Hello Folks,

Today, we look at the pullback in valuations for big tech companies, Q3 earnings for Amazon, and the much-awaited testimony of Sam Bankman-Fried.

So, let’s get into it.

Big Tech Is Feeling the Heat

Big tech stocks, including Amazon, Apple, Meta, Microsoft, and Alphabet, are experiencing a sell-off in recent trading sessions. Investors are worried about the triple whammy of inflation, interest rates, and lower consumer spending impacting the growth rates of tech giants in the near term.

If we compare valuations to 2023 highs, the five mega-cap tech stocks have lost a cumulative $1 trillion in market cap. If we include other giants such as Tesla and Nvidia, this number would be closer to $1.5 trillion.

While Tesla is wrestling with lower profit margins, Meta and Alphabet remain cautious about lower ad spending.

Amazon Crushes Wall Street Estimates

E-commerce giant Amazon announced its Q3 earnings yesterday and reported revenue of $143 billion and adjusted earnings of $9.9 billion or $0.94 per share. Its sales grew 13% while earnings more than tripled compared to the year-ago period. Wall Street forecast sales at $133.4 billion and earnings at $0.55 in Q3 for Amazon.

Its cost-saving efforts allowed Amazon to end Q3 with an operating margin of 7.8%, the highest on record since it touched 8.2% in early 2021.

Amazon Web Services grew cloud sales by 12%, much lower than peers such as Google and Microsoft. Alternatively, ad revenue surged 26%, higher than Google’s 11% and Meta’s 26%.

Fund Managers are Bearish

Fund managers are a bearish bunch these days, socking away more cold, hard cash as their hopes for a recession-averting, Goldilocks-style “soft landing” dwindle. They’ve upped their cash levels to 5.3% this month, from 4.9% in September, according to Bank of America’s (BoA’s) latest survey of professional investors.

And while a rising prepper mentality among fund managers might seem like a warning signal, BoA’s analysts say that it’s often been the opposite in the past. Since 2011, cash levels rising above 5% have been a contrarian signal, with the S&P 500 rising 7% in the next six months.

That said, it’s worth treading cautiously. About half of fund managers surveyed said they expect a weaker global economy over the next year. And nearly a third (31%) said they anticipate that central bank efforts to bring down inflation will result in a recession, or “hard landing,” and that’s up from about 20% last month. That said, most, or 59%, of the fund managers said they still expect a soft landing.

SBF Takes the Stand

Sam Bankman-Fried is officially taking the stand today after a hearing was completed in front of Lewis Kaplan, a U.S. District judge, but without the presence of any jurors on October 26^th .

The decision of SBF to take the stand is a risky move and regarded as a “Hail Mary” of sorts, given several former colleagues testified against the former FTX SEO in the last four weeks.

SBF has funneled billions of FTX customer funds to its sister company, Alameda Research. Moreover, SBF also made donations to political campaigns using the stolen funds.

Headlines You Can’t Miss!

Peak fossil fuel demand is coming, says IEA

Chevron and Exxon’s latest buys could usher in a new era of oil megamergers

Ford will postpone about $12 billion in EV investment

Nasdaq enters correction territory

U.S. tech stocks are overvalued, warns the Bank of England

Samsung’s profits fall 78% in Q2

Gemini expands crypto operations in India

Chart of the Day

We are in the midst of the second-most aggressive cycle of interest rate hikes, and it is beginning to show as the number of companies filing for bankruptcies has spiked alarmingly.

The last major spike in bankruptices was during the financial crisis of 2008-09 when interest rates were elevated. As the cost of debt moves higher, it becomes difficult for companies to service these liabilities and fuel their expansion plans.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.