Episode 65 | Market Reactions to the Government Shutdown, Amazon Outage, and Earnings Season

In Episode 65 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, shares market updates on the government shutdown, corporate earnings, and global trends. He highlights strong bank results from JPMorgan, Goldman Sachs, and Morgan Stanley, noting improved stability since 2008 and continued consolidation, including Capital One’s purchase of Discover. He discusses Coca-Cola’s “two-tiered economy” and use of AI to boost efficiency, then reviews TSMC’s standout earnings and central role in AI chip production for Apple and Nvidia, contrasting it with Intel’s challenges. Professor Lake also spotlights Apple’s strong iPhone 17 sales, the U.S.-Australia partnership to reduce reliance on China for rare earth materials, and Amazon Web Services’ recent outage—connecting themes of consumer strength, financial stability, and AI innovation as key market drivers.

Chapters

• 0:00 Introduction
• 1:03 Government Shutdown
• 1:36 Banks, Earnings, and Consolidation
• 4:05 Coca-Cola, the Tale of Two Economics, and AI Integration
• 7:24 Taiwan Semiconductor
• 9:47 Apple and the iPhone 17
• 14:00 Rare Earth Material and Trade Tensions
• 19:42 Amazon Outage
• 21:38 Conclusion

Transcript

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started.
Welcome back to Market News with Rodney Lake. I'm your host Rodney Lake. On today's episode we're coming to you from the same place we always do. We're right here in the heart of Foggy Bottom. George Washington University School of Business, Duquès Hall, right here on campus. And a big shout out, obviously, to Duquès family for this fabulous studio that we’re shooting from. Today's episode by the GW Investment Institute.
We're going to be talking about what we actually do in class, which is market news. So today's episode is going to feature a bunch of different companies, not just one company, but some of the companies will be a preview to some further episodes. And we talk about some of the same companies over and over again because they are, by the way, important. Nonetheless,
Let's kick it off. So what's happening in the markets? There's a ton of stuff happening in the markets. Today is October 21st, so this is the 21st day of the government shutdown. One of the things they made easy for us is that they started on the first, so now it's October 21st. So 21 days of the shutdown.
Very easy to keep track of. If you're looking for a silver lining, for this setup. We all hope, obviously, the government gets open, they figure out some sort of solution, and cooler heads prevail. And they get things running. The troops got paid. So that puts a little bit less pressure on everybody, but hopefully, cooler heads prevail, as I mentioned.
And let's get this government open. Let's get back to business, everybody. Let's make it happen. What's happening in the business world? Because these things continue to move forward. Well, earnings season is in full force right now. And bank earnings came out first. The big banks JP Morgan Stanley, Goldman Sachs they all are doing super well. And so there was some there was a comment by Jamie Dimon if you're following the earnings announcements talking about you know, you know, some bad loans, and particularly on some of the regional things, you know, you know, cockroaches and there could be other cockroaches.
And so some of the regional banks had sold off. But the earnings for these companies tend to look very good. So if you look at Fifth Third they're going to do the acquisition with Comerica. You know not not bad. And Zions Bank which announced you know obviously there's some let's say particular issues that need to be resolved.
But that is in any time period. But overall, the banking system does not look like, at least by my estimation, not investment advice. As a reminder, educational entertainment purposes only. These things do not look like 2008. This does not look like the same credit situation that we had in 2008. I think there are some concerns in the regional banks.
You always have to look out for bad actors, frauds and other things, and that's always the case. But it doesn't look like there's some very large existential threats to the regional banking system. And certainly not the way that they looked in 2008 and being, much, you know, over levered or very over levered. Especially compared to where the capital situation is today.
And how well capitalized, especially the big banks are right now on the regional bank. You know, I think one of the things that's likely to continue to happen is further consolidation. And so that with the fifth, third and Comerica announcement, you see, you saw Capital One buying Discover. And I think you're going to continue to have these regionals or Super regionals, and some of these bigger companies, Capital One, as an example, continue to grow market share, continue to expand.
