Market News 8/01

Markets

Yesterday, the stock market closed with gains, concluding a positive July with all three major indexes showing upward movement, especially the Nasdaq. Notably, the S&P 500 achieved its fifth consecutive month of growth, marking its best streak since 2021. Palantir also experienced a significant boost thanks to artificial intelligence (AI), earning the nickname "Messi of AI" from an analyst due to the software company's strong potential to become a major player in the industry.

Earnings Season Threatens Lofty Stocks

Despite the impressive surge in U.S. stocks this year, some investors are concerned about lackluster earnings projections that could pose a threat to their continued rise.

The market rally has been fueled by the economy's resilience, surpassing expectations, and speculation that the Federal Reserve may soon end its aggressive interest rate hikes, which had negatively impacted stocks in 2022. Moreover, the excitement surrounding artificial intelligence technology has triggered a frenzy in the markets, particularly benefiting large tech companies like Nvidia and Microsoft. As a result, the S&P 500 has seen a nearly 20% increase this year, while the Nasdaq Composite, heavily influenced by tech stocks, has gained an impressive 37%.

However, despite the market's positive performance, corporate profits have been on the decline. Based on a FactSet analysis of reported results and consensus analyst estimates, companies within the S&P 500 are expected to record around a 7% year-over-year decrease in earnings for the second quarter. This would represent the largest quarterly earnings decline for the index since the second quarter of 2020 and the third consecutive quarter of declining profits.

Politics

New payment-lowering plans for student loans

The Department of Education launched a new program called the SAVE (Saving on a Valuable Education) Plan, aiming to offer relief to millions of Americans who are anxious about the resumption of federal student loan payments after the pandemic in October. However, the program is likely to face legal challenges.

President Biden intends for the SAVE Plan to help federal borrowers affected by the Supreme Court's rejection of his ambitious student loan forgiveness program in June. The new program, which replaces the REPAYE Plan, introduces several key changes:

Starting this fall:

• Approximately one million more Americans will qualify for $0 monthly payments, as the income threshold for no payments will increase to $32,805 from the current $22,000 or less in income-driven repayment programs.

• Unpaid interest will not accumulate as long as borrowers make their monthly payments, even if the payment amount is reduced to $0.

Starting in July 2024:

• Loans of $12,000 or less will be forgiven after 10 years of payments, including loans taken out before 2024. An additional $1,000 borrowed beyond that will extend the forgiveness period by one more year. For instance, a $22,000 loan would be forgiven after 20 years of payments.

• Undergraduate loan payments will be capped at 5% of borrowers' discretionary income (total income minus $32,800), which is a reduction from the current 10% cap under existing programs.

However, the SAVE Plan is expected to face legal challenges due to its estimated cost, ranging from $138 billion to $361 billion over 10 years. Similar to Biden's $400 billion loan forgiveness program, this new plan might encounter lawsuits. Already, over 60 Republican lawmakers have urged the Education Secretary to withdraw the new repayment plan, and opponents of the program anticipate legal challenges. On the other hand, administration officials argue that similar income-based loan programs have been implemented before and have not faced successful challenges.

Tech

X no longer marks the spot

The massive glowing X sign that was installed at the San Francisco headquarters of the company owned by Elon Musk, formerly known as Twitter, was taken down by workers on Friday. The sign had sparked complaints from neighbors due to its brightness. City officials stated that they had been informed that the sign was only temporary.

In other developments at the newly renamed company, there has been controversy as it threatened to take legal action against researchers who monitor hate speech on the social media platform. These researchers discovered an increase in hate speech since Musk assumed control of the company. The company claims that the researchers' findings are negatively affecting its business.

Energy

New U.S. nuclear reactor goes live

Homer Simpson's expertise is being put to use down South as Georgia's Plant Vogtle successfully brought a brand-new nuclear reactor online, as announced by the operating company yesterday.

This new reactor is a significant milestone, being the first built-from-scratch nuclear reactor to become operational in the United States in decades. It is now supplying electricity to regions in Georgia, Florida, and Alabama, with the capacity to power up to 500,000 homes and businesses.

The Vogtle plant is undergoing a major expansion, with plans to add a fourth reactor by next spring. However, the project has faced significant challenges so far. The new reactor went live seven years later than initially planned, and costs skyrocketed from the initial estimate of $14 billion to nearly $35 billion.

Despite the delays and cost overruns, public support for nuclear power is growing. Recent polls show the highest level of support for nuclear energy in the past decade. Nuclear power currently provides almost 50% of carbon-free electricity in the United States, and many experts consider it a crucial clean energy complement to wind and solar power.

Interestingly, other countries are also turning to nuclear energy. Canada has recently announced two new nuclear energy projects, while China has ambitious plans to construct at least six to eight new reactors annually.