💃 Stocks rise as oil falls

and the new Chinese stimulus fails

Good morning investors! The market recovered yesterday as political rivals continue to try to win the game.

Today we cover:

  • China announces new plans

  • Stocks rise again

  • Google losing its position?

📊 Economy and News 

China: New Announcements Disappoint As More Data Awaited

In a recent economic update, the World Bank revised its forecast for China's growth rate, predicting a decline to 4.3% in 2025, down from an anticipated 4.8% in 2024. While the 2024 outlook is an improvement over earlier projections made in April, the 2025 estimate remains unchanged due to uncertainty surrounding the long-term effects of Beijing's latest stimulus efforts.

During a highly anticipated press conference, Zheng Shanjie, chairman of China’s National Development and Reform Commission, outlined a series of measures aimed at boosting the economy. However, he stopped short of unveiling any major new stimulus initiatives, which dampened investor enthusiasm and weakened a previously strong market rally.

China plans to accelerate the issuance of special purpose bonds to local governments in order to support regional economic growth. Additionally, a senior official announced that the central government will fast-track a 100 billion yuan investment plan for next year, set to be released by the end of this month.

Following the lack of fresh stimulus, the rally in Chinese markets began to lose momentum. The CSI 300 blue chip index, which had surged over 10% at the open, trimmed gains to around 5%. Similarly, the Shanghai Composite Index and SZSE Component Index pared back their advances to approximately 5% and 8%, respectively.

On the same day, China introduced temporary anti-dumping measures on European Union brandy imports, targeting well-known brands like Hennessy and Remy Martin. This move followed the EU’s decision to impose tariffs on Chinese electric vehicles.

Global hits:

Interesting: Boeing delivered 33 jets in September but strike impact looms as deliveries fall YOY through September.

📈 Stocks

S&P 500 5,751.13 (+0.97%)
DJIA 42,080.37 (+0.30%)
NASDAQ 18,182.92 (+1.45%)
BRENT CRUDE 77.18 (-4.43%)
* Prices as of Oct 9th, 12:20 AM UTC

Low Oil Prices Boost Stocks

On Tuesday, the S&P 500 bounced back after a losing session on Wall Street, as oil prices and bond yields remained in focus amid ongoing tensions in the Middle East.

West Texas Intermediate (WTI) oil futures dropped nearly 5%, as traders kept an eye on Israel’s anticipated retaliation to missile attacks from Iran, along with U.S. efforts to prevent a broader regional conflict. This decline in oil prices weighed heavily on energy stocks, with the energy sector of the S&P 500 falling almost 3%. Leading the losses, Marathon Petroleum and Valero Energy both dropped over -4%.

Meanwhile, technology stocks surged, providing a significant boost to the market. Nvidia and Broadcom advanced +3% and +2%, respectively. Other major tech names also saw gains, with Meta Platforms, Tesla, and Microsoft each climbing more than +1%, and Palo Alto Networks rallying +5%.

Apple V/s Samsung: Apple could launch a connected ring to rival Samsung by 2026. If it came true, it would be the first new product from the Cupertino giant since the Apple Vision Pro headset launched this year.

Google Losing Dominance? For the first time in decades, Google is projected to lose its majority hold on the US search market next year, according to a forecast by advertising research firm eMarketer.

While Google will continue to be the largest player in search, it is expected to command 48% of the U.S. search advertising revenue. Despite maintaining growth in this space—remarkable given its dominance since the early 2000s—Google is facing increasing competition from Amazon, which is expanding at a faster pace.

By next year, Amazon is anticipated to control nearly a quarter of the U.S. search ad market, with its share expected to rise to 27% by 2026, as Google's share declines further, according to eMarketer's predictions.

Do you see Google becoming the #2 search engine in the future?

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💵 Personal Finance

Municipal bonds and how they can help you save income tax money

Also called muni, municipal bonds are bonds issued by local or state governments, or government-owned entities.

These 'investment instruments' work like traditional bonds. When you buy a municipal bond, you lend money to the government in exchange for interest that is to be paid over a predetermined period.

Once the bond reaches maturity date, the owner receives the full payment (the original investment) from the buyer.

Commonly used in the US, these bonds are also available in other countries under different names, such as local authority bonds.

How can municipal bonds help save tax money?

Though not all, most municipal bonds are tax-exempt, including federal and state taxes. However, you may have to pay state taxes if you do not live in the state where the bond is issued.

Let’s compare how municipal bonds fare against traditional or taxable bonds. We can use this formula to calculate the yield:

Tax Equivalent Yield (TEY) = tax-free municipal bond yield / (1 - investor’s current marginal tax rate)

Let’s say an investor is in the 35% tax bracket and he chooses to invest in tax-free muni bonds that yield a return of 4%.

Now, apply these to the formula:

TEY = 4 / (1 - 0.35)

6.15%

Now, you will have to find a taxable bond that offers at least 6.15% to enjoy the same returns as the municipal bond.

Also, we must mention that not all activities enjoy the tax-exempt status.

Careful how you buy them

Warning: Be careful when checking the secondary market as munis bought at a discount will be taxed at the capital gains rate. The table below shows how it's taxed:

Source: Investopedia

The difference between the bond's net present value and the principal payment at the time of maturity is taxed at 15% (capital gains rate). Based on this, it can be concluded that the bond bought at a discount rate will be worthless. Here’s how:

You might end up paying more than the bond's value ($96.22 versus $95.62) due to this rule. Hence, don't just look at the price of the bond but also the yield to maturity to ensure tax consequences do not affect your return.

The best way to buy municipal bonds is from a broker-dealer, bank or investment advisor, through a self-managed account or ETF.

Check this video for more on municipal bonds:

💰 Be a Better Investor

“Money grows on the tree of persistence.”

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👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.