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UK PM Keir Starmer initiates government overhaul less than 100 days into office amid policy challenges

British Prime Minister Keir Starmer is about to initiate a significant government reset as he navigates a tumultuous first 100 days in office marred by policy missteps, public criticism, and a “freebie” scandal.

To regain momentum, Starmer has made critical changes to his leadership team, including the departure of Chief of Staff Sue Gray, who faced scrutiny for her management style and performance.

Morgan McSweeney replaces Sue Gray

Starmer has appointed Morgan McSweeney, the mastermind behind the Labour Party’s election victory, as Gray’s replacement and added two deputy chiefs of staff to strengthen his office.

To enhance communication strategies following backlash over gifts received by Starmer and senior ministers, Downing Street’s media relations team has also been revamped with the appointment of James Lyons, who previously led policy communications at TikTok.

This restructuring comes as the Labour administration grapples with the need to present a more robust policy platform and a clear direction, with analysts expressing skepticism about whether these changes will suffice.

All eyes on Finance Minister Reeves

As the government prepares for the upcoming Autumn Budget, set to be unveiled on October 30, all eyes are on Finance Minister Rachel Reeves.

She is expected to outline her spending plan, aiming to instill confidence in a government that has struggled to define its fiscal policies.

Both Starmer and Reeves have attempted to temper negative rhetoric about the UK economy, suggesting a period of national renewal is on the horizon.

Reeves has also hinted at revising proposals that could deter wealth, including reconsidering tax hikes for private equity leaders and plans to eliminate the UK’s controversial non-domicile status.

Furthermore, Reeves is promoting initiatives to stimulate investment, including a new national wealth fund and potential changes to pension regulations, in response to speculation regarding amendments to the UK’s fiscal rules.

‘Tough decisions’

Labour has previously committed to a fiscal guideline established by the former Conservative government, which mandates that national debt must decrease as a share of GDP within five years.

Despite these efforts, the government faces an uphill battle as negative sentiment looms over the country.

Starmer’s recent warning of “tough decisions” to come, alongside the Treasury’s revelation of a £22 billion ($29 billion) fiscal gap allegedly inherited from the Conservatives, has contributed to the unease.

Former Finance Minister Jeremy Hunt has labeled these claims as “fictitious.”

In light of these challenges, analysts at Citi have urged the government to act swiftly on its growth strategy.

They warned that the UK is at a critical juncture, stating, “A transition from the low growth, low investment equilibrium is increasingly urgent.”

A recent survey by KPMG and the Recruitment & Employment Confederation revealed that British businesses have stalled hiring due to uncertainty surrounding government tax policies, industrial strategy, and workers’ rights.

Consumer confidence has also plummeted, with GfK data indicating the largest decline since Russia’s invasion of Ukraine, despite a drop in interest rates that has eased some pressure on households.

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One year into Israel-Hamas conflict: Oil prices fall 10%, but escalating tensions add risk premium

Oil prices have had a strange year since the war broke out between Israel and Hamas on October 7, 2023. 

Exactly a year ago, Hamas, a Palestinian political and militant outfit, launched an attack on southern Israel, killing 1,200 people.

That marked the beginning of the war between Israel and Hamas, which still rages on. 

Though Israel and Palestine are not oil producers, there have always been risks that the conflict in the Middle East could become wider, involving prominent oil producers, Iraq and Saudi Arabia in the region. 

The Middle East is home to more than half of the world’s oil reserves. 

Oil prices have declined since October 2023

Interestingly, even with the ongoing conflict between Israel and Hamas, oil prices have declined since last year.

Brent crude oil is down nearly 10% since the beginning of the war, while the US benchmark, West Texas Intermediate has fallen 12%. 

On October 20, 2023, Brent crude oil prices hit $93.79 per barrel, which is the highest in the last 12 months.

Prices had risen as Israel launched its large-scale ground assault in the Gaza Strip in Palestine, marking the beginning of its invasion into the territory. 

On October 20 last year, the price of WTI also hit $90.78, a level that it has failed to breach since then. 

Both oil benchmarks hovered between $80-$90 during the first month and a half of the Israel-Hamas war.

However, poor global oil demand and no real disruptions to oil supply from the Middle East began to weigh on sentiments.  ANZ Research said in a report:

However, the oil market has viewed the risk of supply disruptions as low, as both sides worked to contain the conflict.

Since the beginning of 2024, oil prices have become more resilient to news coming out of the Israel-Hamas war.

The geopolitical risk premium on oil prices had somewhat worn off during the last few months as the market turned its attention to demand concerns.       

Poor demand and high supply weigh on demand

In the last few months, oil prices have struggled as demand from the largest importer, China, remained sluggish. Beijing’s economy has been a matter of concern for oil bulls as the country tries to navigate out of a crisis. 

