It Girl Identity: Issue 7

It Girl Identity Newsletter

Grab your strawberry latte and read what's moving markets this week, follow a detailed guide to trading derivatives, and enjoy our curated It Girl Identity recommendations!

What’s Moving Markets

This week’s highlights involve a quick run through of the economical impacts of the presidential debate, the many exciting M&A deals brewing in the works and news on global markets.

What’s Up

• Danske Bank (DKK): Danske Bank, Denmark’s biggest lender, is up by nearly 5%. It has beaten second-quarter net profit expectations and risen by 17% from last year. Helped by strong credit quality and higher net interest income the bank announced an interim dividend for shareholders, boosting its shares.

• Goldman Sachs Group Inc.’s (GS): The bank’s stock rose 1.4% on Monday after the banking giant’s second-quarter profit beat analyst estimates on an uptick in dealmaking and asset-management income.

• Burberry Group plc (BRBY): Shares in Burberry are down by more than half over the past year with retail same-store sales estimated to come in 16% lower in its fiscal first quarter (2% lower than their growth in the same period last year). J.P. Morgan has also warned that the ‘re-acceleration’ of the luxury sector could be slower than anticipated, leading to downside risk for luxury stocks.

• Commodities: Gold prices reached a record price of $2,465 per ounce, fueled by anticipated rate cuts.

• Top S&P 500 Gainers: Intuitive Surgical (ISRG) +9.34%. Starbucks (SBUX) +6.85%. Huntington Bancstocks (HBAN) +3.92%. United Airlines Holdings (UAL) +3.32%. Stryker (SYK) 2.93%. Boston Scientific (BSX) +2.66%.

What’s Down (other than computers ;))

• Tesla Inc. (TSLA): Shares fell due to increased possibility of Trump’s candidacy. His presidency would likely result in electric-vehicle companies facing major price competition if he opens the U.S. to Chinese-manufactured cars.

• CrowdStrike Holdings Inc: Following the global IT outage, the stock price fell by 12.48%.

• Top S&P 500 Losers: Hartford Financial Services Group (HIG) -3.76%. Ford Motor (F) -3.92%. Aptiv (APTV) -3.92%. Cincinnati Financial (CINF) -3.95%. Tesla (TSLA) -4.02%. Monolithic Power Systems (MPWR) -4.11%. Electronic Arts (EA) -4.31%.

Markets and Economy

• U.S. Market Performance: Both the S&P (-2% since 12/07) and Nasdaq (-3.7%) tallied their worst weeks since mid-April, while the Dow and Russell are still thriving, owing to the former two indexes’ heavy weighting toward big technology companies, like Apple (shares down 3% this week), Microsoft (-4%) and Nvidia (-8%).

• Declining Inflation: The runway toward a Federal Reserve interest-rate cut will come more into focus in the coming week amid fresh signs inflation is abating and economic activity is simmering down.   

• Global Market Activity: European indices had mixed responses with London’s FTSE 100 edging higher, while Germany’s DAX and France’s CAC 40 declined. Asian markets also experienced declines, especially in technology shares. Technology shares sank due to a report that the US plans tighter import controls on companies sharing chipmaking technology with China, affecting markets globally.

Mergers and Acquisitions

• Grant Thornton’s US Business to Acquire its UK and Irish Affiliates: The merger proposal is driven by a promise to enhance the growth of its consulting and tax businesses after its US business sold a majority (60%) stake to New Mountain Capital. Under the three-way merger plan, the current partners of the UK and Irish firms would become shareholders in an international holding company led by Grant Thornton’s US private equity owners and partners. The UK firm has already hired Rothschild to explore options for its business. More recently, Grant Thornton Ireland hired Deutsche Bank to begin a similar exploration of its options, said people familiar with the situation. Grant Thornton UK had revenues of £654M and operating profit of £146M last year, according to its annual report, while the Irish business had revenues of about €300M.

• Darden Restaurants to Acquire Chuy’s Holdings: Darden Restaurants is buying Chuy’s Holdings for $605M, adding about 100 Tex-Mex restaurants in 15 states to its portfolio, which includes Olive Garden and LongHorn Steakhouse. Darden will pay $37.50 per share, a 40% premium over Chuy’s recent average price. Chuy’s shares jumped 47% to $37.20 after the announcement, while Darden’s shares fell 0.9% to $146. This follows Darden’s $715M purchase of Ruth’s Hospitality Group last year.

