🎙️ Strike, You're Out!

The Federal Reserve is almost done hiking interest rates, finally. The yield on 10-year Treasury bonds is at levels not seen since 2007. And the U.S. government might shut down on Oct. 1 💤

Yet the economy, labor market, and stock market are all holding fairly steady this year as investors debate an economic “hard landing” vs. “soft landing.”

💭 If it all seems like a lot to swallow, don’t worry: You’re not alone. It is. Contradictory signals abound. Our job is to keep you informed about it all.

— Weronika, Shawn, and Matthew

Here’s today’s rundown:

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

• Hollywood writers and major studios reach tentative deal

• Short-sellers target bloated ESG stocks

• Amazon secures a $4 Billion deal with AI company Anthropic

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

CHART(S) OF THE DAY

IN THE NEWS

🎥 Hollywood Writers Reach Tentative Deal At Last

Hollywood’s new forecast: 99% chance of stars.

The Hollywood writers’ union and major studios have reached a tentative agreement to end a strike that halted film and TV production in the U.S. for 146 days, or nearly five months.

• The Writers Guild of America (WGA) called the deal “exceptional” and delivered “meaningful gains and protections for writers in every sector of the membership.”
  

• Recent negotiations involved big names, including Disney’s Bob Iger, Warner Bros Discovery’s David Zaslav, Comcast’s Donna Langley, and Netflix ex-CEO Ted Sarandos.

The news is welcome after 11,500 WGA members went on strike in May. Basically, every strike boils down to compensation and workers’ rights/conditions, and this is no different. Mostly, the writers were looking for better royalties from streaming programs, limits on using artificial intelligence in scriptwriting, and higher pay.

The clock is ticking: Studios were incentivized to meet many of the writers’ demands because the strikes could have impacted next year’s theatrical schedule. Some studios had already delayed releases, including Sony’s sequel to Ghostbusters.

• Not so fast: Writers still need to vote on the tentative agreement, and talks between companies and striking actors must restart for Hollywood to get fully back to speed.

Why it matters:

This summer's strikes cost California’s economy billions of dollars, and businesses reliant on Hollywood studios — from caterers and dry cleaners to taxi drivers and other hourly workers — have struggled amid the holdout.

Strike, you’re out: It’s been a busy year of strikes in the ongoing battle of employees seeking more rights. UPS narrowly averted a strike by striking a new contract this summer, and thousands of auto workers are striking against the Big Three automakers as we speak.

What gives? New and younger union members want better working conditions and higher pay — leverage employees now have amid a tight labor market with near-record-low unemployment.

And generally, the push for workers’ rights works in employers’ favor:

• Starbucks — which formed its first union in 2021 — has seen a 96% jump in searchers for barista jobs, and Amazon — whose New York-based warehoused workers unionized in 2022 — has seen a 110% spike in job searches over the last year.

One Cornell professor noted that strong union protections can be a hiring tool, even if it doesn’t feel that way for executives. And a strike-filled summer could drive more labor strength for years to come. One case in point: the Hollywood strike.

• “People in technical trades that support productions have a lot of protections and benefits,” he said. “Those are good jobs because of the unions, and that attracts people in.”

Read more

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⚔️ Short-Sellers Mount Attack on Bloated ESG Stocks

Short-sellers are among Wall Street’s most controversial characters. While investors typically bet in favor of companies’ success, they make their money doing the opposite.

• To some, they’re a wet blanket, pointing out companies’ flaws and pushing back on stocks’ price rallies. To others, there’s something seemingly deeply un-American and anti-capitalism about profiting from businesses failing.

Don’t short, short-sellers: Regardless of negative perceptions, short-sellers serve an important role in financial markets, helping ensure that investment capital is allocated to the businesses most deserving of it (and away from frauds and declining companies.)

Hedge fund short-sellers are back in action, targeting bogus “ESG” stocks — companies with inflated claims about protecting the climate or benefiting society.

• By exposing companies that deceive investors with claims about helping Mother Earth, one investor said short-sellers “will actually make a positive difference for the earth and environment.”
  

• As Bloomberg puts it, companies’ “sustainability statements full of hard-to-quantify language” have become “ubiquitous” across corporate America while investors are increasingly skeptical.

Why it matters:

While everyone wants to tell you how they offset their carbon footprint, regulators are racing to put frameworks in place to ensure they follow through.

In the meantime, short-sellers are zeroing in on companies that were predicted to benefit the most from climate-related stimulus packages like the Inflation Reduction Act, which may channel up to $3.3 trillion into renewable tech and other green investments over the next decade, according to Goldman Sachs and JPMorgan analysts.

Going short: Specifically, short-sellers want to discern which companies don’t have viable business models once subsidies fade and bet against those stocks.

• One short-seller added that climate stimulus has fueled a “bubble in this space,” supporting some “completely terrible companies.”

Green troubles: Even investors whose mission is to support clean energy companies acknowledge the headwinds.

• Per Lekander, CEO of the hedge fund Clean Energy Transition, commented that the wind turbine industry needs “a complete reset” ahead of a “very long period with very disappointing growth.”

Read more

MORE HEADLINES

🐓 Chicken giants Perdue and Tyson face child-labor allegations

💬 SEC collects Wall Street's private messages as WhatsApp probe escalates

💒 Half of American adults are open to signing prenuptial agreements

🪂 NASA asteroid sample parachutes safely onto the Utah desert

📀 Netflix ends iconic DVD delivery business

🦾 Amazon to Invest up to $4 Billion in Anthropic as AI Race Escalates

Another one.

Amazon has agreed to invest up to $4 billion in Anthropic, an artificial intelligence company, bringing Amazon into the race for AI superiority. The agreement follows Microsoft's $13 billion total investment in competitor OpenAI (maker of ChatGPT.)

ChatGPT’s new rival: Founded in 2021, Anthropic provides an AI assistant, Claude, that rivals ChatGPT.

• The company is headed by former OpenAI employees and says its technology surpasses competitors in safety and reliability.

The deal: Anthropic will shift its software to Amazon Web Services (AWS) and use Amazon's homegrown computer chips for training its models in chatbots and other applications.

• In exchange, it gets $1.25 billion today and another $2.75 billion down the road, providing a financial boost to cover the high cost of operating large AI models.

While Amazon has made splashy investments in other fields, such as cargo airlines and electric truck manufacturers, a $4 billion investment in Anthropic would mark its largest known deal directly related to AWS.

• Anthropic's core model, Claude, is already part of an initial service from Amazon called Bedrock, which allows users to build AI-powered apps.

Why it matters:

Diversifying across AI: Amazon, the leader in cloud computing, has been adjusting its approach to supporting AI startups. Historically, the company maintained neutrality among competing AI startups, concentrating on offering a range of AI services on its cloud platform.

AWS CEO Adam Selipsky emphasized that their strategy avoids commitment to a single AI platform.

• “We firmly believe there will not be one model to rule them all,” he said, adding that Amazon was “open to investments if the right opportunity comes along.”

Read more

See you next time!

That's it for today on We Study Markets!

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