In addition, robust oil supply from the largest producer, the US, and other countries have halted oil’s march. 

Top energy organizations have cut their forecasts for oil demand growth this year and the next, citing a poor recovery in China’s economy and adequate supply with producers. 

Additionally, OPEC+ has enough spare production capacity of crude oil to offset any kind of supply disruptions in the Middle East. 

OPEC+ has been withholding around 5.86 million barrels per day of oil from the market. That is nearly 6% of the world’s total supply. 

Iran’s attack on Israel renews tensions in Middle East

Last week on Tuesday, Iran fired ballistic missiles toward Israel in response to the killing of a prominent Tehran-backed Hezbollah leader, which escalated the conflict in the region two-fold. 

Oil prices soared 8% last week as tensions escalated and traders waited for Israel to respond to Iran’s attack by targeting Tehran’s oil facilities. 

Before last week, Brent prices had plunged to below $70 per barrel on demand concerns for the first time since August 2021. 

Last week’s escalation proved that even though there has not been a significant disruption in oil supply from the Middle East since last October, a wider conflict can pose a serious threat. 

With Iran’s involvement in the Israel-Hamas conflict, there is a possibility of Iraq and other major oil producers in the region getting involved. 

Additionally, about 17 million barrels per day of crude oil transits the Strait of Hormuz trade route, which is between the Persian Gulf and the Gulf of Oman. 

In case of further escalations, oil tankers transiting the Strait of Hormuz could be targeted and supply could be hit simultaneously. 

As we complete a year of the Israel-Hamas conflict, oil is rising again. This time, other countries in the region–Lebanon and Iran–are involved in the conflict too. 

According to ANZ Research, the situation could blow out of proportion if Iraq joins the war. Iraq is the second largest oil producer after Saudi Arabia in the OPEC group, and it is home to several Iran-backed proxy groups. 

At the time of writing, the price of Brent was $80.58 per barrel, up 3.5%, while WTI prices were 3.6% higher at $77 per barrel.  

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China stock surge stumbles as investors unimpressed by economic stimulus

After a strong start, with shares surging over 10% following the Golden Week holiday, Chinese stocks reversed course as the much-anticipated news conference failed to deliver substantial details about boosting the country’s sluggish economy.

In a session marked by volatility, the Shanghai Composite Index in mainland China climbed about 5% by late morning, while Hong Kong’s Hang Seng Index tumbled 5%, reflecting a split in investor sentiment.

Unmet expectations from China’s economic planners

Market participants had eagerly awaited further insights into the Chinese government’s plans to reignite economic growth.

However, the National Development and Reform Commission (NDRC) offered little clarity.

NDRC Chairman Zheng Shanjie attempted to strike a confident tone, asserting that China will achieve its economic and social targets for the year.

However, he acknowledged mounting pressures, stating, “The downward pressures on China’s economy are also increasing.”

Zheng also confirmed plans to allocate 200 billion yuan ($28bn; £21.5bn) for spending and investment projects by the year’s end.

Despite the announcement, investors were left disappointed by the absence of a more robust fiscal stimulus package.

Market reaction to stimulus shortfall

“The market really expected more,” said Alicia Garcia-Herrero, chief economist for the Asia Pacific region at Natixis.

“The correction will be even stronger if the data on the Golden Week in terms of consumption is weak,” she added, emphasizing the market’s reaction to the perceived lack of tangible measures.

Garcia-Herrero also critiqued the government’s timing, stating, “I would not have organized a press conference not to announce anything new.”

Growing concerns over China’s economic trajectory

China’s leadership has been under pressure to revive confidence in the world’s second-largest economy as fears mount that the country might fall short of its 5% annual growth target.

In recent months, authorities have unveiled a range of measures aimed at shoring up the economy, including support for the embattled property sector, stock market interventions, direct financial aid to low-income households, and increased government spending.

However, some economists remain skeptical about whether these moves will be sufficient to tackle the deep-rooted issues facing China’s economy.

Many argue that the country needs broader structural reforms to achieve sustainable, long-term growth.

China’s economic expansion has been decelerating, weighed down by a struggling real estate market, deflationary trends, and other significant challenges.

While the government’s stimulus efforts signal a commitment to addressing these concerns, the lack of clear and decisive action has left many investors cautious about the future trajectory of the economy.

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Sensex, Nifty50 rise 0.6% as China markets rally; Tata Motors and metal stocks drop, while M&M and Bharat Electronics gain

Indian equity benchmarks were slightly higher on Tuesday, tracking gains in Chinese stocks. 

At the time of writing, the BSE Sensex was up 0.6% at 81,502.37, while Nifty50 was also 0.6% higher at 24,949.60. 

“Looking ahead, several important data releases and events could influence market direction. Investors will be closely monitoring developments in the geopolitical situation and its impact on crude prices,” The Times of India quoted Ajit Mishra, SVP, research at Religare Broking. 

