HOT AIR BALLOON FLIGHT

By Julia Horowitz • Tuesday, October 26

Good morning. In today's newsletter: Tesla just joined the $1 trillion club. Here's why investors should care. Plus, Facebook goes all in on the "metaverse" as controversy swirls, and Wall Street rainmakers gather in Riyadh.

 

US stock futures are up. Markets in Europe gained in early trading, while stocks in Asia were mixed.

 

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MARKET FLASH

Wall Street's $1 trillion club is growing

The exclusive group of American companies worth more than $1 trillion just added another member.

 

What's happening: Shares of Tesla rallied more than 12% Monday to nearly $1,025 after Hertz announced that it had locked in a record order of 100,000 of the company's electric cars for its fleet.

 

It's the largest purchase of Teslas ever by a single buyer, and the biggest move into electric vehicles by a rental car company. But even CEO Elon Musk was surprised by the magnitude of the jump, which pushed Tesla's market value up to $1.01 trillion.

 

"Strange that moved valuation, as Tesla is very much a production ramp problem, not a demand problem," Musk said on Twitter.

Nonetheless, Musk, whose net worth of nearly $289 billion makes him more valuable than ExxonMobil, cheered the move. "Wild $T1mes!" he boasted.

 

Investors are in celebration mode, too. The S&P 500 and Dow both hit all-time highs on Monday, as Wall Street brushed off lingering concerns about a slowdown in economic growth, higher inflation and heavy debt loads in China's large real estate sector.

 

But the growing $1 trillion club isn't necessarily a good thing for markets over the long run.

 

Breaking it down: Five companies in the S&P 500 — Apple, Microsoft, Google parent Alphabet, Amazon and Tesla — are now worth a collective $9.3 trillion. That's almost 23% of the benchmark US stock index's total value. Add in Facebook, which is worth almost $927 billion, and the figure rises to 25%.

 

In January 2020, Facebook, Apple, Amazon, Microsoft and Google accounted for 19% of the value of the S&P 500.

 

That means that increasingly, a handful of firms have outsize influence over the index — and therefore the direction of financial markets.

 

In boom times, that might not seem like such a bad thing. Big Tech companies (and now Tesla) have powered huge stock market gains since spring 2020 as they proved they could still earn billions of dollars during a pandemic.

 

The stock market rally could get another boost this week, with earnings from Alphabet, Apple, Amazon and Microsoft on tap.

 

But technology stocks are also very sensitive to changes in interest rates, which central banks are considering hiking to curb inflation. If Wall Street starts to dump shares of Apple or Amazon, that could generate a sizable pullback.

 

The big question: Does market concentration equal market power? More than anything else, the answer could dictate the stock market's trajectory in the coming years, as policymakers take more aggressive steps to rein in the biggest technology firms, including through potential antitrust action.

 

VOICES

Should Mark Zuckerberg step aside?

"It would help if Zuckerberg gave up control, but I'm not sure how likely that is."

 

BRYAN KOSLOW, CLARUS GROUP PRINCIPAL

 

Read more from CNN Business.

EARNINGS MONITOR

Facebook goes all in on the 'metaverse' as controversy swirls

As Facebook contends with the leak of tens of thousands of internal documents that are boosting calls for tougher regulation of the social media giant, the company is trying to keep its focus.

 

The latest: Facebook reported $29 billion in revenue for the three months ended in September after markets closed on Monday, up 35% from the same period a year earlier. The number of people using Facebook's family of apps — which includes WhatsApp and Instagram — grew 12% year-over-year to nearly 3.6 billion.

 

The company also announced that it had approved another $50 billion in share buybacks, a sweetener for shareholders. Facebook's stock is up 1% in premarket trading.

 

Big picture: Facebook wants investors to concentrate on its future business plans, not its handling of misinformation, hate speech, crime and child safety.

 

What are those plans, you ask? It's all about the "metaverse."

 

The company said Monday that it will start breaking out revenue from a part of its business called "Facebook Reality Labs," which is focused on building "online social experiences" around augmented and virtual reality.

