What You Need To Know For December 19th

Our Last Newsletter of 2024 - We'll See You in 2025!

Author

HY Harry
December 19, 2024

In partnership with

Welcome back!

It’s our last newsletter of the year! As a reminder, my name is Harry and I am among the folks that write this newsletter. If you enjoy The Wall Street Rollup, then make sure you check out my long form credit research and buyside newsletter, appropriately named High Yield Harry’s Newsletter.

It’s timely that we’re ending the year today, as the market got CRUSHED yesterday, with the S&P down 3% and the NASDAQ even worse off, down 3.7%. We’ll get more into how the Fed’s rate cut outlook led to this dramatic drop.

Let’s get into it:

The Main Story 🔍

The Fed’s Outlook Crashes the Market: After a 11-1 vote, The Fed cut rates 25bps to 4.25%-4.5% like we all thought, but 2025 rate cut plans shifted dramatically, with the Fed reducing their cut outlook from 4 cuts to 2 cuts in ‘25, while raising their inflation expectations from 2.1% to 2.5%. Note, November CPI was 2.7%.

This led to confusion among analysts as to why the Fed was still cutting given the expected increase in inflation. Jay Powell noted he believes this is temporary in nature, but had a jarring comparison, preaching cautiousness and comparing navigating future rate cuts to stumbling around in your living room with the lights off.

As of now, Wall Street is pricing in ~1.4 cuts for 2025, with only one 25bps cut expected over the medium term. Naturally, treasury rates shot higher given the expectation of a higher rate environment. The Fed still sees the ideal long term interest rates as 3%, but they haven’t been able to successfully navigate back down to that level.

The economy is still solid, but there’s a bit of a narrative creep here. The shift of the narrative from “the economy is strong so that keeps rates high” to “inflation is creeping back up so that keeps rates high” ultimately drove the market to crash in the final trading hour.

Earnings Corner 📜 

Micron (MU) reported earnings that beat estimates, with revenue of $8.71B up 84% y/y (vs. $8.71B expected), and EPS of $1.79 (vs. $1.75 expected). Mgmt. released a disappointing Q2 outlook, projecting revenue of $7.9B (vs. $8.98B expected), and EPS of $1.43 (vs. $1.91 expected). This weakness was due to sluggish demand for smartphones and PCs — end markets that make up the majority of chip volume, outweighing solid AI driven demand. The stock was down 16.2% after Wednesday’s close

Lennar (LEN) reported earnings that missed estimates. The homebuilder’s revenue was down 9% y/y, while deliveries declined 7% to 22,206 new houses. Mgmt. noted that, despite recent rate cuts, mortgage rates have remained elevated, impacting the affordability of new homes. The stock was down 9.8% after Wednesday’s close

General Mills (GIS) reported earnings that beat estimates. However, mgmt. cut its FY 2025 EPS guide, projecting a 3%-1% decline (vs. growth of -1%-1% previously). The stock was down 3.1% at Wednesday’s close

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More Headlines 🍿 

  • Here’s where Wall Street thinks the S&P 500 will end in 2025: On average, Wall Street expects the S&P to rise by 10% next year. This would result in the S&P ending 2025 at around 6,679. Deutsche Bank has the street’s most bullish call, calling for 7,000 by the end of 2025

  • Barclays is expecting to raise bonuses by 20% this bonus season, although compensation was notably poor in 2023…

  • The government could be surprisingly near a shutdown. Without action from congress, the shutdown will begin at 12:01 a.m. Saturday. The House was reportedly nearing bipartisan agreement on a stopgap funding bill Wednesday, when a post from President-elect Trump torpedoed the effort, demanding reduced pork and a debt ceiling increase

  • How Broadcom suddenly became an AI darling

  • SoftBank will invest $100B in the U.S. over the next 4 years. In an announcement alongside President-elect Trump at Mar-a-Lago, Masayoshi Son promised to create 100,000 jobs focused on AI and infrastructure. It’s unclear where this $100B is going to come from

  • The latest on the drones flying around New Jersey: Drones have been circling New Jersey for almost two weeks now, drawing more questions than answers on the government is looking for, or doing

  • California declares a state of emergency over the bird flu. The H5N1 bird flu has been impacting dairy cattle, and on Wednesday the first person to have a severe illness as a result was discovered in Louisiana

  • The FTC is banning concerts and hotels from having hidden fees. This is a victory for the consumer, where these companies now have to be transparent around hidden fees when initially marketing a room or concert

