October 12th - The Week Ahead

The Week Ahead Of Us 🔍

Welcome back!

The Main Story - Aggressive tariffs might be back: Tariffs might be back on after Friday saw brutal negative price action after the Trump announcement that China wasn’t being cooperative in negotiations and he’d be willing to place an additional 100% tariffs on them effective November 1st. $SPY ( ▼ 2.7% ) and $QQQ ( ▼ 3.47% ) were down materially. But now futures are rocketing higher (S&P is up +1% and Nasdaq is +1.3%) after this following tweet earlier today and calling the Nov. 1 deadline “an eternity”:

I was going to write to you tonight about how every serious investor needs to keep a level head re: Friday’s price action because this is likely just a negotiating tactic.

Also, not only are we barely off the highs, but we’ve previously seen 145% tariffs rolled back by Trump and I would presume these 100% tariffs (if even enacted) would be dramatically rolled back as well. China has strong negotiating leverage as it relates to rare earth exports - the reason why is in the name itself - these resources are quite rare and finite. Trump can try to inflict as much damage as possible via tariffs, but based on the post above it sounds like a deal is relatively close. I ultimately expect this to just be a negotiating tactic and short-lived.

Lets get into it. Here’s a look at earnings this week.

• Tuesday: J.P. Morgan Chase, Johnson & Johnson, Wells Fargo, Goldman Sachs, BlackRock, Citigroup, Domino's,

• Wednesday: ASML Holding, Bank of America, Morgan Stanley, Abbott Laboratories, United Airlines Holdings, Synchrony Financial, Progressive Corporation, Citizens Financial, PNC Financial Services

• Thursday: Taiwan Semiconductor, Charles Schwab, Bank Of New York Mellon, Marsh & McLennan Companies, U.S. Bancorp, The Travelers Companies, M&T Bank, Snap-On, CSX Corp.

• Friday: American Express, State Street, Truist Financial, SLB Limited, Fifth Third Bancorp

We’re skipping the “economic data” section this week because unfortunately the Government is closed and the bulk of data we normally receive will not be published.

Fed Speeches 

• Monday: Philadelphia Fed President Anna Paulson

• Tuesday: Fed governor Michelle Bowman speaks, Fed governor Christopher Waller speaks, Boston Fed President Susan Collins speaks

• Wednesday: Atlanta Fed President Raphael Bostic speaks, Fed governor Stephen Miran speaks, Fed governor Christopher Waller speaks

• Thursday: Richmond Fed President Tom Barkin speaks, Fed governor Stephen Miran speaks, Fed governor Christopher Waller speaks, Fed governor Michelle Bowman speaks

• Friday: None

Earnings Corner 📈 📉

Pepsi $PEP ( ▲ 3.71% ) Revenue beat and rose 2.6% to $23.94B while EPS also beat estimates by coming in at $2.29, driven by international growth that offset softness in U.S. snacks and beverages. Overseas sales rose with Europe, the Middle East, and Africa up 5.5% and Latin America up 4%, while North American food volumes fell 4% amid weaker demand and a shift to smaller pack sizes. Pepsi said the company is focused on cost cuts, innovation, and price-pack restructuring to restore growth at home. Management reaffirmed its full year outlook for low single digit organic revenue growth and flat EPS. They also announced the upcoming retirement of CFO Jamie Caulfield, to be succeeded by Walmart U.S. CFO Steve Schmitt.

Delta $DAL ( ▼ 3.51% ) Top and bottom line beat. Revenue rose 4% to $15.2B which was a record for Q3 and EPS came in ahead of estimates at $1.71. Results were powered by premium travel demand up 9% and an 8% rebound in corporate bookings, alongside higher loyalty and AmEx partnership income. Management noted strength among higher-income travelers and said premium cabin sales could surpass coach next year, highlighting the airline’s shift toward higher margin travelers. Management guided FY EPS to $6 and free cash flow of $3.5-$4B, reflecting ongoing cost discipline and solid booking trends through year end.

