A daily market update from FS Insight — what you need to know ahead of opening bell

“Compensation isn’t how you motivate someone to do great work; it’s how you reward and retain someone who can’t help but do great work.” — Naval Ravikant

Overnight

Biden, Trump win their respective parties’ nominations, setting up a rematch of 2020

Former Boeing whistleblower found dead from apparent ‘self-inflicted’ gunshot wound

U.S. must intervene, as AI may pose ‘extinction-level’ threat to humans, warns State Dept.-commissioned report

The European Parliament is set to adopt the Artificial Intelligence Act

Shell considers slowing its carbon emissions cuts

Southwest Airlines cuts capacity and rethinks 2024 financial forecast, citing Boeing problems

Carl Icahn won’t mount new challenge to Illumina’s board, sparing the gene-sequencing company from second proxy contest in as many years

Iran, Russia, China seek to impress each other with their marine capabilities in joint naval drill

U.S. to send new weapons package worth $300 million to Ukraine

After Hezbollah fires 100 rockets into Israel, Israel strikes targets deep inside Lebanon

Bain report: dealmaking slowdown leaves private equity with record unsold assets

New York City just had its safest-ever year for pedestrians

Former Jefferies banker takes on Alexandria Ocasio-Cortez in New York Democratic primary

House scheduled to vote on the TikTok ban-or-sell bill today

Ukraine readies proposal for series of reforms and investments required to unlock most of the E.U.-pledged €50 billion ($54.6 billion) aid package

U.S. sending weapons and ammunition worth $300 million to Ukraine using savings from defense contracts that came in under bid

Russia scholar: Policymakers oblivious to full scope of Moscow’s information war, Western efforts to combat which are weak, ineffective

Rep. Ken Buck, R-Colo., says “this place keeps going downhill”, announces plans to leave Congress early (March 22)

Vasil “the Skull” Bozhkov, Bulgaria’s “most infamous” mobster, leads the country’s new “center” party boasting an unsurprisingly “silent majority”

U.K. economy rebounds in January after slipping into recession

Vinyl records are back in Britain’s basket of goods

Violent unrest and looting spread in parts of Nigeria as millions struggle to get enough food amid soaring prices.

First news

• New startup hires are getting both smaller salaries and fewer stock options as companies retrench spending
• Nigerian government misplaces blame for the state of the economy on crypto, indefinitely detains two Binance executives.

Charts of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The new SMID granny shots follow the same methodology as our “traditional” granny shots. Recall that the Granny shot stock ideas are the stocks that appear in at least two of our 7 investment strategies.

• We believe the SMID granny shots could benefit from the multiple themes and secular tailwinds as well, similar to the traditional granny shots.

• We believe the SMID granny shots could benefit from the multiple themes and secular tailwinds as well, similar to the “traditional” granny shots.

Communication Services: CARG 1.69% , SSTK 1.40%
Consumer Discretionary: BLD 1.31% , CVNA 2.93% , DECK -0.72% , DFH 2.01% , HIBB, IBP 2.76% , OSW 0.71% , PBPB 5.72% , SHAK 3.33% , TAST, TPX -3.18% , WING 1.07% , WSM 1.81%
Energy: REX 2.08%
Financials: AX 3.15% , CRD/A, ENVA 3.84% , HCI 0.41% , OPFI 11.11% , PAGS 7.54% , TREE 1.61%
Healthcare: IMGN, NBIX 1.55% , SMLR 1.47%
Industrials: AYI 0.25% , CDRE -0.62% , GBX 2.57% , GMS 0.80% , HY 1.87% , MLI -2.28% , ROCK 1.46% , SCS 2.17% .

TECHNICAL

Tuesday’s price action was more indicative of how many have felt this market has seemed in recent months, as the top-heavy Technology stocks drove the outperformance, while many other sectors failed to keep pace. Companies such as ORCL -0.95% , which cited heavy AI demand, along with NVDA 1.98% , benefited, while four sectors fell in Tuesday’s session: REITS, Utilities, Materials, and Communication Services.

Note that these underperformers for Tuesday represented precisely some of the pockets of recent strength over the past few weeks, and some rotation into these groups isn’t all that worrisome provided that Technology, Industrials, and Financials all show sufficient evidence of maintaining recent uptrends and not giving way (which is precisely what has happened in recent weeks).

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CRYPTO

• Grayscale has filed an S-1 statement to register its new mini version of its Grayscale Bitcoin Trust. The mini trust would be a spinoff of GBTC, meaning that a portion of GBTC Bitcoin backing would be used to seed the Grayscale Bitcoin Mini Trust. The spinoff and fee percentage were not disclosed in the filing, but Grayscale plans for the mini trust to have a “materially lower fee” compared to GBTC’s 2%. Therefore, the spinoff will allow long-term holders to gain exposure to a much more cost-effective product, lowering their blended fee and avoiding a taxable event. If approved, the mini trust will trade under the ticker “BTC,” a ticker they were able to get rights to from purchasing an equity stake in ClearShares back in 2021. The SEC should decide on the mini trust sometime in the next few months.
• A series of traditional finance institutions participated in a pilot program experimenting with tokenized assets on the Canton Network. The Canton Network is a layer-1 blockchain building with an institutional finance focus. The tests included various finance activities such as fund registry, digital cash, repurchase agreements, securities lending, and margin management. The pilot included institutions from multiple aspects of capital markets, including fifteen asset managers, thirteen banks, four custodians, three exchanges, and one infrastructure provider. Notable names participating in the pilot included Goldman Sachs, BNY Mellon, CBOE Global Markets, Broadridge, and Paxos, among others. The program’s results were positive, displaying how the interoperable nature of blockchains can seamlessly connect different aspects of capital markets while providing efficiencies, reducing costs and risks, and remaining regulatory compliant.

