This week ahead || Jun 10th - Jun 14th 2024
Inflation reading and a Fed meeting: What to know this week
Stocks closed last week near record highs, buoyed by a cooling but still robust US labor market. The Nasdaq Composite rose 2.3%, the S&P 500 climbed 1.3%, and the Dow Jones edged up 0.3%. Key events included the June Federal Reserve meeting, inflation data release, and consumer sentiment report. Noteworthy corporate news featured Nvidia’s 10-for-1 stock split and Apple’s Worldwide Developer’s Conference. Additionally, Tesla’s CEO Elon Musk faces a $56 billion pay package vote, and GameStop’s stock remains volatile due to renewed interest from meme stock traders.
The May jobs report showed stronger-than-expected job additions, supporting the Fed's stance to maintain current interest rates. Economists suggest the Fed needs further inflation declines before cutting rates. The May Consumer Price Index, expected to rise 3.4% year-over-year, will be closely watched alongside the Fed's policy decision and economic projections. JPMorgan anticipates the Fed will forecast fewer rate cuts for this year.
Investor sentiment remained optimistic despite potential rate cuts and a rise in the 10-year Treasury yield. Strong job reports and anticipated earnings growth contribute to this positive outlook. Apple’s event is expected to focus on generative AI, and Nvidia’s stock split is seen as a positive signal. Tesla’s shareholder vote on Musk’s pay package could impact stock volatility.
The $25 billion footnote in the Tesla pay vote
If Tesla shareholders approve reinstating Elon Musk’s 2018 pay package, it could lead to a substantial accounting impact. Tesla argues no new expense is needed since the cost of the original award was already booked. However, others, like Columbia University’s Shivaram Rajgopal, disagree, noting the original award was invalidated by a court. Reinstating it would require revaluing the options based on Tesla's current higher stock price, potentially exceeding $25 billion in new compensation expenses. This hinges on Delaware corporate law, and how courts interpret the reapproval—either as a retroactive fix or a new grant. This decision could significantly impact Tesla's financial statements and investor perceptions.
Volvo shifting EV production to Belgium to avoid China tariffs, The Times reports
Volvo Cars, majority-owned by China's Geely, is shifting production of its electric vehicles (EVs) from China to Belgium in anticipation of the European Union imposing tariffs on Beijing-subsidized imports. This move, particularly for the EX30 and EX90 models, aims to preemptively address potential trade barriers and avoid halting sales of Chinese-built EVs in Europe. The shift may also include vehicles destined for the UK. The European Commission is currently investigating whether Chinese-manufactured EVs receive unfair subsidies, which could lead to new tariffs. This investigation reflects the EU's broader strategy to lessen reliance on China amidst geopolitical tensions.
Norway wealth fund to vote against Musk's $56 billion Tesla pay package
Norway's $1.7 trillion sovereign wealth fund, which is Tesla's eighth-biggest shareholder, has announced it will vote against ratifying Tesla CEO Elon Musk's $56 billion pay package. The fund, operated by Norges Bank Investment Management (NBIM), cited concerns over the total size of the award, its structure, dilution, and the lack of mitigation of key person risk. This decision follows a Delaware judge's earlier ruling invalidating the package, deeming it unfair to shareholders. Despite acknowledging Musk's significant value generation since 2018, the fund remains critical of excessive CEO pay, having voted against more than half of U.S. CEO pay packages above $20 million last year.
Additionally, the fund will support a shareholder proposal urging Tesla to adopt a freedom of association and collective bargaining policy, a move backed by labor unions. This vote occurs amidst ongoing industrial action by Tesla mechanics in Sweden. The fund also plans to vote in favor of relocating Tesla's state of incorporation to Texas and re-electing Musk's brother, Kimbal Musk, to Tesla's board of directors. These votes will take place at Tesla's annual meeting on June 13.