Levi Strauss $LEVI ( ▼ 12.55% ) The denim make beat on both revenue and EPS, but tariff impacts are a massive overhang. Revenue rose 7% to $1.54B, while EPS of $0.34 topped estimates. Profit gains were fueled by targeted price increases, fewer discounts, and a bigger push into direct to consumer sales, which jumped 11%. That shift helped expand gross margin by 110 bps offsetting higher tariff costs. Women’s and international sales both rose 9%, with strong growth across Asia. Management lifted full year outlook, now guiding sales up about 3% and EPS of $1.27–$1.32, while noting a cautious tone on holiday spending and ongoing trade pressures.

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Today’s Headlines 🍿 

• The First Brands fallout continues, with Morgan Stanley’s asset management business asking to redeem some money from Point Bonita Capital, the Jefferies unit heavily exposed to First Brands. There’s been a lot of debate how how systemic the First Brands fallout is, but to be honest, broad-based exposure is semi-limited and a lot of this seems oriented towards specific managers who took excessive risk

  • Fitch found that the median exposure across 330 Fitch-rated reinvesting U.S. BSL CLOs of 48 managers was 0.4% and 0.9% across 48 CLOs post-reinvestment. Fitch notes the following: “First Brands’ troubles appear to stem from billions of dollars in off-balance sheet financing, including receivables factoring and inventory reverse-factoring arrangements. These off-balance sheet financings may fall under the “private credit” umbrella as the liabilities were incurred privately between First Brands and its various lenders. However, they are distinct from the traditional direct lending, which is typically on balance sheet and supported by first-ranking, all assets security over the borrower group.”

  • Meanwhile, First Brands’ CEO is reportedly weighing stepping down given the turmoil

• BDO job cuts and First Brands controversy: The large Accounting firm has slashed costs and laid off dozens of employees as the company tightens its belt. BDO is also now dealing with the high profile bankruptcy of its client - First Brands Group

• BDC Underperformance: BDC and Private Credit manager equities have been struggling over the past couple of months, due in part to rate cut expectations and concerns over credit quality (especially following the First Brands fallout). Most notably, some BDCs have started cutting their dividend

• UMich data drops: Consumer sentiment of 55 was slightly higher than expectations of 54 and down 0.1 from September. Consumers are now forecasting a 4.6% increase in prices over the next year, and about 63% of respondents said they expect unemployment to rise

• BLS recalls staff to ready inflation report: Employees are returning to work on the September CPI report, which was originally set to be released this Wednesday. The data will now be published on October 24th

• Government layoffs: The Trump administration announced thousands of permanent jobs cuts on Friday as workers across seven federal agencies received layoff notices. More than 4,000 workers were let go, including at least 1,100 each from the Treasury and Health and Human Services departments

• The Fed Chair candidate list has slimmed down to 5: Down from an original list of 11, Treasury Secretary Scott Bessent has narrowed the list to the following 5 names: Fed Vice Chair Michelle Bowman, Fed Governor Christopher Waller, Former Fed Governor Kevin Warsh, NEC Director Kevin Hassett, and BlackRock Fixed Income CIO Rick Rieder

• Crypto liquidations hit historic levels: At least $19B of crypto liquidations were triggered after Friday’s market volatility, with Bitcoin falling to as low as $104k (it’s since recovered to $115k). The forced deleveraging shows just how highly levered the industry remains

• Inside the AI risk at Leveraged Loan Issuers: Concern is growing amongst debt investors towards companies that will soon become obsolete because of AI. Several job search websites recently filed for bankruptcy and blamed AI for their demise, and more companies will soon follow - with software companies looking especially vulnerable

  • Meanwhile, some leveraged loan deals are starting to get pulled given the volatility in the market. Demand for risky debt has recently softened - and secondary market prices have fallen almost every day for the last two weeks

• Aegon expects more credit pain ahead: Head of leveraged finance Jim Schaeffer says he’s “bracing for a little more trouble ahead” as the economy slows and companies begin to struggle with higher input costs and elevated debt payments

• Taleb warns of a crash: The Black Swan author says the U.S. is approaching a major debt problem, and that investors should hedge against a market crash

• OpenAI’s meteoric rise: This article takes a deep dive into how CEO Sam Altman has quickly transformed OpenAI from a startup to the most valuable private company in the world, rapidly growing ChatGPT to 800 million weekly users

• Lululemon’s founder backlashes: Founder Chip Wilson is going activist, and compared the company’s performance to a “plane crash” and said he is considering partnering with activist investors to push for changes on the board