 

Facebook sees this as the future of the internet — so much so that it's willing to take a $10 billion hit to operating profit this year in order to ramp up investment.

 

"If you're in the metaverse every day, then you'll need digital clothes and digital tools and different experiences," Zuckerberg told analysts. "Our goal is to help the metaverse reach 1 billion people and hundreds of billions of dollars of digital commerce a day."

 

That said: Attention, for now, is decidedly not on the metaverse, and Zuckerberg had to take time to address the PR firestorm. (CNN just published a piece revealing how Facebook's blind spots allow hate speech to flourish in languages other than English.)

 

"Good faith criticism helps us get better, but my view is that we are seeing a coordinated effort to selectively use leaked documents to paint a false picture of our company," Zuckerberg said. "The reality is that we have an open culture that encourages discussion and research on our work so we can make progress on many complex issues that are not specific to just us."

UP NEXT

3M, General Electric, Hasbro, JetBlue, Lockheed Martin, UPS and Xerox report results before US markets open. Alphabet, Microsoft, Robinhood, Twitter and Visa follow after the close.

Also today: US consumer confidence data for October posts at 10 a.m. ET.

 

Coming tomorrow: Earnings from Boeing, Coca-Cola, General Motors, Harley-Davidson, Kraft Heinz, McDonald's, Spotify and Ford.

 

➡️  Check it out: Thursday at 12 p.m. ET, CNN Business presents "Foreseeable Future: Housing Market Madness."

 

Join CNN's Christine Romans for a conversation with Barbara Corcoran, followed by a panel discussion with Redfin CEO Glenn Kelman, Cadre CEO Ryan Williams and Realtor.com CEO David Doctorow. To reserve a spot now, RSVP here.

WHAT WE'RE READING AND WATCHING

▸ US oil surpasses $85 for the first time in 7 years (CNN Business)
▸ Inside Amazon's worst human resources problem (NYT)
▸ Mastercard agreement sends crypto stock soaring (Bloomberg)
▸ Amazon strikes deal with UK spy agencies to host secrets (FT)
▸ Visualizing California's stunning shipping gridlock (CNN Business)
▸ Evergrande wants to build electric cars, not homes (CNN Business)

FINAL WORD

Wall Street rainmakers are gathering in Riyadh

In 2018, Wall Street luminaries rushed to cancel their appearances at Saudi Arabia's flagship investment conference amid a global uproar over the murder of journalist Jamal Khashoggi.

 

Three years later, the financiers are back, eager for a piece of Crown Prince Mohammed bin Salman's efforts to reform the country's economy.

 

The Future Investment Initiative, often referred to as "Davos in the desert," kicks off in Riyadh on Tuesday. The guest list includes BlackRock CEO Larry Fink, Goldman Sachs CEO David Solomon, Blackstone Chair Stephen Schwarzman, SoftBank's Rajeev Misra and investment banker Ken Moelis.

 

Step back: Global banks were largely sidelined in the blockbuster listing of state oil company Saudi Aramco in 2019. But they're holding out for more lucrative deals in the future.

 

The country's Public Investment Fund has more than $400 billion in assets under management, and is aiming to grow its holdings to $1 trillion by 2025. The sovereign wealth fund has taken stakes in Uber, Lucid Motors and, recently, the Premier League's Newcastle soccer team.

 

Aramco's climate announcement over the weekend could feed the perception that bin Salman is serious about shifting the country's economy away from oil. The company is targeting net-zero emissions by 2050 — though that does not include carbon released when its crude is burned, and it's still ramping up oil production capacity.

 

On the radar: Human rights concerns still loom. On Sunday, "60 Minutes" aired an interview with a former top Saudi intelligence official who now lives in exile in Canada. Saad Aljabri repeated allegations that the crown prince, who is Saudi Arabia's de facto ruler, plotted to send a hit squad to murder him in Canada three years ago.

 

In a statement, the kingdom's embassy in Washington described Aljabri as "a discredited former government official with a long history of fabricating and creating distractions to hide the financial crimes he committed, which amount to billions of dollars."