Morning Watchlist: Friday Edition
A quick note from Behind the Markets
We're closing out the week, and the big thing finally happened. On Wednesday, the Federal Reserve raised interest rates for the first time in three years — a quarter point, to a range of 3.75% to 4.00%, on a unanimous vote, with one more hike penciled in before year-end. Chair Warsh kept it blunt: "inflation remains elevated."
The Dow fell 631 points. The two-year Treasury jumped to a fresh 52-week high at 4.73%. The ten-year held above 5%.
But here's the thing about the most telegraphed rate hike in a generation: by the time it arrived, everyone had already taken their seats. The week's real opportunities were hiding in three quieter places — a freight yard in Arkansas, an oil field in Venezuela, and a playground in Brussels. Three stories this morning. Three pairings. Let's get into it.
1) The $6.31 Gallon
On Tuesday night, at an investor conference, trucking and logistics giant J.B. Hunt quietly warned that its third-quarter earnings would come in 5% to 10% below last quarter's. Wall Street had penciled in roughly $2.10 a share; the warning implies something closer to $1.77. By Wednesday's close, the stock had fallen 13.3%.
Two numbers did the damage. Diesel first: the national average diesel price hit a record $6.31 a gallon this week — up roughly 70% in a year — after climbing in eight of the eleven weeks this quarter. J.B. Hunt says fuel alone takes at least a $10 million bite out of the quarter, because the surcharges it passes to customers lag the pump by a week, and the pump keeps moving. Then drivers: another $25 million for recruiting, bonuses, and retention.
Now, the part the crowd missed while it sold the trucker. A freight train moves a ton of cargo roughly three to four times farther on a gallon of diesel than a truck does. At $3 diesel, that's an accounting footnote. At $6.31, it's a business plan. The shift is already underway — Union Pacific's own commentary this week flagged record diesel pushing freight from highways to rails.
So the obvious trade is "buy a railroad." Except the railroads come with complications: the two biggest are trying to merge — Union Pacific and Norfolk Southern, still parked in front of regulators — and the rest trade near a full market multiple after the crowd noticed them.
We'd rather not guess which railroad wins the freight. We'd rather own the boxcars.
The pairing: GATX (GATX) — Buy
GATX doesn't run a single train. It owns tank cars, boxcars, and freight cars, and rents them to the shippers and railroads that do — think of it as the U-Haul of the rails. When a whole town decides to move at once, you don't need to guess anyone's new address. You just need to own the trucks.
The numbers are doing their part. Second-quarter earnings came in at $2.84 a share against $2.46 expected, and management raised its full-year guidance to $9.90–$10.30. At about $178, that's roughly 17.5 times this year's guided earnings. The S&P 500: 21 times. It's a $6.3 billion company — squarely in our mid-cap wheelhouse — that just finished absorbing the Wells Fargo railcar fleet ahead of schedule, and the four analysts covering it all say Strong Buy, with an average target near $220 (Citi at $215, Goldman at $222).
The honest risks: leasing is a borrowing business, so Wednesday's hike raises GATX's own funding costs; a genuine freight recession would park railcars no matter what diesel costs; and if crude collapses, the tailwind fades. The kill switch: lease renewal rates rolling over.
2) The Fixer-Upper With 50 Billion Barrels in the Basement
Nearly twenty years ago, Venezuela seized Exxon's assets and chased it out of the country. This week, the Wall Street Journal reported that Exxon is nearing a preliminary agreement to invest in Venezuelan oil fields holding as much as 50 billion barrels of crude — with Washington, now steering events in Caracas, pushing hard to get barrels flowing against an oil market inflamed by the Iran war. Even with the Gulf still smoldering, U.S. crude slipped 3.7% on Wednesday to just under $102.
Be honest about what this is: a supply story measured in years, not weeks. Venezuela's oil industry is a ruin — production is a fraction of its old peak, and the fields, pipelines, and terminals have decayed for two decades. Whoever ends up owning those barrels, somebody has to rebuild all of it first.
And the rebuild is paid by the day.