So now, you know, Capital One, for example, is going to have the card network that Discover had and so that puts it, you know, in competition with Visa, Mastercard, American Express. And now it will have its own system. And so we'll see how that all plays out. I think that's an interesting place. To, to follow and to understand.
And on the big bank side, JP Morgan did really well. Goldman Sachs did really well. Morgan Stanley is doing very well. And so at the, at the, you know, very large scale, these banks are doing super well. And, you know, I think that protects well for all of us in the economy in general. Now, everyone has been talking about this tale of two economies, and even Coca Cola announced today.
And they're saying something similar. Their shares are up 3.25% today. On the announcement things are good. But they're also, you know, the CEO was on CNBC, for example, talking about that bifurcation between the high end consumer, and the consumer, that that's not as well off, you know, people making 150,000 or more, for example, or wherever you want to put the break point, for household and saying that those consumers continue to spend and those consumers continue to spend on Topo Chico and these other things that are, you know, at the higher price points.
But overall, things are going well. The premium drinks obviously are selling, a little bit better. But, you know, what's the what's the setup here? Everyone's trying to figure out what's driving the consumer. And if you look at the consumer data, you're trying to figure out, okay, where are the pain points? And again, everyone's talking about this bifurcation.
I think that's something as an a, as an investor, as a business person, as an analyst that we absolutely need to follow and figure out, what's happening there, because, you know, that's going to tell the story of what moves forward, you know, are these luxury brands, for example, a place to be, is Coca-Cola a just a place to be?
And we own shares in Coca-Cola. And so that I think that's a good place to be right now. It's obviously up to today. So that's a little bit self-serving to say that, you know. Thanks, we were right. But, you know, Coca Cola is in the portfolio. We're watching it carefully. And again, they have a portfolio of products that can help any of these consumers, you know, find the right thing for them.
And so, you know, they're they're getting a few shots on goal with the consumer, not just the high or low end. So, that's an interesting place to be in. Coca Cola also talking about how they're using AI for sales, for example, and how they're already starting to see some efficiencies, for example, on the people that are distributors of their products, these mom and pops, you know, retail outlets and how they're able to use an AI to help them decide, for example, what mix, that they should be selling, what sells in their area, what's popular.
And I think that those efficiencies, we haven't seen yet, we're going to start to see those things. And I think it's very interesting. And if you use Coca Cola as a lens to watch some of this play out, how is I actually going to roll out? So we hear so many headlines around, you know, artificial intelligence and you hear a lot about ChatGPT.
But we'll come back to that. Can you hear about Grok and you hear about Gemini. You hear about Anthropic. But what does that actually mean for businesses? How are they using it? What are the use cases? Where are you already seeing this? And again, I encourage you to listen to the CEO of Coca Cola. If you're curious, him talking about the sales, piece being a part where where that makes a lot of sense to use.
And having that I be really at the front end for these retailers. Again, mom and pop as an example, which is the vast majority of their distribution points and those people figuring out, hey, this is what, maybe I need to start this is what, you know, makes more sense. So that's inventory management. That's demand response.
And so all of these things are happening now. And I think it's important as a, again, as a business person, investor, analyst to really follow that and really to try to understand, you know, how that's then going to play out, because those are big efficiency boosts that potentially come in. Another company that I want to talk about in particular, and we've done a episode on this and we're very likely to do episode in the future on this company is Taiwan Semiconductor.
And it announced earnings and it blew it out. And so things are going very well at Taiwan Semiconductor. And so TSM is the ticket for that. Again not an investment advice. TSM makes, you know, 90%, depending on how you count things. But really a vast majority, certainly of the high in the three and five nanometer.
And they're pushing down to two nanometer. Most of these chips are now made in Taiwan, but they are opening facilities in Arizona. There's some clips on online, if you go out and see it, you can start to see some of the things that they're working on in Arizona for the fabs there. And they're moving some of the higher end production over time, to the US to diversify that supply chain.
