⌚ Rolex Prices Are Collapsing

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MARKET UPDATE

Shares of cybersecurity firm Crowdstrike ($CRWD) took a nosedive on Monday, plunging a further 13%. This freefall comes in the wake of the global IT outage they accidentally unleashed last week. Despite this embarrassing digital face-plant, Crowdstrike's stock is still up 7% year-to-date. Meanwhile, in the less catastrophic world of health IT and clinical research, IQVIA Holdings ($IQV) surged over 6% after surpassing both top and bottom line analyst expectations.

TODAY’S BIG HEADLINES

Rolex Prices Have Been Falling for Months

Small Caps Options Activity is Going Haywire

Companies are Ditching Their DEI Targets

LUXURY & FASHION

Rolex Prices Have Been Falling for Months⌚

Time's Up for Luxury Watch Prices: If you've been holding off on purchasing a new lavish timepiece, waiting for the perfect moment to strike, you might be in luck. The privately-owned Rolex brand, once as unshakeable as a politician's ego, appears to be experiencing some turmoil. Prices of the luxury brand's famed watches have been dropping faster than a lead balloon over the past 12 months, despite being notorious for extreme supply shortages and waitlists longer than a DMV line on a Monday morning.

• Morgan Stanley reported that the WatchCharts Overall Market Index — which tracks a basket of 60 luxury Swiss watches across 10 brands in the secondhand market — fell for the ninth straight quarter in the second quarter ended June 30.

• Prices have been falling since the pandemic peak hit in the first quarter of 2022, proving that what goes up must come down, even in the rarefied air of luxury goods. Most recently, prices in the second quarter took a 2.1% dive compared to the first quarter, leaving watch enthusiasts checking their wrists to see if time itself had stopped.

When Even Rolex Can't Watch Its Back: Despite these significant drawdowns, Morgan Stanley, ever the bearer of bad news for watch aficionados, believes that the downward pressure on prices will continue throughout the year, forcing prices to drop even further.

Secondhand Pain: Secondhand prices matter beyond being a marker of value for specific watches. They can affect prices paid in the primary market, where new watches are sold by authorized dealers. The real standout from this report is that even Rolex, the brand synonymous with being immune to price and sales pressures, is starting to feel the heat. It's as if Superman suddenly discovered he's allergic to Cinnamon.

• As of the second quarter of 2024, some of the largest drawdowns year-over-year include Patek Philippe (-10.7%), Audemars Piguet (-12.5%), Tudor (-9.3%), Breitling (-5.9%), Omega (-6.9%) and Rolex (-7.2%).

• It is believed that a possible cause of Rolex's woes is that watch "flippers" — dealers who buy new watches and flip them in another market that pays more — are facing headwinds. This is leading to increased supplies, proving that too much of a good thing can indeed be bad for business. This, in turn, has fueled a plunge in wait times across all of Rolex's timepieces over the past two years, making the once-coveted waitlist about as exclusive as a public bus.

• In short, reduced gray market supply on the secondary market and improving wait times for popular Rolex sports watches means speculation in the watches is decreasing.

EQUITY MARKETS

Small Caps Options Activity is Going Haywire🤯

Small Fry, Big Sauce: After months of tech giants basking in the artificial intelligence limelight like peacocks at a beauty pageant, enthusiasm seems to be waning faster than a politician's promises post-election. Concerns about overinvestment, an energy appetite that rivals a teenager's, and returns as tangible as a cloud have dampened the mood. But fear not, for a new narrative has emerged to titillate investors' fancies: the rise of the small cap, proving once again that sometimes, it's not the size that matters, but how you use it.

• The Russell 2000 Index of US small-cap companies has gained 11.5% over the last five trading days, outperforming the S&P 500 by almost 10% over this span, the most on record.

How to Make Small Caps Sexy Again: A performance shift this decisive demands a narrative to explain why it all makes sense. Enter the softer-than-anticipated US CPI inflation report, which has fortified expectations for the Federal Reserve to begin cutting rates by September. Traders are now placing a 100% chance on seeing the first rate cut by then, a certainty usually reserved for death, taxes, and disappointing Game of Thrones finales.

• Small cap companies are typically considered “riskier” investments during times of higher interest rates since the cost of borrowing increases and smaller firms are typically less capable of paying back high-interest debt than their large cap peers.

• Given the prospect of this changing financial landscape, it's no wonder we're seeing a trend reversal. Small caps are having their day in the sun, and investors are slathering on the SPF faster than you can say "diversify your portfolio."

When Betting on the Little Guy Becomes the Big Thing: If light positioning and cheap valuations are the tinder, and changing inflation and political fortunes are the sparks, then the options market is certainly the kerosene – and boy, is it ready to make things go boom!

• Call volumes – those bullish options bets that make traders' hearts race faster than a caffeinated squirrel – tied to Nvidia have dwindled to their lowest level since January 2023. It seems the chip giant's options appeal has gone from "hot chip" to "stale tortilla"

• In their place, the five-day call volumes for the iShares Russell 2000 ETF have crescendoed to their highest level on record. It's as if the entire options market collectively decided to swap their designer labels for thrift store finds.

INDUSTRY POLICY

Companies are Ditching Their DEI Targets👋

The End of an Era: Diversity, equity, and inclusion (DEI) seem to be falling out of fashion faster than last season's crop tops. Once the darling of corporate America's conscience, DEI is now being ghosted by businesses quicker than a Tinder date gone wrong. Retail giant ASOS ($ASC) has officially ditched its diversity targets in its bonus scheme, Microsoft ($MSFT) gave its entire DEI team the boot, and John Deere ($DE) decided to plow a different field, announcing it will no longer participate in events like Pride or have a pronoun policy.

• For years, DEI was criticized for being about as effective as a chocolate teapot - either ineffective corporate window dressing or counterproductive. But recently, conservative politicians and pundits have made DEI their new favorite punching bag, with Florida and Texas implementing new laws limiting its practice.

The Driver of Change: The culprit behind this DEI decline? Companies are trying to avoid the limelight and any legal scrutiny that might follow. Any goals around hiring particular demographic groups are now more frowned upon than wearing socks with sandals. Despite the elevated levels of scrutiny around DEI practices in the corporate world, the practice of employing a diverse workforce is merely changing its outfit. Blackrock ($BLK) is leading the way by focusing on hiring for socioeconomic diversity and changing job requirements to find more diverse talent without targeting a specific race or ethnicity.

• Cutbacks in DEI could lead to a decline in diversity in organizations moving forward, with the responsibility for these efforts likely to fall down the ladder to front-line managers.

• Additionally, a LinkedIn report published recently revealed that hires for Chief Diversity and Inclusion Officers experienced a 4.5% decline last year.

MORE NEWS

Additional market-moving events🌎

Starbucks Revival: Activist Elliott reportedly has a significant stake in Starbucks, engaging with management to find ways to improve performance at the struggling coffee chain. (CNBC)

Ryanair Plunges: Ryanair ($RYAAY) fell 13% after reporting a 46% drop in quarterly profit to $392M and warning of lower-than-expected fares over the next 3 months. Other European airlines also sank. (CNBC)

Ethereum ETFs Land: Following an initial May approval by regulators, spot ethereum ETFs are expected to start trading as soon as today. Now issuers like BlackRock, Fidelity, and VanEck are competing to offer the lowest fee. (Bloomberg)

AI for Equity: Andreessen Horowitz is planning to buy over 20,000 Nvidia H100 GPUs over the next several years, which is the same number Elon’s xAI uses to train his Grok large-language model. (The Verge)

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