—— Two Sigma Employee Misconduct Costs Clients; US Job Growth Surges; US Companies Keep Borrowing Despite High Rates; Exxon Poised for Year’s Biggest Acquisition; Tesla Cuts Model 3 Price Again
1. Citigroup Recommends Buying the Dip in Equities
A team of analysts led by Beata Manthey at Citigroup stated that, amid recent macroeconomic data and soaring U.S. Treasury yields, global equity prices have fallen to more reasonable levels.
From now until mid-2024, the MSCI All-Country World Local Index could rise by 15%.
The team believes benchmark interest rates are nearing their peak, economic growth will dip slightly, and inflation will gradually ease. They are especially optimistic about cyclical stocks, which are more sensitive to economic fluctuations.
This week, the MSCI World Index dropped 9% from its peak, making valuations more attractive.
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2. US Companies Keep Borrowing Despite High Rates
According to Bloomberg data, since the Federal Reserve began raising interest rates in early 2022, large U.S. companies — including Pfizer and Meta — have issued more than $500 billion in net debt. Even firms with slightly weaker credit ratings have ramped up borrowing.
NYU finance professor Edward Altman noted that this trend shows how entrenched cheap debt financing has become in corporate America over the past two decades.
In addition, many corporate executives started their tenures during periods of low interest rates, making it difficult for them to shift their thinking.
However, financial health indicators for investment-grade firms have started to deteriorate. From March 2022 to mid-2023, corporate leverage increased while repayment ability declined.
Well-known companies like Bed Bath & Beyond and Party City have filed for bankruptcy due to debt issues.
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3. Exxon Poised for Year’s Biggest Acquisition
Sources revealed that oil giant Exxon Mobil is in talks to acquire Pioneer Natural Resources. If successful, it would be Exxon’s largest deal in over two decades.
According to the Wall Street Journal, the $60 billion deal could be finalized in the coming days. It would also mark the world’s largest acquisition of 2023, surpassing Pfizer’s $43 billion buyout of cancer drugmaker Seagen.
If completed, Exxon’s daily oil output would reach 1.2 million barrels — more than any single OPEC member.
In 2022, Exxon posted a record $59 billion in net profit, and its stock rose 80% last year.
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4. Tesla Cuts Model 3 Prices Again
According to Tesla’s website, the company has once again slashed the price of its popular Model 3.
Following disappointing Q3 earnings, Tesla cut the Model 3 price from $40,240 to $38,990. The long-range version now costs $45,990.
Last quarter, Tesla delivered 435,000 vehicles — 20,000 fewer than expected. To meet its 2023 goal of 1.8 million deliveries, the company needs to sell 475,000 units in the current quarter.
The U.S. and China remain Tesla’s largest markets, with the Model 3 and Model Y making up the bulk of revenue.
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5. US Job Growth Surges Past Expectations
The U.S. Bureau of Labor Statistics reported that in September, nonfarm payrolls increased by 336,000 — the highest figure this year and well above economists’ expectations.
While the unemployment rate held steady at 3.8%, the report increased the likelihood of further Fed rate hikes.
U.S. stocks and bonds were sold off today, while the dollar strengthened.
Omair Sharif, founder of Inflation Insights, said the numbers were a big surprise and suggest the Fed is likely to raise rates again before year-end.
The biggest hiring gains were in leisure and hospitality, healthcare, and business services.
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6. Two Sigma Employee Misconduct Costs Clients
Quant hedge fund Two Sigma Investments told investors in a letter today that a researcher had improperly altered a model, resulting in profits for some clients and losses for others.
The company is still evaluating the severity of the misconduct. If losses are found to be due to the employee’s actions, the firm pledged to make fair restitution.
Earlier this year, Two Sigma disclosed that a rift between its billionaire co-founders had become significant enough to be listed as a material risk in financial filings.
Founders John Overdeck and David Siegel reportedly have diverging views.
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7. MIT Endowment Suffers Second Year of Losses
MIT announced that its endowment fell by 2.9% to $23.5 billion in the fiscal year ending in June, marking the second consecutive annual decline.
Over the past year, multi-strategy endowments at wealthy universities have underperformed compared to those at smaller schools.
According to Wilshire Trust Universe Comparison Service, the median gross return for endowments over the year ending in June was 9.3%. For endowments with over $500 million in assets, the median return was just 6.2%, versus 10% for smaller funds.
Write-downs by hedge funds and VC firms weighed heavily on endowment performance last year.
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This content is sourced from Financial Times, Bloomberg, and The Real Deal, among other financial news outlets.