POP QUIZ

Since 1939, there have been 21 presidential midterm elections, including 2022. How many times has the S&P posted a negative return from the election date to June 30 of the following year? (Scroll to the end for the answer)

A word from the We Study Markets team: If you enjoy this newsletter, please help us grow it!

Share this link with your friends, family, co-workers, etc., who might like learning about the biggest stories in markets each day.

BROUGHT TO YOU BY

Have an opinion on an event? Trade directly on its outcome with Kalshi – a federally regulated exchange that’s backed by Sequoia Capital, Y Combinator, Charles Schwab, and other top investors.

Kalshi enables users to trade directly on the outcome of events through a new asset class: event contracts.

Event contracts allow investors to take Yes/No positions on events such as whether the U.S. will default on its debt, whether the Fed will hike rates in June, what Biden’s approval rating will be next month, and much more.

We Study Markets readers who sign up here will get $15 in credit.

IN THE NEWS

⚡ The Booming Energy Drinks Market (NYT)

You might have heard that Monster Energy (MNST) drinks are wildly popular, with a roughly 30% share of the energy drink market. It’s also the best-performing stock this century, outpacing all tech behemoths. A mere $100 investment in Monster’s stock in 1999 would now be worth over $113,000.

• In the U.S., sales of energy drinks have grown to $19 billion from $12 billion over the past few years alone.
• High schoolers are loading up before class. Workers are drinking them to push through shifts. Even some athletes credit them for enhancing focus and energy.

About 25 years since Red Bull hit the scene, the market continues to grow rapidly. Now, amid health concerns, companies are trying to attract customers with no-sugar, low-calorie drinks that claim to boost energy while replenishing fluids with electrolytes.

• Popular offerings include Celsius, backed by PepsiCo, which claims to have “healthier ingredients” like ginger, green tea, and vitamins, and the influencer-backed Prime Energy.
• “All of them are zero sugar or zero calories,” said one beverage analyst at Rabobank.

Energy drink consumption has increased partly because of the decades-long move away from sugary soda. “They’re going for the healthy image,” the analyst added.

Why it matters:

As consumers slowly shift away from the soda market, companies like Gatorade also are jumping into the caffeine arms race. This year, Gatorade released Fast Twitch, a sugar-free beverage in flavors such as Strawberry Watermelon and Cool Blue — with caffeine levels equivalent to more than two cups of coffee.

• Last year, PepsiCo paid $550 million for an 8.5% stake in Celsius. In May, Celsius posted revenues of $260 million in the first quarter, double a year earlier.
• At that pace, revenues could cross $1 billion this year, increasing from $314 million just two years ago. That’s helped push Celsius’s stock up nearly 40% year-to-date.

But there are concerns that drinks pitched as healthy result in children and teenagers consuming caffeine in unhealthy amounts.

• Proponents say energy drinks are still generally healthier than sodas, but others worry about the long-term impact on students (a 12-ounce can of Prime Energy contains 200 milligrams of caffeine.)

 

---

 

🇺🇸🤝🇬🇧 The U.S. and U.K. Carve out Future Partnerships (Reuters)

 

The U.S. and the U.K. have a storied friendship — an alliance strengthened by shared values, culture, and history. The U.K.’s Prime Minster Rishi Sunak just wrapped up a two-day visit in Washington, working to define the next chapter of relations between the two countries.

On the agenda? Artificial intelligence (AI), supply chains, defense, and green industries.

Sunak and President Biden began work on an agreement that could give British-based manufacturers access to the enormous package of U.S. subsidies and tax breaks provided by the Inflation Reduction Act, including a trade pact allowing British car makers to qualify for electric vehicle subsidies and the joint development of advanced weapons, such as hypersonic missiles.

• Add to that an extra perk of friendship: British companies would be designated as a “domestic source” for defense contractors, enabling greater U.S. investment (pending approval from Congress.)
• A trade deal for critical materials like cobalt, graphite, and nickel, essential to electric vehicle batteries, was also on the itinerary.

Other agreements included closer partnerships on civil nuclear power, increased coordination on export controls for sensitive technologies, and a data protection regime that the U.K. estimates will benefit some 55,0000 companies, making it easier for small businesses to comply with security regulations across the Atlantic.

• In total, the arrangements are being called the “Atlantic Declaration.”

Why it matters:

To the disappointment of some in U.K. Parliament, the announcements fall short of a sweeping free-trade deal.

• But the two leaders have remained in close contact, meeting four times in as many months to hammer out new relationships.
• Of note is Sunak’s aim to make the U.K. a leader in AI regulation, announcing that Britain would hold the first global AI summit later this year. Biden added, “there’s no one country we have greater faith in” for AI talks than the U.K.

Duncan Edwards, the chief executive of the BritishAmerican Business group, called the Atlantic Declaration “laudable” but warned it represented “intent rather than actual agreement” on many of the issues raised.

 

---

 

📺 Netflix’s Sub Growth Jumps Amid Password Crackdown (WSJ)

 

The days of sharing Netflix passwords with friends, family members, or roommates are behind us. College students collectively sigh.

So far, Netflix’s crackdown on password sharing has helped the company post its highest rate of signups since Antenna began tracking the data four years ago.

• Shortly after Netflix notified users in the U.S. and more than 100 countries of the limits, the streaming giant collected more new subscriptions in the U.S. between May 25 and May 28 than in any other four-day period.
• The company said over 100 million people worldwide watch Netflix content using borrowed passwords. Translation: There’s a huge subscription opportunity for the company through password-sharing crackdowns alone.

Netflix’s recent move forced users who share an account outside the same home to pay an additional $7.99 a month to watch and limited the number of extra members customers could add to their account, depending on the tier of service they want.

• The monthly cost of sharing with an extra person is $2 less a month than a basic subscription and $1 more than the ad-supported plan Netflix introduced late last year in another effort to boost revenue.

Why it matters:

Investors like the move, as Netflix shares are up nearly 30% in the past month and have more than doubled from the 2022 low.

Still, it was a turbulent 2022 for Netflix. The stock cratered, and subscription growth stalled. The company had to think creatively about returning to its winning ways. Enter: Password-sharing crackdowns.

• Last year, the company reported two straight quarters of subscriber losses for the first time. Its so-called “sub-base” grew again late last year and into this year, but at a much slower clip than during the early pandemic days, when seemingly everyone was at home streaming shows and movies.

Interestingly, this problem isn’t new to Netflix. For years, it didn’t mind users sharing passwords, because it signaled how popular and in-demand their streaming had become.

• But by 2019, Netflix’s internal researchers had identified it as a major problem. In the past few weeks, the company’s delays in cracking down on password sharing finally ended after four years.
• Account sharing “undermines our ability to invest in and improve Netflix for our paying members, as well as build our business,” the company noted in its latest shareholder letter.

It’s also a strategic move as the streaming space becomes increasingly competitive. Netflix is the first-mover and leader in the space, but Disney, Apple, Amazon, and other players are trying to collect subscription revenue of their own.

 

---

TRIVIA ANSWER

Since 1939, the S&P 500 hasnever posted a negative return from a presidential midterm election through the first half of the following year. Six times, the return has been greater than 20%. This year could be the seventh occurrence.

See you next time!

That’s it for today on We Study Markets!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

 

All the best,