Asian markets dip, China outperform

Most Asian markets fell on Tuesday, tracking overnight losses in Wall Street. 

Asian technology stocks saw the biggest losses on Tuesday, tracking overnight weakness in their US peers amid some regulatory jitters and negative analyst comments, Investing.com said in a report. 

Meanwhile, China’s Shanghai Shenzhen CSI 300 and Shanghai Composite rose around 6-8% after opening nearly 13% higher on Tuesday. 

Trade resumed after the Golden Week holiday on Tuesday as sentiments were supported by a slew of major stimulus measures announced by Beijing recently. 

Investing.com said:

But investors were still watching for more stimulus measures in the country, especially targeted fiscal measures. 

Tata Motors shares drop on muted sales

Shares of Tata Motors dropped today as the company’s Jaguar Land Rover segment’s retail sales were muted during July-August. 

Retail sales of Tata Motors-owned Jaguar Land Rover dipped 3% during the September quarter as compared to the year-ago period. 

Additionally, the Indian operations of Tata Motors are experiencing a slowdown in local demand, which weighed on sentiments as well. 

Shares of Tata Motors were down 1.7% at 912.85 on Tuesday. 

Metal stocks decline as iron ore prices slip

Shares of metal companies declined on Tuesday as a sharp fall in SGX iron ore prices weighed on manufacturers of the steel-making material. 

Also, China’s state planner announced a roadmap to boost its economy, but lacked new fiscal stimulus measures, which dented hopes of investors.

This weighed on metals stocks too as China is the top consumer of base metals. 

Shares of NMDC, NALCO, JSW Steel and Tata Steel were down around 1-4% on Tuesday. This also dragged down the Nifty Metal index over 2% lower. 

Other metal stocks such as Hindalco, Vedanta and Jindal Steel also fell. 

Nifty Bank rebounds 1%

The Nifty Bank index rebounded 1% on Tuesday, snapping a six-day losing streak. 

Shares of HDFC Bank rose 1.8% on Tuesday, while ICICI Bank gained 0.4%. Axis Bank’s stock rose over 1.5% as well.

SBI shares also rose nearly 1%. 

Nifty Infra index also gained on Tuesday, after declining for the past five sessions. 

Shares of hotel companies and Tata Power rose, which aided the performance of the Nifty Infra index. 

RVNL, M&M and Bharat Electronic among major gainers

Shares of Rail Vikas Nigam Limited rose more than 4% on Tuesday. Bharat Electronics’ stock also gained nearly 3% on Tuesday and was among the top gainers. 

Meanwhile, shares of Suzlon Energy also rose 1.3%, while those of Trent jumped more than 3.5%. 

Shares of Mahindra and Mahindra surged more than 2.3% on Tuesday after CLSA upgraded the counter to ‘outperform’ from ‘sell’ and raised the price target as it sees multiple growth triggers for the auto major, Moneycontrol said in a report. 

The post Sensex, Nifty50 rise 0.6% as China markets rally; Tata Motors and metal stocks drop, while M&M and Bharat Electronics gain appeared first on Invezz

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China’s economic comeback: stimulus sparks hope, but is it just a mirage?

After years of sluggish growth, China is  now making bold moves to reignite its faltering economy. 

In a dramatic push, Beijing has rolled out massive stimulus measures aimed at boosting consumer spending, rescuing the crumbling real estate market, and reviving its stock markets. 

The Hang Seng Index, which had been languishing for four consecutive years, recently surged by over 18%, marking its biggest two-week rally in nearly two decades. 

But with consumer confidence at historic lows and businesses reluctant to invest, it’s still unclear whether China’s economy is truly turning a corner, or are these measures just a temporary illusion?

Why is China struggling?

China’s economic troubles are deep-rooted. Decades of rapid growth built on property speculation, high debt, and manufacturing have left the country vulnerable. 

The real estate sector, which accounts for 70% of household wealth, has been in freefall since 2021, with property prices in Tier 1 cities dropping as much as 30% from their peak. This has wiped out significant wealth for families and eroded consumer confidence.

In addition, years of strict COVID-19 lockdowns stifled economic activity and left businesses reeling. Even after the pandemic, Chinese consumers have been reluctant to spend, with the country’s consumer confidence index down nearly 30% from 2022 levels. Unemployment, especially among young people, remains high, and the property crisis continues to cast a long shadow over the economy.

What’s inside China’s stimulus package?

In late September, China’s leadership, under President Xi Jinping, unveiled a comprehensive set of fiscal and monetary policies aimed at halting the country’s economic decline. 

The stimulus package includes the issuance of 2 trillion yuan (approximately $284 billion) in sovereign bonds, with half of the funds allocated to relieve heavily indebted local governments and the other half directed toward consumer support programs. 

