🚨 Credit Card Delinquencies Hit 15-Year High

MARKET UPDATE

Good Morning Investor! On Monday, shares of chip maker Intel Corp ($INTC) absolutely soared and the stock is now up 10% for the week thus far, following the announcement of the firm’s plan to turn its foundry business into a subsidiary. This announcement coincided with Intel confirming it will be the beneficiary of up to $3 billion in funding under the CHIPS and Science Act to manufacture chips for the military. Additionally, the firm is partnering with Amazon. Specifically, Intel Foundry will produce an AI fabric chip for AWS on Intel 18A

TODAY’S BIG HEADLINES

Credit Card Delinquencies Hit 15-Year High

Iphone 16 Pre-Orders Underwhelm

Oil Giant BP Puts its $2 Billion US Onshore Wind Business Up for Sale

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CREDIT & LENDING

Credit Card Delinquencies Hit 15-Year High🚨

When America's Financial House of Cards Goes Wobbly: America's economy, which has been leading the post-pandemic recovery like a drunk frat boy leading a conga line, might be in for a rude awakening. After 17 months of raising interest rates, the Fed is set to start cutting them this week. But don't break out the champagne just yet - the fight against inflation has exposed more cracks in the economic foundation than a poorly built McMansion, and now Americans are falling behind on bills.

• Twitter has been littered with charts showing rising credit card debt levels, looking like the heart rate monitor of someone watching a horror movie marathon. Up until now, American consumers have been living large on their pandemic-era stimulus savings and personal nest eggs. But those piggy banks seem to have been smashed open, leaving consumers more dependent on credit cards than ever. Goldman Sachs reports card balances growing by 11% year-over-year, which is about as healthy as a diet consisting solely of deep-fried butter.

When the American Dream Becomes a Nightmare: While the affluent continue to boost the economy like it's their personal Monopoly game, the bottom half of earners are facing mounting challenges. According to the NY Fed and Equifax, credit card and auto loan delinquencies have hit 15-year highs in Q2 2024, with 9% of credit card balances and 8% of auto loans more than 30 days late. It's like millions of Americans decided to play a game of financial chicken with their creditors. Along with weaker consumer demand, a cooling labor market, and corporate revenues as stagnant as week-old bread, it's starting to look like the economy might have caught a case of the sniffles. We've already seen companies that cater to the cash-strapped, like McDonald's ($MCD) and Dollar General ($DG), take a bigger beating than a piñata at a kid's birthday party over the past few quarters as consumer demand continues to shrink.

• Many financial institutions benefited from bumper earnings during the pandemic but now face the aftermath of a weaker fiscal environment. Just as banks prepare to report their earnings in the coming weeks, Ally’s warning has left Wall Street on edge — and investors have responded.

One Man's Trash is Another Man's Treasure: Last week, auto lender Ally ($ALLY) sent shock waves through the financial world, warning that defaults have worsened due to dramatic changes in the "employment picture" for many US citizens. $ALLY shares dropped 21%, while peers Bread Financial ($BFH) and Synchrony Financial ($SYF) fell 8% and 2% respectively, after forecasting higher charge-offs through 2024. It's a financial bloodbath that would make Quentin Tarantino proud. But remember, folks, in every crisis there's an opportunity. Enter Fair Isaac Corp ($FICO), known for their industry-leading credit ratings system, the FICO score. As Americans become more reliant on debt than a gambler at a Vegas casino, FICO might just hit the jackpot.

• Citigroup ($C) CFO Mark Mason echoed the negative sentiment, noting that Citi has seen rising arrears and carried balances, though the numbers are “starting to crest.”

MEGA CAPS & HARDWARE

Iphone 16 Pre-Orders Underwhelm😞

Overzealous Optimism: iPhone maker Apple ($AAPL) has been riding high on hopes of a significant upgrade cycle, thanks to the release of its new AI-powered iPhone 16 devices. With its latest version of iOS boasting a smorgasbord of jaw-dropping AI features, Apple fanatics are practically salivating like Pavlov's dogs at a bell factory. Unfortunately for the beleaguered tech giant, which is looking more bruised than the fruit in your forgotten lunchbox, third-party pre-order data suggests that the new range of devices isn't triggering the demand previously expected.

Crunching the Numbers (and Maybe Some Dreams): Based on an analysis from third-party sources, Apple's opening weekend for its new range of devices has yielded 37 million units, down about 12.7% YoY from last year's iPhone 15 series first-weekend sales. Talk about a rotten apple in the barrel! The real highlight in this data has been the remarkably low demand for the Pro model of the device. Seems like the "Pro" stands for "Probably not gonna sell as well as we thought."

