Late Jobs, Blowout Earnings

Hi there! 

Welcome to FinSoar. What a week: 

Markets are jittery. Data is missing. Deals are massive. Let’s take a look:

Thursday delivered one of the most stunning reversals Wall Street has seen in years. The Nasdaq traded in a 4.89% range, from an early gain of 2.58% to an intraday loss of 2.31%.

Nvidia had sparked the morning rally with earnings that exceeded expectations and CEO Jensen Huang dismissing bubble concerns. 

"We see something very different," he told analysts. The chipmaker's stock surged 5% early. By close, it was down 3%.

The S&P 500 finished 1.6% lower, and the Nasdaq dropped 2.2% after erasing morning gains of 1.9% and 2.6% respectively. The Dow swung more than 1,000 points from its high to its low. Wall Street's fear gauge, the VIX, jumped from about 20 to 28 in two hours.

Bitcoin crashed alongside stocks, falling below $87,000 for the first time since April. The crypto selloff amplified equity losses as algorithms detected the relationship between speculative assets. "It's become such a proxy for speculation," Interactive Brokers strategist Steve Sosnick noted.

The AI infrastructure spending boom is cracking. Oracle's credit default swaps tripled in recent months as traders rushed to hedge AI exposure. 

The company is a key player in Stargate, the $500 billion AI infrastructure project. 

Trading volume on Oracle's CDS ballooned to about $5 billion over seven weeks ended November 14, up from $200 million in the same period last year.

Morgan Stanley analysts expect Oracle's net adjusted debt to more than double to roughly $290 billion by fiscal 2028 from around $100 billion. 

JPMorgan estimates companies could sell around $1.5 trillion of high-grade bonds for AI-related investments in the coming years.

"The people who are selling the semiconductors to help power AI doesn't alleviate the concerns that some of these hyper-scalers are spending way too much money on building the AI infrastructure," said Robert Pavlik at Dakota Wealth.

Enter the anti-tech trade. 

Consumer staples, the most hated sector for years, suddenly looks interesting. The S&P 500 staples sector has trailed the market since early 2016, compounding at about half the rate of the wider index.

But staples shine in trouble. Food, beverage, and tobacco stocks, plus household goods managed positive performance during the dot-com crash. They beat the market by 20 points during the 2008 financial crisis, and outperformed in 2022's inflation crisis.

Bank of America's Fund Manager Survey shows a shift toward defensive categories in November, with staples getting the third-biggest bump. 

On Thursday, the consumer staples sector gained 1.1% while technology dropped 2.7%. Walmart jumped 6.5% after raising its annual forecast.

The sector trades at a notable discount to the market, but given low growth, it doesn't look cheap enough to attract hardcore value seekers. 

The 15 largest staples stocks aren't exciting or cheap. But as one analyst put it: if you're afraid of an AI catastrophe, stockpiling food and soap isn't a terrible idea.

Fed Governor Lisa Cook warned Thursday that "historically elevated prices in equities, corporate bonds, housing, and leveraged loan markets may portend a large pullback in valuations."

The market heard her loud and clear.

Sources: Financial Times, Reuters, Bloomberg, CNBC, The Guardian,

The September jobs report arrived six weeks late on Thursday. US employers added 119,000 jobs, more than double the 51,000 analysts expected. The unemployment rate ticked up to 4.4%, its highest level since 2021.

The report was supposed to drop on October 3. Instead, the government shut down two days prior. The 43-day closure became the longest in US history and created a permanent hole in economic data.

The August numbers got worse. What was reported as 22,000 jobs gained turned into 4,000 jobs lost. July was revised down from 79,000 to 72,000. With those revisions, the economy has shed workers in two of the last four months.

Then came Wednesday's bombshell… The BLS announced it's canceling the October jobs report entirely. Not delaying it. Canceling it.

The household survey data for October couldn't be collected during the shutdown and can't be gathered retroactively. The survey involves interviewing about 60,000 households by phone. 

Asking people to recall their employment status from a specific week, weeks ago, just doesn't work.

This marks the first time the agency has forgone publishing a monthly employment report, according to BLS archives back to 1994. October's payroll numbers will be combined with November's report, due December 16.

