🎙️ Crowded Trade

If you think Big Tech stocks are overvalued or disproportionately driving the stock market, your view is actually pretty mainstream 😬

In Bank of America’s surveys of investment fund managers since 2017, U.S. tech stocks (aka “Magnificent Seven”, big tech, Nasdaq, FAANG, etc.) have frequently been reported as the “most crowded trade” in markets.

💭 Yet, through different economic cycles, Fed rate cuts and hikes, and everything else that has happened in the last 6.5 years, American tech stocks have continued dominating global markets.

Our Chart of the Day shows the survey results.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• The rise of hacking attempts and cybercrime

• Court blocks JetBlue + Spirit Airlines merger

• The tech employee gone viral post-firing

All this, and more, in just 5 minutes to read.

Chart of the Day

In The News

🖥️ JPMorgan Sees Stark Rise in Hacking Attempts

Hackers are getting better and better. Or, as one JPMorgan executive put it: “Smarter, savvier, quicker, more devious, more mischievous.” 

Cybercrime has become a top concern among bank CEOs globally. JPMorgan, in particular, said it’s seeing hackers try to infiltrate its systems 45 billion times daily.

• It’s reportedly double the number of daily hacking attempts JPMorgan dealt with last year.

Cyber insecurity: More than 70% of bank leaders say cybercrime and cyber “insecurity” is a pressing concern. Between rising geopolitical tensions and more sophisticated fraud tactics, virtually every organization is at risk of a cyber attack, especially big banks with lots of information and money. 

• JPMorgan spends roughly $15 billion annually on technology to fight off cyber attacks, up from $14.3 billion in 2022.
  

• JPMorgan alone has about 62,000 technologists who work to secure its systems and servers.
  

• “We have more engineers than Google or Amazon,” the executive added. “Why? Because we have to.”

Why it matters:

Big companies, from casinos to software to lenders, have suffered a jump in cyber attacks since 2022, partly blamed on Russian hackers acting in response to sanctions placed on the country and its bank after it invaded Ukraine. 

But, the rise of artificial intelligence has also enabled cybercriminals to make more sophisticated attacks. 

• Last year, ransomware incursions in the finance industry surged by 65% — nearly double the 2021 level.
  

• A decade ago, data on 83 million JPMorgan accounts was compromised. 

Could AI-led attacks be harmful? The IMF’s deputy managing director said at Davos that cyber criminals’ AI use is alarming. 

Commenting, “policy could be playing catch-up…We could risk having a big event before we actually work out how to fix it.” 

• She continued: “If we enter a world where all major banks are using this technology, which is being produced by three or four big companies, are we going to see supercharged herding behavior, where AI bots or models are sentiment-driven and feed off of each other? You then end up with much bigger amplitudes in the financial cycle — you get big credit booms and big credit busts.”

Read more

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🛫 Judge Blocks JetBlue + Spirit Airlines Merger

Merger arb. It’s a good buzzword to throw around with your MBA friends. We just saw a great example this week: Courts blocked JetBlue and Spirit Airlines from merging, sending Spirit’s stock into a 50% nosedive while JetBlue rallied.

Merger arb is short for “merger arbitrage,” a common tactic where investors price the odds of a deal’s completion. JetBlue proposed acquiring Spirit at $33.50 per share in cash in late 2022, valuing the airline’s equity at roughly $3.8 billion.

• If the deal was still pending, investors would pay up to $33.50 per share for Spirit’s stock since that’s what JetBlue would potentially acquire them for.
  

• But investors also know these deals routinely fall apart. So, shares in the company being acquired (i.e., Spirit) usually trade at a discount to the offered purchase price, reflecting investors’ uncertainty about a deal’s pending resolution.

What happened: Spirit’s stock declined modestly over the last year as investors weighed the odds of actually receiving $33.50 for their shares.

On Tuesday, a federal judge’s ruling blocking JetBlue’s acquisition of Spirit eliminated any premium on Spirit’s stock price connected to the deal, sending Spirit’s shares to $6.35.