And certainly the customers here like Apple in the US, and Nvidia in the US would love to have some of that supply chain be closer to home and closer to them. They, they manufacture those chips. If you didn't know that, for example, they make the chips for Apple, they make the chip chips for Nvidia. And anyone that doesn't manufacture their own chips, which is most of the companies you probably hear about at one company that you have heard about that manufactures its own chips is Intel.
And if you haven't been paying attention, Intel is having a tough time now. They're working their way through. And certainly Pat Gelsinger left, and they have a new CEO, and they're really, working forward to to figure out what's the strategy, the government taking a stake in them. So Intel is both a fab and a designer, unlike Apple, who's a designer and has Taiwan Semiconductor manufacturer their chips.
And so I think Taiwan Semiconductor is a company that you should be paying close attention to. Really, this is at the heart, or one of the, the centerpieces for the AI world. They're really, you know, the manufacturer for all these high end chips, for all these companies. And so I think it's worth paying attention to and making sure that you understand as best you can, Taiwan Semiconductor, obviously, you don't need to get over to the plants and, and, you know, kick the tires there, but you can find videos online and, and you can understand, what they're doing.
So I think again, that's an important piece to talk about. And we'll spend more time on Taiwan Semiconductor in the future. But I think that's worth paying attention to another company that we just talked about that I think is it, you know, that's worth, you know, paying attention to in the short term here, one of our large holdings.
And we've talked about this company a lot in the past, and that is Apple. AAPL is the ticker for Apple. And Apple, you know, lots of people have had many criticisms, including right here on the show. We've talked about, well, what is the AI strategy for Apple? And maybe they're being left behind. They they don't have their own models.
You know, they don't seem to be competitive in this world. For example, with Google who has Gemini and maybe Gemini is not the top model. Maybe the top models are Grok, ChatGPT, and Anthropic. And Gemini is a fourth. And, you know, depending on where you put, DeepSeek and others maybe further down, but they still have their model.
They're doing things, they're integrating in their products, and they certainly have a path forward. On the AI front, they have a big cloud business. And so that's something that, again, there's been criticism for Apple for not having, their own set up, their own models, their own really, really specific AI, you know, push, AI solution, AI plan.
Now, the countervailing force here is that they launched the iPhone 17, which we did mention. You know, on release day, and we talked about that. So what has happened since? And, you know, people have been watching and waiting and watching and waiting, rather very carefully to see, you know, how the sale is going to go for the iPhone 17.
I think the 16 was a disappointment. And a lot of people thought, well, there's going to be a refresh with AI and some of the new features that were included, that can only be accessible, for example, on the 16, didn't really materialize in the way that people had thought, and certainly not at the scale that's now different on the 17, the 17 has been a hit in the US, has been a hit in China, and and sales are largely ahead of where most people expected.
And so the uptake for and demand for the 17 the refresh cycle seems to be much higher. Dan Ives, who was on the show, analysts at Wedbush Securities, I would check out his stuff talking about what Apple's doing, with respect to the iPhone 17 and the success that they're having in the refresh cycle being stronger than expected.
And so that gives you some pause to think about. Well, maybe Apple. The counter argument for Apple on the AI side is that maybe they're doing exactly what they should be doing. And this is sort of in the same playbook they've always run, which is, hey, we're not going to be first. We're going to sit back, we're going to wait.
We're going to be careful, we're going to be cautious. We're going to continue to upgrade our platform. We're going to continue to upgrade our chips, which they got in the business of doing, having their own chips in the M5, as an example. And we're going to continue to push hard on that vertical integration on our software and hardware.
And we're going to keep making that better. And that seems to be working for the 17. And we're going to watch and wait, and we're going to figure out what's the best AI solution for our billion and a half loyal users. Now, I have an iPhone right here. Many people have an iPhone. And so it's very sticky product.