Additionally, the People’s Bank of China (PBOC) announced interest rate cuts, reducing the 1-year medium-term lending facility rate to 2% and lowering the main policy rate to 1.5%. These rate cuts are intended to ease borrowing costs and stimulate lending.

In an effort to address the struggling real estate market, the government has also reduced the minimum down payment for second-time homebuyers from 25% to 15%, a move designed to encourage more home purchases and stabilize the property sector. 

Furthermore, Beijing is taking steps to support its financial markets by making 500 billion yuan available for lending to investment funds and brokers, alongside an additional 300 billion yuan to finance share buybacks by listed companies. 

These measures aim to boost market confidence and offset the wealth losses caused by the ongoing property crisis.

These policies build on earlier efforts introduced in May, which were largely seen as inadequate in turning the tide. This time, however, Beijing appears to be signaling its determination to take stronger action, adopting a “whatever-it-takes” approach to stabilize the economy and achieve the government’s ambitious goal of 5% growth for 2024.

Are investors overreacting?

Following the stimulus announcements, investors rushed back into Chinese stocks, sparking a short-term rally. Hedge funds with big bets in China saw returns of up to 25%, and the Hang Seng China Enterprises Index jumped more than 35% in just a few weeks, outperforming over 90 global equity indexes tracked by Bloomberg. 

The stock surge has led some analysts, like Goldman Sachs, to predict even more gains—potentially another 15-20%—if the government delivers on its promises.

However, many major players, including JPMorgan Asset Management and Invesco, remain skeptical. While they acknowledge that the stimulus measures have improved sentiment, they warn that many stocks may now be overvalued and disconnected from the reality of China’s long-term economic challenges. The focus, they argue, should be on fundamentals, not short-term market rallies.

Can this stimulus truly resurrect China’s economy?

The real question is whether these measures can spark sustainable growth. Analysts agree that China’s biggest problem isn’t a lack of liquidity or access to loans—it’s the lack of consumer and business confidence. Households, burdened with real estate debt and faced with declining property values, are simply unwilling to spend. Businesses, meanwhile, have scaled back capital investments, wary of an uncertain future and remembering past political crackdowns on private enterprise.

A key part of the government’s strategy is to fix the property market, which has been a cornerstone of China’s economy for decades. By cutting mortgage rates and lowering down payment requirements, Beijing hopes to revive home buying. But with real estate prices continuing to fall and oversupply remaining a problem, many believe this is just a temporary fix.

In addition, consumer-focused measures, such as cash allowances for low-income families and subsidies for families with multiple children, are unlikely to drive long-term demand. These payments will provide a short-term boost, but they won’t solve the deeper issues affecting China’s economy.

What are the potential scenarios to consider?

The recent market rally has been encouraging for investors, but significant risks in China’s economy persist. Looking forward, there are a couple of potential paths that could unfold.

One possibility is that Beijing continues to introduce stronger fiscal measures, such as direct cash payments to households, larger infrastructure investments, or further restructuring of the real estate market. These actions could help stabilize the economy and drive further growth in the stock market. 

If this happens, the current rally may extend beyond a temporary boost, offering potential opportunities for investors, particularly in sectors like technology and green energy, where the government has shown a clear commitment to development.

On the other hand, if consumer confidence remains weak and businesses continue to hesitate on investing, the economy could struggle to gain momentum. In this case, the recent stock market gains could be short-lived, with the economy facing prolonged slow growth or even deflation. 

Investors might want to approach Chinese equities with caution in this scenario, considering safer investment options like bonds or diversifying into other markets to manage potential risks.

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Here’s why the Hang Seng index has suffered a harsh reversal

The Hang Seng index suffered a harsh reversal on Tuesday after the World Bank issued a major warning about the Chinese economy. The index, which tracks the biggest companies in Hong Kong and Mainland China, slipped by over 9% to H$20,760, its lowest point since September 27.

Hong Kong shares sink

The Hang Seng index dived sharply after the World Bank predicted that the Chinese economy would struggle to hit the 5% target this year despite Beijing’s unveiled stimulus packages.

The decline happened even as other mainland indices surged. Data by Investing.com shows that the Shanghai and Shenzhen composite jumped by over 5% and 7%, respectively.

This price action happened as investors remained hopeful that Beijing would unveil more stimulus in the coming days. 

Chinese leaders will likely provide more information about potential stimulus in a meeting on Tuesday. 

This meeting comes less than two weeks after China’s politburo concluded, with officials agreeing on the need for more stimulus. While details remain scarce, analysts estimate that the proposal at the time would be over $150 billion.

The People’s Bank of China (PBoC) also provided a stimulus package worth over $100 billion. It did that by reducing banks’ reserve requirements. Some of the unlocked funds will go to buy Chinese stocks and promote share buybacks.

