The deal with new US settlement times
Pandemic superstars come down to earth
Nvidia posts results
Time for T? ⏱️
On Tuesday 28 May 2024, when the US market wakes up after the long weekend, settlement times will get a shake-up, officially switching to a new settlement cycle called “T+1”. This means stock transactions will settle in just one day instead of the current two days (T+2). The Securities and Exchange Commission (SEC) and the Depository Trust & Clearing Corporation (DTCC) are behind this update, adapting to the ever-changing nature of modern trading.
Right now, it takes two days to settle stock trades, giving everyone time to secure the necessary shares and funds. During this period, brokers must post collateral to the DTCC to cover price fluctuations.
The push for a faster settlement time gained momentum during the 2021 meme stock trading frenzy (which has made a surprising comeback). During that wild period, platforms like Robinhood had to restrict trading to make sure they had enough collateral, leading to a wave of lawsuits (which were eventually dismissed). This drama even sparked calls for real-time settlement, including from Robinhood’s CEO Vlad Tenev.
The move to T+1 isn’t without precedent. It follows earlier reductions from T+5 to T+3 in the 1990s and from T+3 to T+2 in 2017, keeping pace with technological advances, new products, and increasing trading volumes.
Sure, T+1 comes with its own set of challenges: trade failures are expected to rise (momentarily, at least) if sellers or buyers miss deadlines for delivering securities or payments. The SEC also recognises a potential increase in operational risks, including limited time for error correction and fraud prevention, as transactions speed up.
However, despite these concerns, T+1 is expected to make the financial system smoother, especially during volatile times. For investors, faster access to transaction results is obviously a good thing. Furthermore, the SEC has said that shortening settlement times cuts down on the risk of unsettled trades. This change not only minimises exposure to market volatility but also decreases outstanding obligations. Ultimately, it could mean lower margin requirements and smoother operations.
Falling stars 💫
In a twist of fate, pandemic-era darlings like Zoom, DocuSign, and Peloton are finding themselves in the limelight again — but for all the wrong reasons. Here’s what’s up:
Zoom: at the video conferencing platform that became a verb, revenue growth has slowed to a mere 3% year-on-year. Zoom has even summoned workers living within 50 miles back to the office for at least two days a week since 2023 — not a good look. Investors aren’t too thrilled about it either — the stock has fallen roughly 10% in the past 12 months
DocuSign: rumours are swirling that private equity firms are eyeing DocuSign for a takeover, causing uncertainty about the company’s future. However, DocuSign remains committed to staying independent and is banking on its artificial intelligence potential to win over investors
Peloton: the at-home-fitness giant is facing a cash crunch, prompting it to launch a “global refinancing” effort amid slowing sales. Earlier this month, Peloton announced that CEO Barry McCarthy will be stepping down and that the company will lay off 15% of its staff because it “simply had no other way to bring its spending in line with its revenue.” Peloton stock is down roughly 40% this year so far
But these three aren’t the only ones feeling the heat. Other pandemic winners are also seeing their fortunes dwindle:
Vaccines: despite its crucial role in vaccine development, Moderna’s shares have plummeted drastically from pandemic highs as demand for vaccines and boosters has waned. Pfizer has also wiped out all its gains from 2020 and 2021, despite its collaboration with BioNTech on a widely used vaccine
Ecommerce: once an online home goods powerhouse, Wayfair is now shifting gears towards brick-and-mortar stores as the company plots the next phases of its growth amid an ever more challenging ecommerce market. On the other hand, Amazon, one of the biggest winners of 2020, has continued to make gains, up more than 21% this year so far
Looking back at the last four years since COVID disrupted our lives, it’s clear that the euphoria surrounding the “new normal” has faded. While these companies may have soared during the pandemic, they now face the sobering reality of coming back down to Earth.
In other news 🤓
Some other sparks that have been flying this week:
This is a Huang’s world — AI golden child Nvidia reported stellar first-quarter earnings after the bell this Wednesday, surpassing expectations and announcing a 10-for-1 stock split along with an increased dividend. The tech giant posted adjusted earnings per share (EPS) of $6.12 on revenue of $26 billion, marking impressive year-over-year increases of 461% and 262%, respectively. For the current quarter, Nvidia forecasts revenue of $28 billion, plus or minus 2%, beating analysts’ expectations of $26.6 billion. According to analysts, Nvidia’s mammoth size and volatility of its stock give it a hefty influence over the broader market’s mood and trajectory. In the words of Steve Sosnick, chief strategist at Interactive Brokers, “It’s Nvidia’s world, we’re just trading in it”.
Down with the kids — Robert F. Kennedy Jr., the maverick third contender in the 2024 US presidential race, has invested $24,000 in GameStop. In a bold move, Kennedy Jr. pledged support for the “Ape retail rebellion” on social media, promising to shake up Wall Street with aggressive reforms if elected. These self-anointed “apes” are the retail investors that disrupted the market in 2021, championing GameStop and AMC against institutional giants. With his unconventional approach, Kennedy Jr. is trying to sway some undecided voters and earn a nod from the anti-establishment crowd. Will this sway the kids, or will it just end up as a fleeting headline?
Everyone needs a copilot — Microsoft has unveiled a new line of computers featuring advanced chips optimised for AI tasks. These include Surface Laptop and Surface Pro models with Qualcomm chips. Other major brands like Lenovo, Dell, and HP are also launching AI-ready PCs. Released in June, these Copilot+ PCs boast AI features such as audio translation and message response recommendations.
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