The Economy’s Weekly Recap

6/11/23-6/18/23

Weekly Market Summary

• S&P 500

• Dow Jones

• Nasdaq

• US 10 year bond yield

Prominent Story #1

• Lower inflation and potentially slowing rate hikes

  • Inflation is up just 4% from this time last year. This is a great success for the Federal Reserve as it is far less than last month’s 4.9% year to year gain and even less than the 4.1% most economists predicted for this month.

  • This recent success shows that the Federal Reserve’s tactics of raising interest rates to slow economic activity are working and that inflation will likely begin to settle down soon.

  • This success also means that the Fed did not have an interest rate hike this month. This provided investors and general onlookers with a bit of relief as costs from interest rate hikes do not have to increase again.

  • However, the Fed plans on having at least two more rate hikes this year.

• Toyota EV

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  • For decades, Toyota has been a major player in the automobile market. They are one of the most valuable car companies and were the top automaker in the US in 2021.

  • However, they have begun to be challenged by new Chinese and American forays into Electric Vehicles. EV’s make up an increasingly important market, but Toyota has been slow to the EV game.

  • Recently though, Toyota seems to have been making a concerted attempt to improve their EV transition. They have invested billions into developing EVs.

  • Furthermore, with Japan and the US signing a deal that gives Japanese automakers access to a new $7,500 EV tax credit in the US, Toyota’s EV development is better poised to have more impact and growth. Additionally, the Japanese government will provide Toyota with $841 million to support Japanese EV battery production. These factors will boost Toyota’s future endeavors in the EV market.

  • Most fascinating of all though, Toyota has announced that it has plans for new technologies for its EVs. Some of these include new vehicle structuring for production, new batteries with more range and lower costs than their competitors, and a special solid-state EV battery that could have over 900 miles of range.

  • While this all sounds incredible, one must also remember that these are for potential vehicles years from now and that these innovations will not materialize for a while. However, it is good to see Toyota becoming more competitive and challenging those in the EV space to do better.

• Bud Light fall

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  • While it was the best selling beer in America for two decades, Bud Light has recently experienced a sharp decline in sales. Compared to last May, Bud Light owner Anheuser-Busch InBev sold 23% less Bud Light.

  • This drop in sales began after Bud Light sent a can to transgender TikTok star Dylan Mulvaney. The can triggered conservative backlash as some called for a boycott of Bud Light, which has seemingly hurt Bud Light sales greatly. This drop in sales comes when US beer sales are actually up 1.9%, meaning that Bud Light is experiencing a decline as its competitors are gaining ground. As a result, Modelo Especial, which is also owned by Anheuser-Busch InBev, has become the best selling beer in America.

  • However, one must keep in mind that Bud Light’s decline has been happening for the last decade. It has consistently lost market share over the last few years, and the recent decline in sales, although driven by conservative opposition, may just be a reflection of people’s opinions on Bud Light.

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• Sequoia Capital splitting up its business

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  • Venture Capital Giant Sequoia Capital is splitting its operations into 3 separate firms. The US and European division will still be called Sequoia Capital. Meanwhile, the Chinese division will be known as 红杉(HongShan). Lastly, the Indian and South East Asia division will be called Peak XV partners. The American/European division and the Chinese division will be behemoths with both likely having tens of billions of dollars under management. The Indian and South East Asian division will be significantly smaller though.

  • The primary driver of this split is the increasing geopolitical tensions in the world. With China and the US engaging in economic warfare, engaging in business globally has become difficult. Conflicting interests within the VC firm’s clients and the firm itself have led to Sequoia's decision to separate.

  • This preemptive and negotiated split highlights an increasingly relevant conflict: whether global businesses can sustain their enterprises in an age of conflict between China and the US. While some companies have begun to move away from China, such as Apple shifting some production to India, a lot of other ones are exposed to Chinese crackdowns or further economic warfare. We may see more moves like Sequoia’s and a general decoupling from China in the future.

• UPS Strike

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  • UPS, although one may not think it, is critical to the US economy. It handles a quarter of the parcels shipped in the US and about 6% of the US GDP moves on UPS trucks. However, this economically crucial company may be incapacitated soon as the Teamsters union, which represents 340,000 workers at UPS, is planning a strike unless its demands are met.

  • The union is seeking higher pay, equal wages for newer and older employees for the same job(newer workers are paid less for the same job as of now), the removal of surveillance cameras, and more full time jobs for UPS workers. These demands come after UPS recently committed to installing air conditioning and fans in their trucks, which has helped invigorate efforts to seek further improvements for workers.

  • Hopefully, both sides can come to a compromise that helps the workers and keeps the economy running. At the very least, UPS CEO Carol Tome believes that “a win-win-win contract is very achievable, and that UPS and the Teamsters will reach [an] agreement by the end of July”.

• McKinsey and Co AI report

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  • AI, especially generative AI like Chat-GPT3, have been on the rise both technologically and in the popular imagination. Once a meager and minute fear that seemed far placed just a few years ago, AI has now become a bogeyman and an essential tool for many. Regardless of one’s personal thoughts on it, it is undisputed that AI's impacts will be serious. Just how serious is unknown, but McKinsey(a consulting behemoth) has released a report recently outlining its potential economic impacts

  • For one, McKinsey has predicted that it could add an enormous $2.6 trillion to $4.4 trillion to the global economy annually. For reference, the combined GDP of the bottom 50% of countries is just about $2.7 trillion. The enormous 2.6 Trillion to 4.4 trillion figure comes from McKinsey’s research on AI’s impact on productivity, and they say the estimate could be even larger if one includes embedding AI into existing tasks.

  • McKinsey also determined that tasks that take up between 60 to 70 percent of employees’ time could be automated. Furthermore, jobs with higher wages and higher education requirements will be impacted the most by this.

  • McKinsey left off by mentioning that AI will only ever get better and that its potential impact could be even greater.

• Google EU antitrust

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  • Google faces renewed antitrust complaints from the European Commission, the executive branch of the European Union. Google, which had an advertising revenue of $224.5 billion in 2022, is a major player in digital advertising that has built its empire through ads. According to the European Commision though, Google has secured positions at almost all the levels of the advertising space and has used it unfairly to benefit.

  • These, at least in the eyes of the European Commision, monopolistic tendencies mean that Google may have to sell off part of its advertising business or pay a fine of up to 10% of its global revenue.

  • At the same time, the UK Competition and Markets Authority is investigating Google for similar reasons and the US Justice Department sued Google to break up its advertising business

• Activision success and failure

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  • Activision’ Diablo IV has reached sales of over $666 million in just a few days. While this is a great success, Activision faces more significant problems elsewhere. Despite Microsoft’s $75 billion acquisition of Activision being announced in January, Microsoft and Activision have faced an extremely uphill battle.

  • EU regulators approved of the acquisition after a few months due to its low levels of concern thanks to Microsoft’s 10-year licensing deals for competitors, which marginalizes monopolistic movements and gives consumers the ability to stream Activision games on any platform they want.

  • However, both the UK Competition and Markets Authority and the US FTC are blocking the acquisition. Microsoft faces two major legal challenges but is fairly optimistic about it. Microsoft President Brad Smith has said “We welcome the opportunity to present our case in federal court”.

• Which of the following is the smallest fast food chain by total store count?

  • Dunkin' Donuts

  • Burger King

  • Starbucks

  • Pizza Hut

  • Answer: Dunkin' Donuts.

    • Dunkin' Donuts: 11,300

    • Burger King: 19,247

    • Starbucks: 36,170

    • Pizza Hut: 18,848