Therefore, the Hang Seng index likely plunged for two main reasons. First, the decline happened as many investors moved from Hong Kong stocks to Mainland ones. That’s because Hong Kong markets were open for the most of last week while Mainland ones were closed.

Second, the decline mirrors the crash of American equities on Monday. The Dow Jones index declined by 400 points, while the Nasdaq 100 and S&P 500 indices slipped by 235 and 55 points, respectively.

US equities plunged as signs emerged that the Federal Reserve will not cut interest rates as expected. The Bureau of Labor Statistics (BLS) published strong jobs numbers last week, with the unemployment rate falling to 4.2% and the nonfarm payrolls rising by over 254k. 

Second, there are significant geopolitical tensions in the Middle East as Israel considers its response to Iran. Israel could consider bombing Iran’s military bases, oil and gas terminals, or nuclear plants, risking a significant war in the region.

Most global stocks will be impacted by this conflict mostly because of higher crude oil prices. Brent, the global benchmark, rose to $80 for the first time in months. West Texas Intermediate (WTI) rose to $77 on Monday. The two then pulled back on Tuesday, falling to $79 and $75, respectively.

Read more: Why China’s latest monetary stimulus might fall short of reviving its sluggish economy

Top Hang Seng laggards

Most Hong Kong stocks were in the red on Tuesday. Longfor Properties stock price dived by over 20% as concerns about the real estate sector continued. It dropped to a low of H$12.15, down by over 40% from its lowest level this month.

A likely reason for this plunge is that Chinese stimulus will not save the real estate sector. Last month, the developer said that revenue in the core property development business dropped by 32% to 33 billion yuan. 

China Resources Mixc Lifestyle Services also suffered a harsh reversal, falling by over 16% to a low of $31.85. Like Longfor, it has dropped by 20% from its highest level this month, entering a technical bear market.

China Life Insurance and Mengniu Dairy were the other top laggards on Tuesday, falling by over 15%. Technology companies like Alibaba Health Information and Jd Health shares tumbled by over 13%. 

The best-performing Hang Seng companies were also in the red. CK Hutchison shares tumbled by 2.51%, while CLP Holdings, HK & China Gas, HSBC, and Power Assets fell by over 2%.

Geopolitics and the upcoming top events from the United States will be the next key catalysts for the Hang Seng index. On Wednesday, the Federal Reserve will publish the minutes of the last monetary policy meeting, while the statistics agency will publish the latest Consumer Price Index (CPI) data.

Hang Seng index analysis

The daily chart shows that the Hang Seng index went vertical, rising from a low of H$14,812 in January to a high of H$23,235 on Monday. The recently launched stimulus by Beijing authorities mostly drove this rebound. 

It has now suffered a harsh reversal, falling to a low of H$20,760. This decline happened after it formed a shooting star candlestick pattern, a popular reversal sign.

The index has remained above the 50-day and 200-day Exponential Moving Averages (EMA). It also dropped below the key support level at $22,690, its highest swing in January 2023. Also, it formed a bearish engulfing pattern.

Therefore, the index will likely remain under pressure in the near term. More upside will mostly be confirmed if the index rises above the key resistance level at H$23,233, its highest point this year. 

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4 catalysts for the ProShares UltraPro TQQQ ETF

The ProShares UltraPro QQQ ETF (QQQ) stock has done well this year. It has risen by 42% this year and by 100.2% in the last 12 months. The Nasdaq 100 index has risen by 19% this year and by 35% in the last 12 months.

Technology stocks are doing well

The ProShares UltraPro QQQ ETF has been one of the best-performing companies since its inception. It has risen by over 2,200% in the last decade and over 16,470% since its inception. $1,000 invested in the fund on its first day would now be worth over $101,000. 

Its performance has been because of the strength of the technology industry, where companies like Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta Platforms have become trillion-dollar giants. Combined, these companies are valued at over $15 trillion or 53% of the US GDP. 

Other companies like Broadcom, Tesla, Oracle, and ASML have become giants because of the rising demand for technology. 

Analysts believe that tech companies, while highly overvalued, have more room to grow because of emerging technologies like artificial intelligence (AI), machine learning, and Internet of Things. 

Federal Reserve interest rates

The first important catalyst for the TQQQ ETF is the Federal Reserve, which has started cutting interest rates. In its October meeting, it slashed rates by 0.50% and hinted that more cuts were coming. 

Odds of more aggressive Fed cuts have fallen after last week’s nonfarm payroll (NFP) data. According to the Bureau of Labor Statistics (BLS), the economy added over 250k jobs, higher than analysts expected. The unemployment rate retreated while wage growth bounced back.

Therefore, analysts expect smaller cuts, say 0.25%, lower than the previously expected 0.50%. While this is bearish for tech stocks, analysts expect that the overall trajectory of cuts will be positive for these companies. 