The pairing: SLB (SLB) — Buy
SLB — the company formerly known as Schlumberger — is the world's largest oilfield-services firm, and regular readers have met it before: it's the buyer paying $3.4 billion for Kelvion, the data-center cooling deal that anchored our Modine call. A country trying to restart 50-billion-barrel fields is a fixer-upper mansion, and SLB is the general contractor: whoever ends up holding the deed, the contractor gets paid either way. It already got the first call — a fresh contract giving it access to PDVSA's oilfield data.
At Wednesday's $52.30, SLB trades at about 18.5 times forward earnings against the S&P's 21, pays a 2.3% dividend, and carries a consensus Buy from 30 analysts with an average target of $62; UBS just went to $75 on Monday. The honest risks: SLB knows Venezuela's dark side better than anyone — it curtailed work there last decade over unpaid bills, so "paid by the day" carries a Venezuelan asterisk; the stock is up some 65% from its 52-week low, so we are not early; and politics can reverse faster than drill bits turn. One more honesty note: new Venezuelan supply is exactly the "cheerful loss" risk we named on our Magnolia and Darling calls — cheaper crude would cool those while it keeps SLB busy. We'll take that trade-off with open eyes.
3) Brussels Built a Fence Around the Playground
The leak arrived this week, and the unveiling was set for Thursday: the European Commission's Kids Act, presented by Ursula von der Leyen herself. The draft is sweeping. Children under 13 would be restricted to designated child-friendly services with full parental controls. Thirteen- and fourteen-year-olds would need parental authorization for social media. Platforms would have to verify ages on every account — and every game download — kill addictive algorithmic feeds, and pay "supervisory fees" to fund their own regulators.
The crowd's math was immediate: fence around the playground, fewer kids, sell. Roblox — where roughly 40% of daily users are under 13 and about a quarter of them are in Europe — fell 5.6% Wednesday to $47.43. It's now down two-thirds from its 52-week high.
But read the leaked text again. It doesn't ban children's gaming. It says under-13s belong on child-friendly services with full parental control — which reads less like a death sentence and more like a description of what Roblox has spent years building: parental controls, age tiers, safety agreements already signed with regulators in Australia and the Philippines. It's like a city passing brutal new health codes: the end of the road for the food trucks, a quiet gift to the chain that already owns stainless-steel kitchens. For the incumbent that can afford compliance, regulation is a moat.
The pairing: Roblox (RBLX) — Watch
So why Watch and not Buy? Because a moat doesn't fix an income statement. Roblox lost $1 billion over the past year — on revenue of $5.7 billion growing 41% — and the average analyst target sits at $47.47, almost exactly the price. The final rules are months of negotiation away, and drafts can get stricter as easily as softer. Our entrance: the final text preserving the under-13 child-friendly lane, with losses narrowing — or a washout that pays us for the uncertainty. The kill switch: Brussels lumping children's gaming in with the social-media lockout. Then 40% of the audience becomes a liability, not a moat.
Before You Go
That's the watchlist. A record diesel bill and the landlord of the boxcars, a 50-billion-barrel fixer-upper and its contractor, and a fence around the playground that may favor the kid who already built the gates. One theme this morning: the Fed did the most-telegraphed thing in years, and the week's best setups were filed under freight, plumbing, and playground rules.
Some housekeeping. Lennar confessed Wednesday night: revenue down about 9% and short of estimates, earnings of $1.19 a share against $1.29 expected, and operating margin down to 5.5% from 7.9% a year ago. Our September 13th entrance required margins finding a floor and a friendlier Fed — Wednesday delivered neither. Still Watch; the full grade comes in tomorrow's review.
By the time you read this, the Bank of Japan has likely made its call overnight — we went to press first. That decision is the entrance bell we named for both Aflac and Mitsubishi UFJ, and tomorrow's review grades it too.
And mind today's closing bell. It's quadruple witching, and the index funds selling The Trade Desk ahead of Monday's S&P 500 deletion must finish by the close. Our rule from September 13th stands: nobody buys before the bell — and only if the washout prints and holds past the 21st.
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Written by Behind the Markets