And so even if okay, they are starting to fall behind in some ways that platform is super valuable. Obviously the economics, they control a lot of that. And I think it's going to be challenging, for others to put real big dents in that, at least in the short and medium term. And I think this has been shown now, at least in small part, and maybe in a, in a significant part here on the launch of the 17. 16, maybe not as strong as people would wanted.
But the 17 seems to be quite strong, both here, both in China, the two most important AI markets for sure in the two, the two biggest economies in the world, you know, they're having success now on the 17. And a lot of people were uncertain about that. And certainly again, now that's been reflected in the share price.
And so you've had a pretty strong move. Apple's kind of going nowhere but year to date now up 5%. And it, it popped up yesterday on that news now hitting a 52 week high today October 21st. And so again, a real turn here on the story for Apple. And I think it's certainly important. And it's really important to pay attention to, what's going on there.
Another thing that I want to mention, and Apple has a deal with MP materials. And the reason I'm mentioning this company is because this is a rare earth company, Mountain Pass, is the amp, and that's Mountain Pass, California. And this facility was shut down. And but it got restarted, and it's in the rare earth business.
And really, China controls, you know, 90% of the refined production, and products that come with those rare things. And you think about, okay, well, what, you know, what are they used in? What are these rare? I've heard of these rare earth things, but I'm not even sure what they're for. They're for magnets. So you think about the permanent magnets that go in electric vehicles.
You think about electronics, you think about defense tech. And so all these things are super important, components of rare earths, components of those really high end, materials of wind turbines and other things. And so it it they they're very important. However, China really controls the supply they put out. You know, some news that they're going to really restrict that.
That seems like that's part of this trade tension, negotiation between the US and China. And the Trump administration is working on that, and has a November 1st deadline which is quickly approaching. And then the Trump administration just signed a compact with Australia and saying that they're going to team up and work together to help resolve some of the bottlenecks in the supply chain for rare earth materials outside of China.
Those are all good things that reduce the pressure, for, you know, someone controlling so much of the supply of rare earth materials. And really, it's of the refining capacity. It's kind of a misnomer. Rare earths are not that rare. What's rare right now is, is the refining capacity and the ability to turn those things into products.
There are things, that are on the high tech side that are being developed if you'd care to research those, that are iron nitrate, for example. So there's some experimental, you know, companies or there are companies working on experimental projects, with iron nitrate as a replacement for all rare earths, for example, in batteries, in the magnets rather.
And so that's, that's something that, you know, I think is worth, areas for further research when we talk about, but you know, how is that going to impact the market in the short term? Hard to know. Can they get that stuff done at scale? You know, the Department of Energy has some projects, with some companies working on, some of those more advanced technologies that could actually replace that.
And so, you know, substitutes can come into the market and maybe iron nitrate is one of those things right now, there are not many substitutes for those rare earth. And when you talk about the high performance, magnets that you would need for electric vehicles to, to create that type of performance and efficiency that you want, for long range vehicles, for example.
And so those things are super important in defense tech would be another part of that as well think guided missiles, as an example. And so those things are important. And I think that's going to continue to be part of that negotiation between us and China during the trade negotiations. Again, quickly approaching. But that kind of pact with Australia puts a little bit less, pressure on that situation and obviously gives the US a little bit of wiggle room there.
Now, that doesn't solve anything in the short term. And then so you've seen a company like MP materials, really pop the year to date here up 396%. Not investment advice here, but just goes to show, what's actually happening. That company doesn't have any earnings, for example. And if you just do a quick pass, on the financials for the company, you can see that a lot of this is built on speculation for what they can do.
And where they can, you know, be in the market. And so $13 billion market cap kind of, from out of nowhere, on revenue of 242 million, and no earnings. Right. They're losing money. They have -180 million in free cash flow. And so they're spending money, to get up and running. And so maybe this will materialize into something significant.