The key catalysts for the TQQQ ETF this week will be the upcoming US consumer inflation data and the FOMC minutes. These events will provide more information about the Fed’s next action.

Corporate earnings season

The most important catalyst for the TQQQ fund will be the upcoming earnings season, which will start on Friday when companies like JPMorgan, Wells Fargo, Blackrock, Bank of New York Mellon, and Fastenal publish their earnings. 

Technology companies like Taiwan Semiconductor, Netflix, and ASML will then release their financial results next week. Taiwan Semi and ASML are important because they are often seen as indicators of the broader tech sector.

Other large tech companies like Microsoft, Google, Tesla, Meta Platforms, and Amazon will then publish their earnings the following week.

Taiwan Semiconductor’s revenue can be a good indicator of Nvidia and AMD’s performance since it is the biggest fabrication company globally. 

FactSet estimates that S&P 500 companies will report annualised earnings growth of 4.2%. While this growth rate will be lower than the second quarter, they will mark the fifth straight quarter of positive earnings growth. 

The technology sector is expected to report the highest annualised growth rate, helped by Nvidia, whose revenue is expected to come in at $32 billion. With Nvidia included, the tech sector will grow by 15.2%. Without it, analysts expect that its growth will be 7.9%. 

US election ahead

The other big catalyst for the TQQQ ETF will be the upcoming US election in November. While the fund may have some volatility ahead of the election, history suggests that stocks often rise afterward. 

This recovery happens as investors embrace a new normal about the upcoming administration. Besides, data shows that equities do well regardless of who is in the White House. Also, the fund will likely do well as the new president starts forming their administration. 

Polls show that Donald Trump and Kamala Harris have equal chances of winning the election, meaning the winner could surprise the market, leading to some volatility. As you recall, stocks plunged sharply after Trump won the 2016 election and then bounced back. 

Read more: Kamala Harris vs. Donald Trump: how the jobs report, inflation could shape US presidential elections

TQQQ ETF has a bullish technical

TQQQ chart by TradingView

TQQQ has a technical bullish catalyst as well. The fund formed a golden cross pattern in September last year and has rebounded sharply since then. 

It has also formed a cup and handle chart pattern, one of the market’s most popular bullish signs. The recent retreat was part of the handle section. 

The MACD indicator has remained above the neutral point, while the Relative Strength Index (RSI) remains above the neutral line of 50.

Therefore, the fund will likely continue rising in the near term. Most of the upside will be confirmed if it moves above the key resistance point at $84.75, the upper side of the cup pattern. If this happens, the next point to watch will be at $100. 

The bullish view will become invalid if the ETF drops below the lower side of the handle section at $50.

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Spirit Airlines stock has imploded: can SAVE be saved?

Spirit Airlines (SAVE) stock has been one of the worst performers in Wall Street in the last few years. It has suffered a harsh reversal, falling in the last five consecutive months, and reaching its all-time low of $1.85.

The stock has tumbled by over 88% this year, and by almost 90% in the last 12 months. It has also fallen by 95% in the past five years, while the short interest has soared to almost 30%. 

Spirit Airline’s bonds have also plummeted, with those maturing in 2025 having a 126% yield. Many investors expect the company to eventually file for bankruptcy protection, as the WSJ reported last week.

Business model issues

Spirit Airlines is one of the biggest players in the budget travel industry, which has thrived in the past few years. 

This model enables it to provide its services for some of the lowest prices. It achieves that by cutting most of the services and perks offered by most legacy airlines like Delta, American, and United. 

For example, it operates a fleet of Airbus planes, which helps it to reduce maintenance and pilot training costs. It also does not offer free meals in its flights. Instead, it sells most of the services that other companies offer for free.

The budget airline industry has thrived in the past decades, helped by the likes of Ryanair and Southwest Airlines. 

Read more: Spirit Airlines to delay Airbus deliveries, furlough pilots

Recently, however, there have been signs that the industry is not doing well, as competition has increased and margins have narrowed. Southwest Airlines stock has dropped by almost 50% from its highest point in 2020. The decline has moderated now that Elliot Management has taken a stake in the company.

Ryanair has plunged by over 30% from its highest point this year, while EasyJet and Wizz Air have fallen by over 17% and 50% in the same period.

Spirit Airlines has also been affected by issues in Pratt & Whitney engines that have forced it to ground some of its planes. While it has received some compensation, the whole crisis has affected its revenues.

High debt and slow growth

Spirit Airlines stock has plummeted after the failed $3.6 billion acquisition bid by JetBlue, one of the largest firms in the industry.

JetBlue called off the buyout after regulators warned about the impact on competition in the United States. 

The failed acquisition left behind a highly indebted company. The most recent financial results show that the company’s long-term debt rose to over $3.1 billion in the last quarter.

Its operating leases, less current maturities, rose to over $3.8 billion. Current maturities of operating rose to over $243 million. 