• On the flip side of the merger arb equation, investors sold JetBlue stock leading up to the acquisition to account for the cash expenditure of buying Spirit’s shares, the burden of taking on Spirit’s debt, and any operational costs associated with the combination.
  

• But with the deal off the table, JetBlue’s stock initially rallied 5%.

Why it matters:

Blocked on antitrust concerns, the court and regulators at the Department of Justice (who sued to thwart the deal) worried that removing Spirit Airlines from the marketplace would hurt lower-income travelers who rely on the discount airline’s service.

Hitting turbulence: JetBlue is left in a tricky position, which likely explains why the company’s stock dropped on Wednesday after the initial merger arb rally.

• As one industry expert told Bloomberg, “They don’t have an easy path to grow. They’ll continue to be, at scale, disadvantaged compared to the largest airlines. They no longer have an obvious way to rectify that disadvantage” without acquiring Spirit.
  

• For Spirit, the picture is bleaker. The JetBlue buyout represented a lifeline for the struggling airline. “(Its) financial results have been outright bad and not expected to materially improve in the near term,” said one analyst.

While the modern U.S. airline industry was formed by consolidation, with big brands like United and Delta absorbing smaller airlines, this decision illustrates a stark pivot at the Justice Department under the Biden administration, which has more aggressively fought mergers that reduce competition.

Read more

More Headlines

👎 Corporate debt defaults surged 80% in 2023

🥽 Apple’s Visio Pro headset to launch with 150 3D movies, Disney+, Max, and more

😁 Americans are actually pretty happy with their finances

🍼 China’s population drops for second straight year with record low birth rate

👑 Apple tops Samsung for the first time in global phone shipments

📱 Tech Employee Goes Viral for Filming Her Firing

Get fired, film the meeting, and go viral. Then, collect job offers. 

This isn’t job advice, but that’s what ex-Cloudflare employee Brittany Pietsch did last week via TikTok. 

How it went down: Pietsch had a feeling an HR call out of the blue wouldn’t be good. So she filmed her firing, shared it on TikTok, and received a flood of support, including from prospective employers. 

• “I don’t regret sharing that,” she said. “I have received so many messages of people telling me, ‘I wish I would have stood up for myself the way you did.’”
  

• Pietsch, 27, posted the nine-minute video that included herself asking HR representatives why her manager wasn’t on the call.
  

• “To be let go for no reason is like a huge slap in the face,” Pietsch says in the video. 

The details: Pietsch has been a remote worker for Cloudflare, a cloud-based networking and cybersecurity services firm, since August 

In response, Cloudflare’s CEO said, “The video is painful for me to watch. Managers should always be involved. HR should be involved, but it shouldn’t be outsourced to them. No employee should ever actually be surprised they weren’t performing. We don’t always get it right.”

• The posting racked up millions of views on social media, with most commenters rushing to the employee’s defense. “I have no idea what @Cloudflare does, but the way they shut down & gaslit a young woman attempting to hold them accountable is disgusting,” one person posted on X.
  

• “Getting fired is tough, but it’s important to handle it with dignity,” another wrote. “Total disaster on both sides here.”

Why it matters:

The case illustrates the power social media can play in holding employers accountable. 

It also raises questions about how executives and human resources teams deliver the bad news of a firing to their employees. Poorly handled job cuts like this can hurt an employer’s reputation and worsen morale among remaining employees. 

The art of firing someone: HR consultants noted that managers should do the firing, and employees should be given more information about why they’re being let go. 

• As for Pietsch? Calling out her employer has paid dividends. She might be employed elsewhere by the end of the month.
  

• “Reputable companies have reached out to me and told me, ‘I want someone like you on my sales team,’” she said.

Watch the firing video here

Quick Poll

Yesterday, we asked: Will you pay attention to the World Economic Forum's annual gathering in Davos, Switzerland?

— One reader commented Yes, “Like to learn about the topics discussed.”

— Wrote another, “Elites with lots of money telling common folk to not rely on fossil fuels as they fly via private jet is an Onion article played out in real life.”

See you next time!

That's it for today on We Study Markets!

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