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Good morning investors!

If this is your first time reading, welcome to The Investor’s Edge — a thriving community of more than 16,000 subscribers striving to be better investors with an edge in the market.

Every Wednesday we publish “The Mid-Week Wrap-Up” — your ticket to being well informed and staying ahead in the investment game!

This report is designed to help investors of all skill levels break down important stories/topics within the stock market. And best of all, we cut through all of the BS and give you exactly what you need to know in easy to digest, bite sized pieces of content.

This article is designed to truly give you that EDGE in the day ahead!

Grab your afternoon pick me up and let’s dive in.

Market Talk

The major indexes are all lower to start the week, though stocks are nearly 3.5% higher from the lows made Monday.

3 Stories Moving the Market

These are some of the biggest stories so far this week that are having an influence on market action.

Is the unwinding of the yen ‘carry trade’ to blame for the sell-off?

The recent volatility in global stock and bond markets, particularly in Japan, is largely due to the unwinding of the yen carry trade, at least according to the “experts”.

This trade involves borrowing yen at low interest rates to invest in higher-yielding currencies and assets. However, Japan's recent rate increases, a fluctuating yen, and anticipated rate cuts in the U.S. and other economies have disrupted this strategy.

The yen carry trade has been popular for funding investments in U.S. dollars, Mexican pesos, and New Zealand dollars, among others. Investors borrow yen, convert it into higher-yielding currencies, and invest in bonds or other instruments. After the trade, they convert back into yen to repay the loan.

Estimates suggest that the scale of the yen carry trade could be significant, with Japanese banks' short-term external loans reaching $350 billion. However, this figure might be underestimated as it doesn't account for domestic borrowing or the use of leverage by hedge funds.

The Bank of Japan's rate hikes have pushed its overnight rate to 0.25%, while U.S. rates are around 5.5%. Despite this, carry trades are more influenced by currency movements and rate expectations than actual rate levels.

Speculation about further rate increases in Japan and potential U.S. rate cuts has strengthened the yen by 13% in a month, erasing gains from yen-dollar carry trades. Consequently, large leveraged investors are being forced to unwind their positions, leading to broader market sell-offs.

Google loses antitrust case over search

A U.S. federal judge ruled that Google has illegally maintained a monopoly in two key market areas: search and text advertising.

The landmark case, filed by the government in 2020, accused Google of using strong barriers to entry and a feedback loop to sustain its dominance in the general search market, violating Section 2 of the Sherman Act, which prohibits monopolies.

The court specifically pointed to Google's exclusive search arrangements on Android and Apple devices as evidence of its anticompetitive behavior. The ruling marks the first anti-monopoly decision against a tech company in decades.

While the court found Google to be a monopolist in general search services and text advertising, it ruled that general search advertising is not a separate market, so no monopoly control exists there. Google plans to appeal the decision, emphasizing the quality of its products.

Disney beats estimates as combined streaming services turn a profit

Disney reported strong fiscal third-quarter earnings, surpassing analyst expectations as its streaming businesses turned a profit sooner than anticipated.

Overall revenue rose 4% to $23.155 billion, with earnings of $1.29 per share beating the forecasted $1.19 per share. Operating income increased by 19% to $4.225 billion, driven by the entertainment segment, particularly streaming.

For the first time, Disney's combined streaming services—Disney+, Hulu, and ESPN+—posted an operating profit of $47 million, compared to a $512 million loss in the same quarter last year. However, without ESPN+, the streaming unit reported a slight loss of $19 million. Disney+ Core subscribers grew by 1% to 118.3 million, and Hulu subscribers increased by 2% to 51.1 million.

Revenue for the entertainment segment increased by 4%, primarily due to subscription growth and price hikes for Disney+ Core, though traditional TV network revenue declined by 7%.

Additionally, Disney announced price increases for its streaming services, set to take effect in mid-October, with most plans rising by $1 to $2 per month, and Hulu’s live TV plans increasing by $6 per month.

In Other News

In this section we'll be curating a selection of news headlines we think you'll find interesting. If a topic catches your eye, click the provided links to read more about it.

• Warren Buffett raises Berkshire cash level to record $277 billion after slashing Apple stake in half

• Uber reports better-than-expected earnings and revenue for second quarter

• Airbnb shares slump as weak forecast signals slowing travel demand

• Shopify shares soar 22% after earnings top expectations, upbeat forecast

• Elon Musk’s X sues advertisers over alleged ‘massive advertiser boycott’ after Twitter takeover

• Weekly mortgage refinance demand soars 16% as rates sink to lowest level in over a year

• Caterpillar posts mixed Q2 results, revenue falls short

• Realty Income beats second-quarter FFO estimates on higher rental revenue

• Celsius Holdings Beats Q2 Earnings and Revenue Estimates

• CVS slashes profit guidance, will cut $2 billion in expenses as insurance costs climb

• Reddit reports better-than-expected results for second quarter as digital ad market improves

• Lyft forecasts soft quarter after delivering net profit in Q2

• Rivian reports mixed Q2 results but maintains outlook, still sees 'modest gross profit' by year-end

• Simon Property Group lowers annual forecast for net income, misses second-quarter FFO

The Second Half

It’s been a busy earnings week so far and that continues into the end of the week. Though, on the economic news front, the slow week of reports continues.

Earnings Reports

There are still some major earnings this week. At the Investor’s Edge we will be watching Eli Lilly and The Trade Desk.

Here is the calendar of earnings releases scheduled for the rest of the week:

Economic Reports

Here is the calendar of events scheduled for the remainder of the week:

The initial jobless claims is the only major report left this week. Investors will be watching closely though to see how the labor market is holding up after the past few reports showed increasing weakness.

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Thank you for reading this edition of the Mid-Week Wrap-Up.

Until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.