• Ray-Ban Maker EssilorLuxottica to Buy Supreme: EssilorLuxottica, the company behind Ray-Ban, is buying streetwear brand Supreme from VF Corporation for $1.5 billion. This all-cash deal aims to help EssilorLuxottica reach new customers beyond eyewear. It’s the company’s biggest acquisition since buying Dutch optical retailer GrandVision for about $6B in 2021. Analysts are surprised by the move, questioning its fit with EssilorLuxottica’s core business. VF Corporation said the sale follows a review of its portfolio and expects the sale to reduce its earnings per share in fiscal 2025. The deal is expected to close by the end of 2024.

• Google’s Parent, Alphabet, to Acquire Cybersecurity Firm Wiz: Google’s parent company, is in advanced talks to acquire cybersecurity provider Wiz for about $23B, its largest acquisition ever. This move follows Alphabet’s $5.4B purchase of Mandiant and aims to bolster its cloud cybersecurity services amid increasing cyberattacks. Buying Wiz, a young company with $500M in annual revenue, could help Google avoid regulatory scrutiny. However, Wiz’s revenue is a small fraction of Google Cloud’s $35B. In comparison, major cybersecurity firms Palo Alto Networks and Fortinet generate $7.8B and $5.4B, respectively.

IPOs

• Ebury pursuing London IPO: Santander-owned payments group Ebury has appointed investment bankers at Goldman Sachs to lead work on its planned £2B initial public offering in London as the fintech presses ahead with one of the rare listings set for the UK. The Fintech firm has settled on London in a rare vote of confidence for UK capital markets; it is indicated that the IPO could come as soon as the first half of 2025. 

  Ebury offers services including cross-border payment, payroll transfers, currency risk management and business lending and posted £16M in earnings before interest, taxes, depreciation and amortisation, and £204M in revenue, in the year to the end of April 2023.

Earnings Calendar

This week is packed with high-profile corporate earnings reports! Keep an eye out for earnings updates from several major bulge bracket banks.

This Week's Major U.S. Economic Reports & Fed Speakers

Here is a quick breakdown of this week’s Fed Speaker events and economic indicators, what they mean, and their forecasted results!

Monday, July 22

• June Chicago Fed National Activity Index (CFNAI): Measures economic activity and predicts inflation. (Previous: 0.18).

Tuesday, July 23

• June Existing Home Sales: Forecast: 3.95 million (Previous: 4.11 million).

• July S&P Flash U.S. Services PMI: Preliminary estimate of services purchasing manager’s index. Forecast: 55.0 (Previous: 55.3).

• July S&P Flash U.S. Manufacturing PMI: Advance data on U.S. manufacturing sector. Forecast: 51.4 (Previous: 51.6).

Wednesday, July 24

• June New Residential Sales: Forecast: 644,000 (Previous: 619,000).

Thursday, July 25

• Q2 GDP: 1st release of Gross Domestic Product growth. Forecast: 1.9% (Previous: 1.4%).

• Initial Jobless Claims (July 20): Number of people filing for unemployment benefits for the first time. Forecast: 237,000 claims (Previous: 243,000).

• June Durable Goods Orders: Measures new orders for manufactured durable goods. Forecast: 0.6% (Previous: 0.1%).

• June Advanced U.S. Trade Balance in Goods: (Previous: -$99.4 billion).

Friday, July 26

• June Personal Consumption Expenditures Index (PCE): Inflation measure based on the changes in consumer spending for typical goods.

  • PCE (Monthly): Forecast: 0.1% (Previous: 0.0%).

  • PCE (YoY): Percent change from a year ago. Forecast: 2.5% (Previous: 2.6%).

  • Core PCE (Monthly): Excluding the volatile food and energy categories. Forecast: 0.1% (Previous: 0.1%).

  • Core PCE (YoY): Percent change from a year ago. Forecast: 2.5% (Previous: 2.6%).

• July Michigan Consumer Sentiment: Measures consumer confidence levels. Forecast: 66.0 (Previous: 66.0).

Sources: Wall Street Journal, MarketWatch, New York Fed, Financial Times, MarketWatch, Business Insider, RTÉ News, Yahoo Finance UK, Forbes, Bloomberg, The Guardian, Reuters, Business of Fashion

How to Trade Derivative Securities

Last week, we covered how to construct an equity portfolio, but today, we’re diving into alternative types of assets to include in your portfolio by walking you through understanding and trading derivatives.

Disclaimer: Information shared here is for educational purposes only. Consult a financial advisor for personalized advice.

What are Derivatives? Derivatives are financial contracts with a value derived from the performance of an underlying entity, which can be an index, stock, bond, commodity, and even currencies and interest rates. There are four types:

• Options: Contracts giving the right, but not the requirement, to buy or sell an asset at a specific price within a set time frame. Buyers of calls are bullish on the underlying asset, while buyers of puts are bullish on the underlying asset.

