To The Moon

The indices: all three fell back from record closes, and the Dow lost 0.66 per cent

The three indices moved back from the previous day's record closes on Wednesday: the $Dow Jones(.DJI)$ Average fell 0.66 per cent to 51,179.90, the largest decline; the $S&P 500(.SPX)$ fell 0.22 per cent to 7,801.77; and the $NASDAQ(.IXIC)$ Composite fell 0.22 per cent to 27,538.69. The pressure came from the bond market: the 10-year Treasury yield reached 5.36 per cent at its intraday peak and closed at 5.28 per cent, while the 30-year touched 5.73 per cent and closed at 5.66 per cent.

Minutes from the Federal Reserve's September meeting, released the same day, showed the 25 basis point rise was unanimous, with most officials expecting one more increase this year, though the minutes did not say at which meeting. Two paths follow. Should that increase land while long yields stop pushing higher, what presses on valuations is still the policy rate itself and the Fed's pace is the thing to track. Should long yields keep climbing without hike expectations rising further, what drives them sits with public finances and with supply and demand, and the Fed's hand matters little. The thing to watch is whether the 10-year falls back below 5.2 per cent.

Storage: Samsung's profit rose almost ninefold, and that came after the US close

Sequencing first: Samsung Electronics published preliminary third-quarter results after the US close on Wednesday, so those figures were not in Wednesday's storage moves. What Wednesday's close showed was a split: $Micron Technology(MU)$ rose 4.06 per cent to US$1,088.00 and $SanDisk Corp.(SNDK)$ 1.92 per cent to US$1,692.42; $SK hynix(SKHY)$ fell 2.36 per cent to US$178.25 and $Western Digital(WDC)$ 1.37 per cent to US$405.42.

In that preliminary release, Samsung's operating profit was about 107.4 trillion won, up 782.5 per cent from a year earlier, on sales of about 195 trillion won — the first time its quarterly operating profit has passed 100 trillion won; full results with segment detail come in late October. Two paths follow. Should the full accounts confirm both higher volumes and higher prices in memory, this round of price increases is not just an expectation but something already landed on the income statement. Should the jump rest mainly on prices while output cannot be expanded, the figure itself says where in the cycle we are. The thing to watch is how the full results break down memory prices and shipments.

Private credit: three companies borrowing at once to buy chips, drawing on the same pool

The Wall Street Journal reported that Broadcom, $Oracle(ORCL)$ and $SpaceX(SPCX)$ are pushing large debt financings at the same time, all of it pointed at buying AI hardware, and that this round is drawing on private credit rather than the public bond market. At Wednesday's close, $Broadcom(AVGO)$ rose 0.19 per cent to US$376.51 and $SpaceX(SPCX)$ fell 2.51 per cent to US$167.60. The specific sums and terms were not disclosed in the reports.

The structure is worth spelling out: private credit means the money lent to these companies comes from non-bank institutions rather than deposits. That money has to be repaid out of these companies' operating cash flow, and if it cannot be, the institutions that put up the money take the loss. The assets behind the debt are chips, and chips depreciate. Two paths follow. Should issuance documents land with sums and uses of proceeds written into them, these are clearly defined investments in compute. Should they stay at the reporting stage, what the market is pricing is still a piece of news. The thing to watch is whether formal issuance arrangements appear.

Nebius: the chief operating officer sold while the multiple sits near 197 times

$NEBIUS(NBIS)$ fell 5.09 per cent to US$237.15. The pressure came from insider selling, with reports saying the company's chief operating officer cut his stake, against a current earnings multiple near 197 times.

One executive selling stock does not change the business itself, and the company had risen the day before on an inference order; but at a multiple near 197 times, any insider sale gets magnified, and the person selling is among those closest to day-to-day operations. Two paths follow. Should revenue land fast enough over the next few quarters to meet the valuation, this sale was one personal arrangement. Should delivery start falling behind expectations, the move gets read again. The thing to watch is its revenue recognition next quarter.

Banks: the pressure from rising yields landed on the banks this time

The force that dragged the indices down on Wednesday showed up most clearly in the banks: just before the large US banks report third-quarter results, investors are worried that rising yields will hit their bond holdings while the path for rates stays unclear. Two Singapore names fell further, both listed on the Singapore Exchange and quoted in Singapore dollars: $OCBC Bank(O39.SI)$ was at S$29.27, down 3.40 per cent, and $DBS(D05.SI)$ at S$75.55, down 2.50 per cent. Those two figures are quotes from the Singapore session that opened after the US close, not closing prices.

Higher yields cut both ways for a bank: newly issued loans earn more, but the market value of bonds already held falls, and funding costs rise with them. Two paths follow. Should a bank's third-quarter report show a wider net interest margin with manageable unrealised losses on its bond book, half of this worry is settled. Should both the losses and funding costs expand, the worry stays until the reporting season is through. The thing to watch is net interest margin and bond holdings in the large US banks' third-quarter results.

This is personal analysis and not investment advice.

💬 【Talking Point】

The Fed minutes point to another increase this year, yet long yields rose on the same day. What do you think is doing the pushing at the long end?

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