  • Spirit Airlines is set to enter a restructuring deal that would wipe out existing shareholders. Creditors would exchange $795mm of debt in exchange for equity

  • Honda and Nissan are beginning merger talks. This combination would allow the Japanese OEMs to better compete vs. Tesla, Chinese Operators, and Toyota. Honda’s current market cap is $38B, while Nissan’s is $7.5B

  • AltaFiber, owned by Macquarie, is up for sale at a $5B+ valuation. Formerly known as Cincinnati Bell, this is a Hawaii and Ohio based Telco carrier

  • Starbucks is hiking paid leave for new parents. However, this wasn’t enough to stop the potential for strikes, with the Union head initiating the framework of a strike ahead of final bargaining. 10,000 baristas representing 525 stores are in the union

  • Elon is building a $100mm preschool and elementary school in Texas called Ad Astra. Permitted two months ago, the Montessori-style school will be open to children ages 3-9

  • Texas plans to grow its economy to become larger than France’s. Governor Greg Abbot touted the impact of increased oil and gas drilling and deregulation under Trump’s White House. However, surpassing the world’s 7th largest economy would require the Lone Star State to up GDP by 17% from $2.6T

  • Tokyo-based Nippon Steel leadership are working to win over local and union support for its acquisition of U.S. Steel — even after President Trump promised to kill the deal this month

  • Virtu, a high frequency trading operator, has an activist investor, Pulte Family office, who is calling for a sale to another company or PE. Virtu’s CEO proceeded to call him a “sad attention seeking loser”

M&A Transactions💭 

Lucero Energy (TSX: LOU), an independent oil company, has entered into a definitive agreement to be acquired for $222.0M by Vitesse Energy. The transaction values the company at $277.5M. EV/EBITDA was 3.61x and EV/Revenue was 1.94x. RBC and Peters & Co advised on the sale.

Wingate Group, provider of investment management services, was acquired for $129.15M by CapitaLand (SEC: 9CI).

Orion Health Group, operator of a health data management platform, has reached a definitive agreement to be acquired for $101.35M by Healwell AI (TSE: AIDX).

Downtown Music Publishing, operator of an independent record label and music publishing company, has reached a definitive agreement to be acquired for $775.0M by Virgin Music UK. EV/Revenue was 0.86x. Goldman Sachs advised on the sale.

DCP Midstream, a gathering and processor partnership, reached a definitive agreement to be acquired for $865.0M by ArcLight Capital Partners.

Dains Accountants, provider of accounting services, entered a definitive agreement to be acquired for $316.64M by IK Partners. Rothschild & Co advised on the sale.

Round Lab, operator of a skincare brand, has entered into a definitive agreement to be acquired for $566.62M by an undisclosed investor. EV/Revenue was 3.76x.

MPC Muenchmeyer Petersen Capital (ETR: MPCK), an independent asset and investment manager, was acquired for $192.43M by Castor Maritime (NAS: CTRM). EV/EBITDA was 8.15x and EV/Revenue was 5.71x.

Fundbook, provider of intermediary services intended to streamline M&A transactions, has reached a definitive agreement to be acquired for $102.58M by Change (TKS: 3962).

Aviva Links, developer of automobile connectivity technologies, has reached a definitive agreement to be acquired for $242.5M by NXP Semiconductors (NAS: NXPI).

The Resort of Kanehide Bio was acquired for $130.0M by Blackstone.

Private Placement Transactions💭 

Precision Neuroscience, developer of brain-computer interface device technology, raised $102.62M of Series C venture funding led by General Equity Holdings at a pre-money valuation of $412.38M.

Oishii, operator of an indoor vertical farming technology, raised $150.95M of Series B venture funding led by Nippon Telegraph & Telephone and Resilience Reserve.

Parafin, provider of an end-to-end payment processor, raised $100.0M of venture funding led by Notable Capital at a pre-money valuation of $650.0M.

Databricks, developer of a data analytics platform, raised $10.0B of Series J venture funding led by Insight Partners, Thrive Capital, Andreessen Horowitz, GIC Private, WCM Investment Management, and DST Global at a pre-money valuation of $52.0B.

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Noteworthy Chart 🧭

Remember Cathie Wood? Here’s what she’s invested in.

Meme Cleanser 😆 

Finance Merch Referrals ☕️ 

Until next time!

Obviously, none of this constitutes financial or investment advice.

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