Click HERE for more.

FIRST NEWS

Fewer Shares for Newer Hires? What Gives? Equity packages giving new employees shares in their company have long been a core element of startup compensation. How else could fledgling companies attract top talent, when both the reputation and the salary on offer were inferior to established competitors? Early employees of successful startups routinely became wealthy by selling those shares at the company’s IPO. Yet these days, technology start-ups are slashing equity packages for new hires as they weather a prolonged downturn, per data from Carta. People going to work at start-ups are receiving 37% less equity in their companies, on average, compared with 18 months ago.

With a broad decline in the valuations of such groups as the era of free money comes to an end, start-ups are holding back shares to help raise more funds once market conditions improve, while employees no longer believe as much in trading hours or compensation for equity because they don’t see the market helping them generate wealth. Thus, employees value cash more than they value equity. At the same time, companies are increasingly conservative in how they manage both cash and equity in an uncertain market.

What doesn’t help is that ~20% of investments in startups tracked by Carta last year were ‘down rounds’ – the highest rate of such rounds since early 2018. Unsurprisingly, smaller, less valuable startup equity packages have led to the first annual net contraction in startup employment in at least five years. In the meantime, existing employees at startups have watched the value of their shares decline sharply in the last two years. In a string of recent deals, workers have sold stock at a much lower valuation than previously hoped. We recently covered the issue with tender offers (Tender Is the Price).

Some startups, like Reddit (about to go public at a ~$6.4 billion valuation, down from the $10 billion the company reached in its last private valuation) that had delayed IPO plans during the downturn, have carried out private share sales in recent months to provide liquidity to workers whose wealth is tied up in company stock options. Earlier this month, payments group Stripe organized a sale of ~$1 billion of employee shares in a deal valuing the company at $65 billion, below its peak value of $95 billion in 2021. As valuations have fallen, some start-ups have rushed to reprice employees’ stock options, lowering the price of the grants to amplify the financial upside for the employees who hold them. According to Carta, the past six quarters have been the busiest period for repricing share options since the start of 2019. FT

Blame It on The Coin. The Nigerian government has put two senior Binance executives – American Tigran Gambaryan, Binance’s head of financial-crime compliance, and Nadeem Anjarwalla, a U.K. and Kenyan national and Binance’s regional manager for Africa – under house arrest, accusing the crypto exchange of undermining the nation’s plunging currency.

The government wants to ration who can exchange the local currency for the dollar and at what exchange rate, and is saying that the stablecoin trade has in essence become a black market, with Binance, the most popular exchange, emerging as the go-to place to check that black-market rate. That may have been true, but then the government said that Binance was setting the exchange rate for Nigeria and hijacking the role of the central bank, “bleeding our currency”. The head of Nigeria’s central bank suggested that crypto platforms were being used to manipulate the market. Now, the government is seeking compensation from Binance and is holding two of its executives – possibly as hostages.

Binance does have a history of making governments angry, since it operates without a headquarters and under the regulators’ radar, offering unlicensed trading through its global website. Yet accusing it of manipulating the currency and demanding compensation; because the Nigerian securities regulator said last year that a local Binance entity was operating illegally and ordered it to stop offering its services, but users continued to have access to Binance’s global website; seems like a bridge too far – and a deflection.

The evidence suggests crypto is actually a solution to Nigeria’s economic challenges. Since 2016, Nigeria has suffered from two major recessions, fueled by an unstable political situation, the COVID-19 pandemic, and an oil price collapse. Nigerians face high unemployment across the age spectrum — more than 20 million people were looking for jobs in 2021 — and many are moving to other countries. As we report in the Overnight section, above, violent unrest and looting are spreading in parts of the country as millions struggle to get enough food amid soaring prices.

The recent Naira crisis, no fault of Binance’s, has only exacerbated these issues. In 2022, the Central Bank of Nigeria announced plans to redesign the Naira and issue new notes to combat inflation and counterfeiting; also to take more control over the amount of currency in circulation.

Unfortunately, the resulting cash shortage placed enormous pressure on the country’s unbanked population and triggered uncertainty regarding the use of old notes — all during an election period and a record high inflation rate of more than 20% at the start of 2023. Nigeria’s uncertain economic climate has encouraged many citizens to seek financial alternatives, increasing the value proposition of cryptocurrency. Blaming a potential savior for an existing problem will do nothing to solve it. WSJ, Chainalysis