That timing creates a problem. The Fed meets December 9-10. The last comprehensive jobs data Fed officials will have is from September, which feels like ancient history. 

"September feels like it was eons ago at this point," Daniel Zhao, chief economist at Glassdoor, told the Washington Post.

The October unemployment rate will never be published. It's the first time the monthly unemployment series has had a gap since the survey began in 1948. 

"October 2025 will permanently remain a partial blind spot in America's official record," said Friends of BLS, an advocacy group led by two former BLS commissioners.

Markets initially rallied on Thursday after Nvidia's strong results, but the jobs data complicated things. The unemployment rate rose, but job growth beat expectations. Pick your poison.

Following the BLS announcement on Wednesday, traders priced in a 63.8% chance the Fed holds rates steady in December, up from 50% earlier that day. Without October data and divided on policy direction, many Fed officials have cited the data blackout as a reason to pause.

"Policymakers (including the Federal Reserve) will be flying partially blind for several more weeks," wrote Heidi Shierholz, president of the Economic Policy Institute. "Very bad timing because the economy is so uncertain right now."

Sources: The Guardian, Axios, CNBC, The Washington Post, Bloomberg, 

Three power players submitted bids on Thursday to buy all or part of Warner Bros. Discovery, launching what could be Hollywood's most dramatic merger fight in years.

Paramount wants everything. The studio, which merged with Skydance in August, submitted a bid for the entire company, including cable networks like CNN and TBS. Netflix and Comcast only want the studio and streaming assets, not the declining cable business.

The stakes are massive. Warner Bros. owns HBO, HBO Max, DC Comics, the Harry Potter and Lord of the Rings franchises, and runs the nation's top-performing movie studio this year. 

A Paramount-WBD combination would control 32% of the North American theatrical market. Add Comcast's Universal to Warner Bros, and that share exceeds 43%.

Paramount's previous offer of $23.50 per share was rejected. The bid was 80% cash and 20% stock. WBD's board wants closer to $30.

WBD closed at $12.54 on September 10, the day before The Wall Street Journal reported Paramount's interest. The stock has since doubled to around $24. Paramount's $23.50 offer represents an 87% premium to the pre-deal talk price.

Politics matter here. Trump appears to favor Paramount, backed by Oracle co-founder Larry Ellison and his son David. 

"Who owns Warner Bros. Discovery is very important to the administration," a senior Trump official told the New York Post. Trump has repeatedly attacked Comcast CEO Brian Roberts, calling him a "lowlife" and a "slimeball."

WBD was already planning to split into two companies by April 2026: Warner Bros (streaming and studios) and Discovery Global (cable networks). CEO David Zaslav would run Warner Bros, while CFO Gunnar Wiedenfels would lead Discovery Global.

Paramount argues its offer beats a split. In letters to WBD's board, Paramount CEO David Ellison calculated that splitting would generate present value of less than $15 per share on a trading basis, or roughly $18 to $20 per share, including an M&A premium. 

Bank of America analyst Jessica Reif Ehrlich estimates Warner Bros at $26 per share and Discovery Global at $4 per share.

Comcast hired Goldman Sachs and Morgan Stanley and has reportedly offered WBD CEO David Zaslav a leadership position overseeing NBCUniversal's media assets. Paramount also offered Zaslav a co-CEO and co-chairman position.

Regulatory hurdles loom for all bidders. WBD hired former DOJ antitrust chief Makan Delrahim to navigate the process. 

The deal wouldn't need FCC approval since WBD owns no local broadcast assets, but DOJ blessing is required.

History offers some comfort. The DOJ lost its bid to block AT&T's acquisition of Time Warner in 2018 despite Trump's pressure. Regulators also approved Disney's acquisition of Fox in 2019, which combined two major studios.

Theater owners are watching closely. After Disney bought Fox, their combined studios cut theatrical releases from 38 films in 2016 to 18 this year. 

"As long as we have more movies," says Daniel Loria at The Boxoffice Company, "I think you're going to find folks in the movie theater industry support any business decision that gets us there."

WBD's board wants a decision by year's end, which would punt regulatory approval to 2026.

Sources: Axios, NPR, CNBC, Reuters, The Washington Post

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