Spirit Airlines’ working capital, which is calculated by subtracting current liabilities from current assets was minus $85,883,000, meaning that the company needs cash urgently. 

Most importantly, the company faces substantial maturities in the coming years. Most of these maturities will come in 2025, when the company will need to pay $1.26 billion in its long-term debt. This will be followed by $674 million in 2026 and $154 million in the following year. 

The most recent financial results showed that Spirit’s business continued deteriorating in the last quarter. 

Its revenue dropped to $1.28 billion in the second quarter from $1.43 billion in the same period last year. This performance happened even as other airlines reported strong summer business. The CEO said:

“Summer demand remains robust, and load factors have been strong; however, significant industry capacity increases together with ancillary pricing changes in the competitive environment have made it difficult to increase yields, resulting in disappointing revenue results for the second quarter of 2024.”

Spirit’s losses escalated, soaring to over $192 million, a big increase from the $2.3 million it lost in the same period last year. Its total annual losses in the last four financial years stood at over $1.9 billion. 

Spirit Airlines stock analysis

The weekly chart shows that the SAVE share price continued plummeting, as I predicted in my last article. 

It has now moved to a record low as investors brace for a potential bankruptcy. As a result, it has remained below the 50-week and 25-week Exponential Moving Averages (EMA), meaning that bears are in control.

The Relative Strength Index (RSI) has remained below the oversold level, while the MACD has formed a bullish divergence pattern.

Therefore, the stock will likely continue falling in the coming weeks as traders wait for the next strategic alternatives by the management. If this happens, it will likely drop to below $1 soon.

It is worth noting that some stocks tend to rise sharply before and after filing for bankruptcy protection. These gains, as we saw with Bed Bath & Beyond and Lordstown Motors tend to be brief.

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RYLD ETF: Is this 12% yielding Russell 2000 ETF a buy?

The Global X Russell 2000 Covered Call ETF (RYLD) has become one of the most popular small-cap-focused active fund. It has accumulated over $1.4 billion, with $35 million of these funds coming this year. So, is the RYLD  a better alternative to other popular Russell 2000 funds like the IWM?

What is the RYLD ETF?

Active funds have become the fastest-growing industries in the financial services industry in the past few years. 

The JPMorgan Equity Premium Income ETF (JEPI) has accumulated over $36 billion in assets in the last three years. Similarly, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has over $16 billion.

The Global X Russell 2000 Covered Call ETF aims to replicate the success of JEPI and JEPQ while targeting the Russell 2000 index.

Russell is a highly popular index that tracks 2,000 small and mid-cap companies in the United States. Some of the biggest companies in the fund are Shockwave Medical, Novavax, Crocs, and Roku.

The RYLD ETF aims to benefit from the Russell 2000 index while generating income using options. 

Its approach is fairly simple. First, the asset manager invests about 80% of its total funds in components of the Cboe Russell 2000 BuyWrite Index. In this case, its biggest component is the Global X Russell 2000 ETF, Novartis, Inhibrx, and Cartesian. 

Second, the fund then sells call options on the Russell 2000 index, and receives the premium, which it distributes to its investors as dividends. A call option is a derivative that gives investors the right to buy an asset at a strike price.

This trade has a big implication on how the RYLD ETF works. Ideally, the fund makes money when the Russell 2000 index is rising. 

When the index falls, the call element becomes invalid since one can buy it at a cheaper price. If the index rises, the fund benefits because of the right to buy at the cheaper price. 

The challenge, however, is when the index rallies sharply within the holding period. Potential gains are usually capped up to the strike price level.

Is the RYLD ETF a good investment?

In my last articles, I have demonstrated that while active funds like JEPI and JEPQ offer some of the highest dividends in Wall Street, their total returns often lag behind the S&P 500 and Nasdaq 100 indices.

The same is true with other popular single stock ETFs like TSLY and NVDY, which use the call option approach to invest in Tesla and Nvidia.

To measure the RYLD’s performance, the best approach is to compare it with the iShares Russell 2000 ETF (IWM), which tracks the Russell 2000 index. It has over $68 billion in assets and tracks the biggest small and mid cap companies. 

The biggest components in the Russell 2000 index are FTAI Aviation, Vaxcyte, Insmed, Sprouts Farmers Markt, and Applied Industrial Technologies. Its biggest industries are health care, financials, and industrials. The fund has an expense ratio of 0.19% and a dividend yield of 1.17%.

RYLD’s dividend yield is 12.3%, making it one of the best yielders. However, for an investment, the best approach is to look at the total return, which is calculated by adding the stock return and the dividend.

RYLD’s total return this year so far has been 5% while the IWM fund has returned 9.28%. The SPY fund has returned 20%. 