• The delivery times of the iPhone 16 Pro series are significantly shorter than those of the 15 Pro series. The significant YoY growth in shipments before pre-order for iPhone 16 Pro Max is due to improved tetraprism camera production yields and Apple's optimistic outlook for demand for this model. In other words, Apple put all its eggs in one basket, and now that basket's looking a bit... empty.

Bigger Isn’t Always Better: One of the key factors for the lower-than-expected demand for the iPhone 16 Pro series is that the major selling point, Apple Intelligence, is not available at launch alongside the iPhone 16 release. Additionally, intense competition in the Chinese market continues to impact iPhone demand. Gene Munster from Deepwater Asset Management made this very point, stating that the new range of AI-powered devices are likely to be a slow burner, with demand only beginning to really pick up once these new AI features are out in the wild and in the hands of users. In other words, Apple's counting on its fans to be more patient than a sloth on vacation.

• Worryingly, if this doesn't turn out to be the case, shares of Apple could take a significant hit given its high valuation and relative lack of growth.

INDUSTRIALS & ENERGY

Oil Giant BP Puts its $2 Billion US Onshore Wind Business Up for Sale 🛢️

Renewable Ambitions Scrapped: Breaking wind!…I mean news, Oil giant BP's ($BP) renewables ambitions are looking like they've been caught in a Category 5 hurricane after announcing on Monday that it will put its US onshore wind power business, estimated to be worth about $2 billion, on the market. Apparently, shareholder sentiment and an uncertain US wind sector left too many factors up in the air.

BP's Wind Power Gets the Cold Shoulder: Back in June, CEO Murray Auchincloss made a clear shift in direction for the company, with many shareholders seemingly concerned that the company's renewables plans weren't maximizing growth from oil and gas, which boomed after Russia's invasion of Ukraine. As it turns out, green energy was making them see red. As a result, Auchincloss implemented a hiring freeze and paused new offshore wind projects. His predecessor rolled out an ambitious "net zero" plan to cut oil production by 40% by 2030, while rivals announced plans to hike their production. Looks like BP was trying to bring a windmill to an oil fight.

• BP’s shares underperformed the competition as a result, being down over 12% year-to-date, even resulting in takeover rumors.

• Auchincloss, who took over in January after a brief stint as interim CEO, has already rowed that oil production cut target back to 25%, and shareholders think he could unwind previous climate targets even more. Seems like BP's green dreams are quickly turning into a fossil fuel fantasy.

Headwinds (or Just a Lot of Hot Air?): BP Wind Energy's assets, with a 1.3 gigawatt generating capacity, are “likely to be of greater value for another owner” and are “not aligned with our plans for growth,” the company said. It flagged solar firm Lightsource BP, which it agreed to acquire in full last year, as better suited for its plans. Despite major tax breaks introduced in 2022, new US wind projects — onshore and offshore — have declined, and last year was the first year since the 1990s that the amount of power generated by wind in the US fell. Looks like Uncle Sam's attempt to fan the flames of wind power ended up being just a lot of hot air.

• Doubling down on oil and gas might not be a breeze for shares, either. Last month, Morgan Stanley analysts cut their share price target for BP by 9%, noting that the winds have changed when it comes to the macro factors that benefit energy companies: oil prices, interest rates, and inflation are all trending down.

MORE NEWS

Additional market-moving events🌎

Icahn Bounces Back: Carl Icahn’s investment firm won a lawsuit alleging share price manipulation following controversies that cut the company’s value by $20 billion. The stock surged 14.5% on this news. (MarketScreener)

Murdoch Empire’s Fate in Court: Rupert Murdoch faces off against his children over Fox News ($NWSA) control in a Nevada probate court, echoing a Succession-like drama that could shape the $32 billion media empire’s future. (NPR)

Millionaires Opt to Rent: More wealthy Americans are renting homes because of high purchase prices, interest rates, and a desire for flexibility. Households earning $750K+ saw rental rates grow to 10.5% between 2018-2022, up from 8.4% over the five years prior. (WSJ)

Amazon Ditches WFH: Amazon’s CEO Andy Jassy has ended WFH, telling all employees to be back in the office 5 days a week. Amazon is also flattening its corporate structure by having fewer managers in each organization. (CNBC)

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