• The latest on Paramount and Warner Bros talks: $WBD ( ▼ 3.23% ) is said to rebuff the takeover approach of $20/share as too low of a price. Warners Bros. was originally planning to split up its Cable TV and Streaming & Studios businesses. The Larry Ellison backed Paramount may choose to boost its offer or go public with its offer to try to drive a sale. Comcast may also be a potential suitor

• Venture Global loses its arbitration vs. BP: The LNG exporter lost in arbitration to BP, as courts ruled that Venture Global violated its long-term supply contract due to selling cargoes at higher spot market prices and facility start-up delays. There are worries this could impact similar contracts that $VG ( ▼ 24.88% ) has

• Big Ten closes in on $2B capital deal: The conference is set to vote on the creation of Big Ten Enterprises, a new entity that would be tied to the University of California pension system. The new subsidiary would control all media rights and sponsorship deals, and will infuse league schools with over $2B

• Crowe is evaluating a sale: The accounting firm may sell a minority or majority stake to one or multiple PE suitors. The firm has hired Harris Williams and an outside auditor to prepare for a process

  • Meanwhile, PE firms just received news of favorable legislation in California that would allow for LBOs of Law firms

M&A Transactions💭 

SoftBank Group (TKS: 9984) has reached a definitive agreement to acquire The ABB Robotics Division of ABB (SWX: ABBN) for $5.375B.

Terra Innovatum, designer and manufacturer of micro-modular nuclear reactor technology, acquired GSR III Acquisition through a $475.0M reverse merger, resulting in the combined entity trading on the Nasdaq Stock Exchange under the ticker symbol NKLR. In tandem the company received $32.0M of development capital from undisclosed investors through a private placement.

Ricardo, a provider of business solutions, was acquired for GBP 363.1M by WSP Global (TSE: WSP).

Foundation Building Materials, distributor of building materials, was acquired for $8.8B by Lowe’s Corporation (NYS: LOW). RBC Capital Markets advised on the sale.

Aludyne North America, manufacturer of precision casting, machining, and manufacturing assets, has reached a definitive agreement to be acquired for $300.0M by Linamar (TSE: LNR). Jefferies advised on the sale.

Akero Therapeutics (NAS: AKRO), a clinical-stage biotechnology company, has reached a definitive agreement to be acquired for $4.353B by Novo Nordisk (CSE: NOVO B). J.P. Morgan and Morgan Stanley advised on the sale.

RCD Espanyol De Barcelona, operator of a football club, was acquired by ALK Capital for EUR 130.0M.

Orbital Therapeutics, developer of an RNA therapeutics platform, has reached a definitive agreement to be acquired for $1.5B by Bristol-Myers Squibb (NYS: BMY). Centerview Partners advised on the sale.

Private Placement Transactions💭 

Reflection AI, developer of large-scale AI models, raised $2.0B of Series B venture funding led by Nvidia at a pre-money valuation of $6.0B.

n8n, developer of a workflow automation platform, raised $180.0M of Series C venture funding led by Accel at a pre-money valuation of $2.32B.

Duos, developer of a personal assistance platform, raised $130.0M of venture funding led by FTV Capital.

Space Pioneer Technology, developer of aerospace propulsion systems, raised CNY 2.5B of venture funding from Shenyin & Wanguo Investment, Bofo Fund, and BOC Asset Management.

Kalshi, developer of an online financial platform designed to facilitate trading based on event outcomes, raised $300.0M of venture funding led by Coinbase Ventures, CapitalIG, Sequoia Capital at a pre-money valuation of $4.7B.

Chengdu New Radiomedicine Technology, developer of targeted therapeutic and diagnostic agents, raised SNY 800.0M of Series D venture funding led by PICC Capital and Shenzhen Capital Group.

Investment Banking Recruiting

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Odds of the Day 🍒 

Does the Bitcoin selloff have legs? Some contrarians are estimating that Bitcoin could fall below $75k this year.

*New Traders on Kalshi receive a $20 bonus of trading credit when depositing $100+ with the code “HYH”.

Chart of the Day: Has Time on Social Media Peaked? 🧭

Meme Cleanser 😆 

Until next time!

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