The same trend has happened in the last three years as the RYLD has dropped by 8.7% while the IWM fund rose by 1.46%. Also, the SPY fund has jumped by over 35% in the same period. RYLD has an expense ratio of 0.60%, meaning that holders are paying to underperform.

RYLD vs SPY vs IWM ETFs

Historically, small cap stocks have underperformed their bigger peers like Amazon, Alphabet, Apple, and Nvidia. Therefore, as multiple studies have shown, it makes sense to invest in simple passive funds instead of the so-called boomer candy ETFs.

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TSLY and NVDY ETFs brace for key events: are they good buys?

The YieldMax TSLA Option Income Strategy (TSLY) and the YieldMax NVDA Option Income Strategy ETFs (NVDY) will be in the spotlight in the past few weeks as the companies publish their financial results and as Tesla unveils its robotaxis.

The TSLY ETF has dropped by almost 50% this year and over 55% in the last twelve months. On the other hand, the NVDY fund has risen by 10% in 2024 and by 13% in the last 12 months,

These boomer candy ETFs have underperformed their parent companies. TSLY’s total return in the last 52 weeks was minus 14.2% compared to Tesla’s 7.2%. Similarly, NVDY has jumped by 115%, while the Nvidia stock has risen by 182%.

What are the TSLY and NVDY ETFs?

The YieldMax TSLA Option Income Strategy and YieldMax NVDA Option Income Strategy ETFs are some of the biggest active funds in the US. 

The TSLY ETF aims to generate income by investing in synthetic assets that track Tesla shares and selling call options on the stock.

A call option is a financial derivative that gives a right and not an obligation to buy an asset. If the stock is trading at $100 and falls to $90, the call option becomes invalid since you can easily buy it at a cheaper price. 

If the stock stays in a tight range in the holding period, you benefit from the call option premium. On the other hand, if the stock rises, you benefit from the movement and the premium. However, if it zooms past the strike price, you miss out on the strong rally. 

NVDY and other ETFs in the family like those tracking Coinbase, Apple, Meta Platforms, Netflix, and PayPal work similarly.

Tesla earnings and robotaxi event

The TSLA and TSLY ETFs will next react to the upcoming robotaxi event scheduled on Thursday this week.

This is an important event because Tesla is betting on it to deliver exceptional returns for its shareholders. In the last earnings call, the company estimated that the robotaxi would be worth over $5 trillion in the long term.

The Robotaxi product will use Tesla’s self-driving capabilities to ensure that users can make money by turning their vehicles into taxis. In the long term, it hopes to disrupt Uber and Lyft, especially in the United States. 

Therefore, the stock will likely have volatility ahead of and after the robotaxi event. 

The next important catalyst for the TSLY ETF will be the upcoming Tesla earnings, scheduled on October 23rd. 

These earnings will provide more color about the company’s revenue and profitability growth. Data released last week showed that Tesla produced 469,796 vehicles in the second quarter after producing 469,796. These production numbers were relatively better than expected.

Tesla’s earnings are expected to show that revenues rose by 14.30% in the second quarter to $25.26 billion. Its 2025 revenue is expected to come in at over $98.8 billion, higher than the $96.7 billion it made last year.

The key driver for Tesla’s stock will be its guidance on its next-generation $25,000 EV, which  is expected to be launched in 2025.

The challenge for the TSLA and TSLY stock is that it was trading at $240, higher than the analysts average of $208.

Nvidia’s AI growth concerns

Nvidia and the NVDY ETF will also be in the spotlight as several companies in the AI industry publish their financial results. Nvidia’s next earnings will come out in November 27th. 

The most notable companies that will impact Nvidia’s stock are firms like Microsoft, Amazon, and Alphabet, which are some of its biggest customers. 

The other notable names are companies are semiconductor firms like Taiwan Semiconductor, ASML, AMD, and Intel. These firms will provide more colour about the state of AI spending and whether it was growing. 

Still, the key concern about Nvidia is that its growth could start to slow. Analysts expect the results to show that Nvidia’s revenue rose to over $32.86 billion in the third quarter, a big increase from the $18.2 billion it made in the same period last year. 

Nvidia’s earnings per share (EPS) is expected to rise from 37 cents last year to 74 cents. For the year, Nvidia’s revenue is expected to grow by 125% to $125 billion followed by $178 billion in 2025. 

On the positive side, the NVDY ETF has remained above the 50-day and 200-day moving averages, meaning that bulls are in control, and that the fund will retest the year-to-date high of $26.

Are NVDY and TSLY good investments?

TSLY vs TSLA vs NVDA vs NVDY ETFs

Altogether, historical data shows that investing in Nvidia and Tesla is the better option compared to these active funds. For one, NVDY and TSLY have a high expense ratio of 1.01%, meaning that a $10,000 investment will cost you $101 excluding of taxes. Their historical performance are weaker than investing in the real stocks.

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