Breaking News : Changes to US Settlement Times

Here’s what captured our attention this week:

Changes to US Settlement Times
Pandemic Favorites Struggle
Nvidia’s Impressive Results

Shift to T+1 ⏱️
When the US market reopens on Tuesday, May 28, 2024, after the long weekend, it will transition to a new settlement cycle known as “T+1”. This means that stock transactions will now settle in just one day instead of the previous two-day period (T+2). The Securities and Exchange Commission (SEC) and the Depository Trust & Clearing Corporation (DTCC) are implementing this change to keep up with the evolving landscape of modern trading.

Currently, stock trades take two days to settle, allowing time for securing the required shares and funds. During this interval, brokers must post collateral to the DTCC to manage price fluctuations.

The push for a quicker settlement time gained traction during the 2021 meme stock trading frenzy, which saw platforms like Robinhood restricting trades to ensure they had sufficient collateral, leading to numerous lawsuits that were eventually dismissed. This situation even led to calls for real-time settlement from figures like Robinhood’s CEO Vlad Tenev.

The move to T+1 is part of a historical trend, following reductions from T+5 to T+3 in the 1990s and from T+3 to T+2 in 2017. These changes reflect advances in technology, new financial products, and growing trading volumes.

While T+1 has its own set of challenges, such as a potential increase in trade failures if parties miss the new, shorter deadlines, the SEC also acknowledges heightened operational risks like limited time for error correction and fraud prevention as transactions accelerate.

Nevertheless, T+1 is expected to streamline the financial system, particularly during volatile periods. For investors, quicker transaction results are beneficial, and the SEC notes that shorter settlement times reduce the risk of unsettled trades, minimize exposure to market volatility, decrease outstanding obligations, and potentially lower margin requirements, leading to smoother operations.

Pandemic Winners Face Reality 💫
Pandemic-era successes like Zoom, DocuSign, and Peloton are now facing challenges:

• Zoom: The video conferencing platform, once a symbol of the pandemic, has seen revenue growth slow to 3% year-over-year. Since 2023, Zoom has required employees living within 50 miles of its offices to work on-site at least two days a week. This policy, coupled with a 10% drop in its stock over the past year, hasn’t been well-received by investors.
• DocuSign: Rumors of a potential takeover by private equity firms have created uncertainty. However, DocuSign aims to remain independent, leveraging its artificial intelligence capabilities to attract investors.
• Peloton: Facing financial difficulties, Peloton is undergoing a global refinancing effort amid declining sales. The company recently announced the resignation of CEO Barry McCarthy and plans to lay off 15% of its workforce to align spending with revenue. Peloton’s stock has fallen by about 40% this year.

Other pandemic success stories are also seeing declines:

• Vaccines: Moderna’s stock has dropped significantly from its pandemic peaks as demand for vaccines and boosters declines. Similarly, Pfizer has lost all its gains from 2020 and 2021, despite its successful vaccine collaboration with BioNTech.
• Ecommerce: Wayfair, once a major player in online home goods, is now shifting towards physical stores to navigate the increasingly challenging ecommerce market. Meanwhile, Amazon, a major winner of 2020, continues to thrive, with its stock up over 21% this year.

Reflecting on the past four years since COVID-19 disrupted our lives, the excitement over the “new normal” has faded. Companies that thrived during the pandemic are now facing the harsh reality of adapting to a post-pandemic world.

Other News 🤓
Additional notable events this week:

• Nvidia’s Strong Performance: Nvidia reported exceptional first-quarter earnings, surpassing expectations and announcing a 10-for-1 stock split along with an increased dividend. The tech giant posted adjusted earnings per share of $6.12 on revenue of $26 billion, marking year-over-year increases of 461% and 262%, respectively. For the current quarter, Nvidia forecasts revenue of $28 billion, plus or minus 2%, exceeding analysts’ expectations of $26.6 billion. Analysts note that Nvidia’s size and stock volatility significantly influence the broader market’s direction. As Steve Sosnick, chief strategist at Interactive Brokers, put it, “It’s Nvidia’s world, we’re just trading in it.”
• Robert F. Kennedy Jr.’s Investment: The third-party candidate in the 2024 US presidential race invested $24,000 in GameStop. He expressed support for the “Ape retail rebellion” on social media, promising aggressive Wall Street reforms if elected. These “apes” are retail investors who disrupted the market in 2021 by championing stocks like GameStop and AMC against institutional investors. Kennedy Jr.’s unconventional approach aims to attract undecided voters and the anti-establishment crowd. Will this resonate with the younger generation or just become a fleeting headline?
• AI-Ready PCs: Microsoft has launched a new line of computers with advanced chips optimized for AI tasks. These include Surface Laptop and Surface Pro models with Qualcomm chips. Other major brands like Lenovo, Dell, and HP are also releasing AI-ready PCs. Available in June, these Copilot+ PCs feature AI capabilities such as audio translation and message response suggestions.