundations for modern artificial intelligence. Their research on artificial neural networks enabled the development of AI systems capable of learning and pattern recognition. Hinton, a vocal advocate for AI caution, has expressed concerns about AI’s potential to surpass human intelligence and become uncontrollable. The laureates’ work has revolutionized fields like healthcare and scientific data analysis. The prize carries a cash award of 11 million Swedish kronor ($1 million).8
QZ’s Comment: As I understand it, physics deals with the fundamental laws and principles governing the universe. Computer science, like chemistry, is not traditionally considered a branch of physics. From a reductionist viewpoint, it is often seen as applied or engineering-oriented rather than a fundamental science. Does this year’s Nobel Prize in Physics suggest that we’ve reached the limits of fundamental discoveries, or is the prize shifting towards the hottest topics out there? Of course, there’s no denying that the boundaries between disciplines are blurring and that AI is of great importance to humanity, but the timing is still quite curious.
U.S. Politics, Policies, and Geopolitics
Harris Deflects Tough Border Questions: In a “60 Minutes” interview, Vice President Kamala Harris faced pointed questions on immigration policies, but avoided admitting any errors, citing what she called long-standing border issues and recent improvements. Harris emphasized efforts to cut illegal immigration and called for congressional action to address the root problems. She also defended her economic plans, promising to raise taxes on the wealthy despite challenges in passing such measures through Congress. Pressed on her evolving positions, Harris reiterated her focus on consensus-building and addressing public concerns. The interview spotlighted her cautious media strategy ahead of the November 2024 election, contrasting with Donald Trump’s decision to skip the program.9
Supreme Court Upholds Abortion Bans: The U.S. Supreme Court allowed Texas to ban emergency abortions that violate state law, and Georgia’s Supreme Court reinstated a six-week abortion ban. These rulings reflect the continuing fallout from the Dobbs decision, which overturned Roe v. Wade and opened the door for state-level abortion restrictions. North Dakota’s abortion ban was recently struck down, reducing the number of states with total abortion bans to 13. Voters in nine states are set to decide on constitutional amendments regarding abortion rights in upcoming elections. Abortion remains a central issue in the 2024 presidential race, with candidates sharply divided on national policy.10
Oil Giants Support IRA Provisions: Major oil companies, including Exxon Mobil and Occidental Petroleum, now support parts of the Inflation Reduction Act (IRA), especially tax credits for low-carbon energy projects. Initially opposed to the law, these firms are investing heavily in technologies like carbon capture and renewable fuels, which rely on IRA subsidies. Executives fear a second Trump administration could repeal or weaken the law, jeopardizing their investments. Some Republicans, while critical of renewable energy incentives, acknowledge the IRA’s potential for job creation and economic growth. Smaller fracking companies remain opposed to the entire law, citing concerns over market competition.11
Israel Marks One Year Since Attack: On the first anniversary of the October 7, 2023, Hamas attacks, families of victims gathered at memorials across Israel, honoring the 1,200 killed and over 250 kidnapped during the massacre. The Nova Music Festival attack, which claimed 347 lives, remains one of the deadliest incidents of the day. In Gaza, more than 41,000 Palestinians have died amid ongoing Israeli efforts to eliminate Hamas and rescue hostages. Hostage families continue to pressure Prime Minister Benjamin Netanyahu, expressing frustration over his handling of the crisis. Despite commemorations, rockets from Gaza and military strikes underscored the ongoing war.12