What happened in the markets: 26 Feb - 1 March 2024
Stocks surged on Friday, with the S&P 500 and Nasdaq Composite reaching new all-time highs. This was driven by a rally in tech stocks, particularly those involved in artificial intelligence such as Nvidia, NetApp, and Advanced Micro Devices.
The boost was further supported by a decrease in Treasury yields, as disappointing factory data and a drop in consumer sentiment solidified expectations for interest rate cuts from the Federal Reserve in the coming months.
Market participants adjusted their rate cut expectations upwards following the economic data, with the odds of a 25 basis point rate cut at the Fed's May meeting now standing at nearly 26%, up from 18% the previous day according to the CME FedWatch tool.
Despite troubled New York Community Bancorp's 25% decline due to the disclosure of internal control weaknesses related to its loan review, the broader market remained positive. For the week, the Nasdaq rose by 1.7% and the S&P by 0.9%, marking their seventh positive week out of the past eight, while the Dow Jones index experienced a 0.1% weekly loss.
Last week at a glance
Apple Cancels EV Project
News is that Apple canceled work on its electric vehicle initiative - Project Titan after spending billions of dollars on it. The company shifted some of the employees to work on generative artificial intelligence instead.
Beyond Meat Up 73.5% Despite Strong Short Interest
Beyond Meat (BYND) surged 73.5% after-hours on Wednesday following its Q4 earnings report, which exceeded expectations. The company's strong international sales offset weak U.S. demand. CEO Ethan Brown outlined plans to significantly reduce operating costs and cash use by 2024, implement pricing actions, and optimize production to drive margin expansion. The company also announced a core platform renovation in Beyond IV and non-cash charges related to inventory and assets. Despite the positive news, the stock's close to 40% short interest likely contributed to the significant price swing.
Further Reshuffle Among Top Stocks?
The dominance of the Magnificent 7 stocks in the U.S. equity market has been increasing since early 2023. However, there are signs that this leadership may be ready to change. Microsoft, Apple, and Alphabet did not perform as well as the S&P 500 last month, and Tesla's year-to-date performance is down about 18%. This means that NVIDIA, Meta, and Amazon are driving most of the relative gains. As the year progresses, we anticipate that leadership will broaden as investors seek opportunities in market segments that have been overlooked, such as value-style investments and mid- and small-cap stocks. This shift is likely to occur if the Fed pivots to rate cuts, manufacturing PMI and other growth measures improve, and the earnings outperformance between mega-cap tech and the rest of the market narrows.
High Stock Prices Supported By Increased Earnings
The recent surge in stock prices has not only been limited to the market, but also extends to corporate earnings. The rally in stocks over the past year has been largely fueled by increased valuations, and it is anticipated that further gains will need to stem from growth in corporate profits. Encouragingly, the current earnings season has shown robust performance, indicating a potential resurgence in earnings. With the majority of S&P 500 companies having reported their results, revenue is on the rise at 3.8% and earnings are showing a solid 7.5% growth. While much of this growth is driven by a select few large-cap tech companies, positive results have been observed across the board. Looking ahead, it is anticipated that cyclical sectors may experience improvement in the latter half of the year as the Federal Reserve shifts towards rate cuts. Supported by strong economic growth, the forward 12-month earnings estimate for the S&P 500 has reached a new high, approximately 4% above the previous peak in June 2022. In summary, the upward trend in stocks is expected to persist due to the increasing earnings, albeit with the possibility of heightened volatility. As the earnings season draws to a close, attention will now turn back to economic data and the Federal Reserve's upcoming meeting in March, which will include updated economic and interest-rate projections.
Top movers & shakers🎢
Amgen (AMGN) stock price surged 2.4% after Goldman Sachs (GS) upgraded the their rating to "conviction buy" from "buy,". They did that because they think that the company is well positioned to add multi-billion-dollar opportunities to its portfolio via a "robust pipeline" of drugs in development.
Broadcom hit a record high near $1,400. This came after Bank of America (BAC) raised its price target to $1,500 from $1,250. They also kept a "buy" rating on Broadcom.
Dell Technologies (DELL) rose 32% after their fourth-quarter results beat analysts' estimates. This was fuelled by demand for its artificial intelligence (AI) servers.
Hewlett Packard Enterprise (HPE) is up 2.2% after the company beat expectations for their earnings per share (EPS), overshadowing lighter-than-expected revenue.
Daimler Truck (DTRUY) is also up 16% after a record full-year profit and announced that they will buy back more than $2 billion worth of shares.
New York Community Bancorp (NYCB) dropped 26% after its management identified "material weakness in the company's internal controls." The company also announced a new chief executive officer.
Spirit AeroSystems (SPR) is up 15% following reports that Boeing (BA) was in talks to reacquire the company nearly 20 years after spinning it off into a separate company.
The week ahead: 4 March - 8 March 2024
The upcoming U.S. jobs report for February is set to be the primary economic focus of the week. Analysts predict that job growth is likely to have risen by 190,000 during the month, while the unemployment rate is expected to remain steady at 3.7%. It is noteworthy that the anticipated month-over-month increase in average hourly earnings is expected to decelerate to +0.2% from the +0.6% seen in January. This report will be released just 12 days before the next Federal Reserve Open Market Committee meeting on March 20.
Earnings
Monday, March 4 - Sea Limited (SE), GitLab (GTLB), and Stitch Fix (SFIX).
Tuesday, March 5 - Target (TGT), NIO (NIO), Ross Stores (ROST), CrowdStrike (CRWD), and Box (BOX).
Wednesday, March 6 - JD.com (JD), Campbell Soup (CPB), Abercrombie & Fitch (ANF), and Victoria's Secret (VSCO).
Thursday, March 7 - Kroger (KR), Costco (COST), Broadcom (AVGO), Gap (GPS), Marvell Technology (MRVL), and DocuSign (DOCU).
Sources:
https://seekingalpha.com/article/4675462-wall-street-breakfast-what-moved-markets
https://seekingalpha.com/article/4675500-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.
