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AUGUST 1, 2023

DEFI SECURITY CONCERNS

There has been a decrease in sentiment towards digital assets, specifically the native token of decentralized cryptocurrency exchange Curve Finance, due to a recent hack on the platform, which targeted several liquidity pools and resulted in a decrease in the amount of crypto being used on the platform, affecting major cryptocurrencies like Bitcoin and Ether negatively. Following the hack, the founder of Curve Finance, Michael Egorov, borrowed over $100 million backed by CRV token, and although he reassured that the DeFi industry will survive the security inciden, there are concerns about potential losses if the token’s value drops further. This recent incident highlights the ongoing challenge of security breaches in the DeFi sector, which relies on blockchain technology rather than traditional intermediaries.

MIXED REPORTS

Merck & Co and Pfizer, two of the major pharmaceutical companies, recently reported their earnings results for the second quarter revealing mixed performances. Despite strong sales of its cancer drug Keytruda and HPV vaccine Gardasil, Merck posted a quarterly loss due to charges associated with its acquisition of Prometheus Biosciences. On the other hand, Pfizer’s earnings topped Wall Street’s expectations, but its revenue fell short of estimates due to a steep drop in Covid-related product sales as the world relies less on pandemic vaccines and treatments. Both companies provided updates on their upcoming product launches and drug pipeline developments to address challenges and pivot to new areas of growth. Moreover, Uber’s second-quarter results fell short of analysts’ expectations for revenue, but the company’s shares still rose by 4% in premarket trading, as although Uber’s revenue came in at $9.23 billion, slightly below the expected $9.33 billion, it reported a net income of $394 million, a significant improvement compared to the $2.6 billion net loss in the same quarter last year. CEO Dara Khosrowshahi highlighted the company’s achievement of its first quarter of free cash flow over $1 billion and its first GAAP operating profit, and the company also expects strong performance in the third quarter, with gross bookings expected to be between $34 billion to $35 billion and an adjusted EBITDA of $975 million to $1.025 billion.

CONTINUOUS RISE

Meta, the parent company of Facebook, continues to see its stock rise, with an 11% gain in July marking its ninth consecutive month of growth. This is the longest streak since Facebook went public in 2012. Investors are responding favorably to CEO Mark Zuckerberg’s efforts to improve efficiency through cost-cutting measures, a rebound in the online advertising business, and investments in AI. As a result, Meta is currently the second-best performing stock in the S&P 500, trailing only Nvidia.

TIGHTER CREDIT

According to the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS), U.S. banks reported tighter credit standards and weaker loan demand from businesses and consumers during the second quarter. The survey also revealed that banks expect to further tighten lending standards throughout 2023, with reasons including an uncertain economic outlook, decreased collateral values, and worsening credit quality. Moreover, according to the survey data, the Federal Reserve’s interest-rate hike campaign is deliberately slowing down the nation’s financial activities as intended, however, some experts are concerned about the level of tightening observed, which raises questions about a potential economic slowdown and the challenges of the Federal Reserve’s soft-landing scenario.

SENTIMENT SHIFT

Stock-picking hedge funds in 2023 are facing increasing risks as data from JPMorgan Chase & Co. revealed that hedge funds are reducing positions on both bullish and bearish equity wagers, a move known as de-grossing. This rush to adjust positions has led to the highest level of client stock flows since the short squeeze in 2021, with major financial institutions such as Morgan Stanley and Goldman Sachs observing their hedge fund clients engage in risk reduction. This trend may mark a shift in sentiment, as the market initially adopted a defensive approach to the year but has since experienced significant gains. Nevertheless, the relentless rally has posed challenges for hedge funds with short positions, prompting widespread de-grossing and prolonged periods of below-market returns. Moreover, although retail investors and options traders show enthusiasm, there are still concerns about whether sentiment has swung too far, which could potentially lead to large-scale selling if market turmoil occurs.

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