What happened in the markets: 15 Jan - 19 Jan 2024
The stock market wrapped up the shortened week on a high note, with the S&P 500 reaching a new record high. This surge was driven by a rally in semiconductor stocks and other major tech names, fueled by optimism surrounding artificial intelligence. Chipmakers saw significant gains after Taiwan Semiconductor reported a surge in demand for high-end chips used in AI. Additionally, investors were uplifted by the University of Michigan's survey, which indicated an improvement in consumer sentiment in January, reaching its strongest level since summer 2021. Throughout the week, the Dow Jones gained 0.7%, the S&P increased by 1.2%, and the tech-heavy Nasdaq Composite climbed 2.3%, propelling all three major stock market averages into positive territory for the year.
Last week at a glance
China's Demographic Dilemma: A Shrinking Population
As we calmly navigate the complexities of the global economy, it's essential to recognize the profound demographic shifts occurring in China. The National Bureau of Statistics has reported a notable decrease in China's population, with a reduction of over 2 million in 2023, bringing the total to 1.41 billion. This marks the second consecutive year of population decline, a trend that has not been seen since the Great Famine during Mao Zedong's era. Despite the relaxation of the one-child policy and incentives to encourage larger families, the birth rate has not rebounded as expected. This demographic shift is not just a statistic; it's a signal to investors about the emerging "silver" economy, which is projected to reach a staggering 30 trillion yuan ($4.2 trillion) by 2035, accounting for approximately 10% of China's GDP.
Questions For Investors To Ponder:
How would China’s shrinking population affect its spending power, and in turn companies that have significant exposure to the Chinese market, both from the supply and demand side of the equation.
Supply Side:
China’s ability to continue manufacturing goods cheaply
Demand Side:
China’s ability to continue to spend and buy goods
Navigating the Turbulence: Spirit Airlines' Blocked Merger
Investors in the airline industry faced a stormy situation as Spirit Airlines' shares plummeted by 47% following a federal judge's decision to block its $3.8 billion sale to JetBlue on antitrust grounds. This development raises the specter of a potential Chapter 11 bankruptcy filing for Spirit, although alternative financing options are being considered. The Department of Justice's opposition to the merger, despite JetBlue's divestiture plan, has also cast a shadow over other airline mergers, such as Alaska Air's proposed acquisition of Hawaiian Holdings. For new investors, this serves as a reminder of the volatility and regulatory hurdles present in the airline sector.
Questions For Investors To Ponder:
Is the airline industry still worth investing in given its recent problems?
Or are we confident that the industry will recover and this presents a great opportunity to capitalise on a temporary slump?
The Red Sea Ripples: U.S. Relabels Houthis as Terrorists
In a move that reverberates through the geopolitical landscape, the U.S. has redesignated Yemen's Houthis as a foreign terrorist organization. This decision, which reverses a previous stance by President Biden, comes amidst escalating tensions in the Red Sea and a series of retaliatory strikes. The implications for global trade are significant, with shipping routes being disrupted and Egypt raising Suez Canal transit fees. For investors, this highlights the importance of staying informed on international affairs that can impact market stability and logistics.
Questions For Investors To Ponder:
Will this escalate and cause oil prices and in turn cost of goods to climb higher?
Will this cause further supply shocks and increase the costs of production so much so that inflation figures continue to remain high? Cost-push inflation?
Who benefits from higher oil prices and supply shocks?
Who benefits if war breaks out?
Tech Triumphs: Nasdaq 100 Hits New Heights
The tech sector is demonstrating its resilience early in the year, with the Nasdaq 100 reaching a new all-time high. Driven by optimism in the chip industry and the buzz around artificial intelligence, the sector is outperforming despite the Federal Reserve's cautious approach to rate cuts. While some tech giants like Tesla have experienced a dip, the overall sector's growth is a positive sign for investors looking to capitalize on cutting-edge advancements.
Questions For Investors To Ponder:
How high can tech stocks go? Are they due for a correction? Or can they go even higher?
Has anyone done fundamental analysis on how big their markets can grow to eventually justify their market cap at a fair PE?
Tesla seems to be going down when others are going up, what caused that?
Is that an opportunity to buy for the long term?
Or will Tesla drop even further?
Is Tesla’s price drop due to temporary factors, or is there a fundamental change in the market for EVs?
Should Tesla give Elon Musk the stock compensation he is asking for?
What would happen if Elon Musk really moves AI development away from Tesla? Will Tesla still be worth that much without AI powered self-driving technology and potentially an OS for robotics - Optimus?
Will just being the Apple of electric cars, trucks and possible energy storage and generation (solar roof + powerwall + megapack justify its current valuation)?