• Swaps: Agreements to exchange cash flows or liabilities from two different financial instruments.

• Futures: Contracts to buy or sell a specific asset at a predetermined price on a future date.

• Forwards: Like futures, but customized and traded over the counter.

Why Trade Derivatives? Derivatives can hedge against potential risk and protect investors from volatility. On the other hand, derivatives hold leverage, meaning that investors can multiply their profits with a smaller amount of capital. Many investors also use derivatives for access to markets that may be difficult to trade directly, such as commodities. While these benefits make derivatives attractive, they can be high-risk instruments, so ask yourself if you are willing to take on potential significant risk for higher returns. It is possible to lose more than your initial investment, but risk can be used to your advantage when identifying trading opportunities.

Choose Your Derivative Strategy: The methodology behind trading derivatives is essentially the same as trading regular stocks, which we have discussed in previous weeks (check out Issue 3!). Then, based on your market outlook and risk tolerance, select an appropriate strategy that match your goals. Here are some popular strategies: 

• Call Debit Spread: Buy a call and sell a higher strike call with the same expiration.

  • Gain: Lowers cost and risk compared to buying just one call

  • Goal: Profit from a rise in the underlying price

• Put Credit Spread: Sell a put and buy a lower strike put with the same expiration.

  • Gain: Profit if the price stays above the sold put’s strike price

  • Goal: Profit from a stable or rising market

• Iron Condor: Combine a put credit spread with a call credit spread.

  • Gain: Profit if the stock stays within a specific range 

  • Goal: Low volatility and a historically stable price 

• Straddle: Buy a call and a put at the same strike price and expiration.

  • Gain: Takes advantage of volatility if the stock moves in either direction 

  • Goal: Profit from significant movement

• Calendar Spread: Sell a short-term and buy a longer-term option at the same strike price.

  • Gain: Can be adjusted over time for continued profits

  • Goal: Profit from time decay or increases in volatility

Analyze Performance: While options are contracts, the pricing structure and timing can often change. Therefore, along with the same considerations used to analyze stocks, there are a few more key aspects that influence your investment decisions:

1. Understand Contract Terms:

   • Expiration Date: When the contract will settle. 

   • Strike Price (for options): The price at which the option can be exercised. 

   • Contract Size: The number of shares or amount of the underlying asset allocated in the contract. 

   • Settlement Method: Whether the contract settles in cash or with physical delivery of the asset. 

2. Follow Historical Performance: Examining pricing changes is necessary to highlight potential entry points and determine trends in the movements, and then set predetermined exit points to limit potential losses. Also, be prepared to adjust your strategy based on changing market conditions over the contract period.

3. Time the Expiry Date Correctly: As mentioned before, the expiry is the date the contract settles. Pairing the expiry date around an earnings call or investor conference can be beneficial with the possibility of price changes following those events. Thinking about whether you expect the underlying to perform well in the shorter or longer term is also important to note.

Vocabulary:

• Underlying Asset: The financial instrument on which a derivative's price is based.

• Leverage: The use of borrowed capital (debt) to increase the potential return on an investment.

• Call: An option giving the buyer the right, but not the obligation, to buy the underlying asset at the strike price until expiration.

• Put: An option giving the buyer the right, but not the obligation, to sell the underlying asset at the strike price until expiration.

• Exercise: The act of doing the right granted by the options contract. For example, when an option holder exercises their option, they choose to buy (for a call option) or sell (for a put option) the underlying asset at the strike price specified in the contract.

It Girl Recommendations

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Strawberry Latte Recipe:

Ingredients

• 1 shot of espresso (about 1 oz)

• 8 oz milk of choice

• 1 tbsp strawberry syrup

• Optional: fresh strawberries

Instructions

• Brew a shot of espresso using an espresso machine or a stovetop espresso maker.

• Fill a glass with ice cubes.

• Pour the shot of espresso over the ice cubes.

• Add cold milk to fill the glass, leaving room for stirring.

• Stir well to combine.

• Add strawberry syrup, and stir again.

• Optional: add fresh strawberries on top for an aesthetic finish.

• Enjoy your refreshing iced strawberry latte!

Financial Fashion

To round off this week’s edition of IGI, we’ll share some of the hottest corporate-friendly dresses in the market to keep you cool in this summer heat! Shop these looks below:

• Top Left (Dune)

• Top Right (Charles & Keith)

• Bottom Left (Wittner)

• Bottom Right (Reformation)

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See you next Monday, It Girls!

With Love,

It Girl Identity