Excuse me. Maybe it won't. But right now really driven on the news around that. And so I think it's important to pay attention to, to what's happening in the, in this world of rare earths. But it's also important to understand that a lot of this could just be pure speculation. Excuse me. And none of this really, really turns into, material, you know, earnings.
And so but again, excuse me, if you want to watch a company, that's a proxy for this market that's publicly listed. I think MP materials is something to watch. Ticker is MP. And again non investment advice. This is very speculative. And I'm only mentioning this stock because the rare earth is such an important part of the news cycle right now.
In the investment world, we are not investing in this company. And we, we using the GW Investment Institute framework, business, management, price valuation, balance sheet. You will probably not recommend this company. Just to be super clear, but it is if you want to learn about the rare earth business and market, I think it's it's an interesting, company to follow.
And so again, lots of different news happening. Another part, that I'll mention is that the dollar has been, you know, generally weaker. And if you look at sort of gold has been the opposite trade of that. And so gold has, has been on the rise, the dollar has gotten weaker. And so if you think about people wanting to buy, US productivity, they're buying U.S shares.
If you're outside, the US, if you're denominated in euros R and B or whatever it happens to be, you buy us productivity and you then how do you hedge that? You hedge that by buying gold as well. So then your dollar denominated but you're hedged in gold. And so you get the productivity and you get the inflation hedge.
You I don't know how many people are doing that, but it seems like certainly there are people out there thinking about this, because gold has has been on the march here. Another thing worth mentioning, is if anybody was paying attention yesterday, Amazon, was, you know, in the news, and not in a good way.
Amazon Web Services was down for the day, or part of the day in the morning in particular. And so, the Northeast Node or right here in Northern Virginia, close by, across the river from us, close to our Virginia campus, by the way, down the street, for Amazon Web Services and some really notable websites. Instagram, Netflix, Hulu impacted some of these things.
Obviously, maybe you were impacted as a customer. But, you know, curiously, the share price yesterday moved up and the share price is up today again. And so it is it is quite interesting that, you know, an an outage would actually increase the share price. One of the things that's probably worth noting is how concentrated cloud services are.
And I think that highlights that Amazon, a third of the market Azure and Google dominate. And Oracle coming on the scene now too. And so really these four control most of the market certainly at scale. And and you know maybe that's a concern for some people. Maybe they'll try to figure out ways to diversify. Very challenging to build that type of scale of infrastructure.
And replicate that in the short term and certainly have reliable providers. You're going to have outages, probably almost in any business. So it's curious, maybe the market just took that in stride. And everything seems to be mostly resolved at this point, 24 hours later. Plus, but it's interesting that the shares reacted positively. And they're up again today.
Maybe that's on the news that, things seem to be, not as big of a deal as maybe some of the news outlets made mention of. But again, I think it's important to note, to talk about how important these large companies are in that cloud business. So that is Amazon, that is Microsoft, that is Google, and that is Oracle now.
And so, pay attention to those companies for the cloud. There's so many things going on. And as an analyst, as a business person, as an investor, you got to decide, what to focus on that just, you know, some of the market news that we've been focus on. And part of that is around the companies, what's happening on the consumer, what's happening in the banking sector, obviously, what's happening in tech, Taiwan Semiconductor for the AI trade, what's happening with Apple, one of the biggest companies up big, you know, now, in the 4 trillion market cap, you know, territory for a company 3.9 today.
And so all these things are happening all at the same time. But that's part of the fun. That's part of the puzzle, to put all this together, to try to think about, you know, where we should be allocating capital for our portfolio and what companies that will be buying and selling. And that's coming up here at the end of the semester.
Our students are hard at work. And they've been hard at work this semester. So we're grateful, for their time and their effort and their energy. We look forward to their pitches. That's it for this episode. And I would like to say, if you if you're enjoying this, you know, please tell your friends, subscribe to the show on YouTube.
And thanks for those, listening in on the podcast, on Apple, on Spotify, on Amazon. We look forward to seeing you on the next episode of Market News for Rodney Lake. Thank you.