Averting Crisis: Congress Passes Stopgap Spending Bill
In a move that avoids a government shutdown, Congress has passed a temporary spending bill to fund federal operations into early March. This stopgap measure, the third of its kind in recent months, provides lawmakers with additional time to finalize funding bills for the fiscal year. Despite opposition from hardline Republicans, the bill's passage ensures continuity in government spending, an essential factor for investors monitoring the stability of the U.S. economy.
Questions For Investors To Ponder:
This has happened so many times that most of us can quite reliably predict what would happen - the US govt is unlikely to truly shutdown unless something drastic happens.
Does these events still move the stock market enough that traders can take advantage of it?
The Odds Are Now 50/50
Investors have tempered their previously aggressive expectations for a Fed rate cut cycle, as indicated by the latest data. According to the CME FedWatch Tool, late Friday traders estimated a 47% likelihood of a quarter-point cut to the benchmark fed funds rate after the Federal Open Market Committee (FOMC) March meeting, down from 77% a week earlier. Additionally, traders anticipate a 97% probability that the FOMC will maintain the funds rate target at 5.25% to 5.5% during its January 30 – 31 meeting.
Questions For Investors To Ponder:
CME FedWatch Tool - Probability of rate cuts by March dropped from 77% to 50% - Higher for longer? For traders, sideways for longer?
How can traders take advantage of sideways for longer until rate cuts happen?
Top movers & shakers🎢
DraftKings (DKNG) - saw a 0.2% increase after Stifel upgraded the online gambling platform from "hold" to "buy," noting a diminishing impact of market share challenges from ESPN Bet, a new competitor.
Amazon’s (AMZN) - proposed acquisition of the company. Meanwhile, Amazon shares rose by 1.2%
J.B. Hunt Transport Services (JBHT) - rose by 0.9% after the trucking company reported stronger-than-expected quarterly revenue and a 6% increase in intermodal shipping volume.
Spirit Airlines (SAVE) - surged by 17% after the company announced that it anticipates fourth-quarter revenue to exceed its previous forecasts due to robust bookings.
The week ahead: 22 Jan - 26 Jan 2024
The upcoming week will put the spotlight on the tech sector following a series of strong sessions driven by the performance of chip stocks such as Nvidia, AMD, Broadcom and Micron Technology.
Key focus areas for the week include growth indicators, with significant releases like the preliminary Q4 GDP reading in the U.S. and global flash PMIs.
Additionally, central banks are expected to make monetary policy statements and interest rate decisions, including the Bank of Japan, European Central Bank, and Bank of Canada. In the U.S., Federal Reserve members will observe a blackout period with no public talks ahead of the next FOMC meeting on January 30-31.
The earnings calendar is packed, with notable companies like Tesla, Netflix, Visa, and American Airlines Group set to report.
Key Things To Look Out For
Fourth-quarter GDP
PCE inflation
Earnings
Monday, January 22 - United Airlines Holdings (UAL)
Tuesday, January 23 - Johnson & Johnson (JNJ), Procter & Gamble (PG), Netflix (NFLX), Verizon Communications (VZ), Texas Instruments (TXN), General Electric (GE), and Lockheed Martin (LMT).
Wednesday, January 24 - Tesla (TSLA), Abbott Laboratories (ABT), IBM (IBM), AT&T (T), General Dynamics (GD), Las Vegas Sands (LVS), and CSX (CSX).
Thursday, January 25 - Visa (V), Intel (INTC), Comcast (CMCSA), Union Pacific (UNP), American Airlines Group (AAL), Southwest Airlines (LUV) and Levi Strauss (LEVI).
Friday, January 26 - American Express (AXP) and Colgate-Palmolive (CL)
Dividends
Companies forecast to increase their quarterly dividend payouts include Blackstone (BX) to $0.90 from $0.80 and Comcast (CMCSA) to $0.31 from $0.29.
Events
The three-day TD Securities Global Mining Conference will include participation from Endeavor Group Holdings (NYSE:EDR), 10x Genomics (NASDAQ:TXG) and Wheaton Precious Metals (WPM).
Sources:
https://seekingalpha.com/article/4663950-wall-street-breakfast-what-moved-markets
https://seekingalpha.com/article/4663978-wall-street-breakfast-week-ahead
https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/stock-market-weekly-update
https://www.schwab.com/learn/story/schwab-market-update
*Disclaimer: This information is provided for general information purposes only. Consider your investment objectives, financial resources and other relevant circumstances carefully before investing. This is not an invitation or an offer to invest, nor is it financial advice or a recommendation to buy or sell any investment.
