Macrosynthesis

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Last Week

The S&P 500 showed a mixed performance, experiencing fluctuations driven by investor reactions to economic data and corporate earnings reports. Despite some volatility, the index managed to close the week with modest gains, reflecting cautious optimism about the economy’s resilience and corporate profitability. The Nasdaq exhibited a similar pattern, with tech stocks leading the charge amidst market volatility. The index benefited from strong earnings reports from several key technology companies, contributing to overall positive momentum. By the end of the week, the Nasdaq posted solid gains, underscoring continued investor confidence in the tech sector’s growth prospects.

The gold market experienced significant gains this week, with prices surpassing previous highs and reflecting a nearly 17% increase year-to-date. This rise is partly attributed to China's announcement of stimulus measures aimed at revitalizing its property sector, which positively influenced global market perceptions.

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Top Weekly Performing Sectors

• Tech and Communications were the only positive sectors this week
• Among industries, solar stocks and semiconductors significantly outperformed, with gold miners and regional banks seeing the biggest losses.

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Growthy

The PMI data for May from S&P Global brought positive news for economic growth, showing that the combined output of the manufacturing and service sectors in the four major developed economies - the 'G4' - increased at the fastest pace in a year. Additionally, inflation pressures have eased, reaching one of the lowest levels in over three years. Markets initially reacted negatively due to the realization the U.S. economy is too strong to warrant interest rate cuts.

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Durable Goods Demand Rises‍‍

In April 2024, new orders for U.S. manufactured durable goods rose by 0.7%, surpassing expectations of a 0.8% decline. This third consecutive monthly increase was driven by transport equipment demand and gains in computers, electronics, fabricated metals, machinery, and electrical equipment.

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Oil Falls

WTI crude futures fell below $77 per barrel, hitting a three-month low, due to demand concerns and rising US stockpiles. Strong PMI data dampened hopes for Fed rate cuts. Despite a surprise rise in crude inventories, high gasoline demand and the upcoming OPEC+ meeting offer some support.

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China Strikes Back

China plans to impose up to 25% tariffs on imported large-engine cars, escalating trade tensions with the EU and US. This move targets European and US carmakers such as Mercedes-Benz, BMW, and Toyota. The potential tariffs come as the EU nears a decision on imposing duties on Chinese electric vehicle imports. China's retaliatory stance may also affect European wine and dairy products amid ongoing trade disputes.

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When to Cut?

Goldman Sachs has revised its forecast, now predicting the Federal Reserve will begin cutting interest rates in September instead of July, citing the economy's resilience. Other banks, like JPMorgan Chase and Citigroup, hold to a July cut forecast. The bond market has responded, with 10-year Treasury yields rising to recent highs.

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Commodity Movers

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Potatoes

+40.73% (1W Chg)

+59.11% (1M Chg)

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Natural Gas

-6.18% (1D Chg)

+25.52% (1M Chg)

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Cocoa

+11.53% (1W Chg)

-24.99% (1M Chg)

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Orange Juice

+6.26% (1W Chg)

+25.50% (1M Chg)

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Noteworthy Events    

Chips but no Dips

Nvidia surged 9.3% following its robust fiscal first-quarter results, exceeding expectations and announcing a 10-for-1 stock split. This positive performance also boosted other AI and semiconductor stocks, with Super Micro Computer shares rising by 1.2%.

Analog Devices' stock surged over 10% earlier in the week after the company's second-quarter results surpassed analysts' expectations. The East Coast-based semiconductor manufacturer reported adjusted earnings per share of $1.40 on revenue of $2.16 billion, exceeding the forecasted $1.26 earnings per share and $2.11 billion in revenue.

Not so Live

Live Nation Entertainment shares fell 7.8% on May 23rd after the U.S. Department of Justice filed a lawsuit to break up the company, alleging it violated antitrust laws as the parent company of Ticketmaster.

Missing the Target

Target shares fell over 8% on May 22nd following a first-quarter earnings miss, highlighted by a 3% year-over-year decline in sales. Target was down over 10% this week, however—still positive YTD-- up over 2%.

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LULU Stretches Losses

Lululemon's stock fell over 10% this week following a Wall Street Journal report announcing the departure of the company's chief product officer.

A Bike Ride to Nowhere

Peloton's stock dropped 16% on May 21st after the company announced a global refinancing initiative, including a convertible notes offering and a $1 billion five-year term loan. The company recently outlined a restructuring plan and has been facing declining sales. The once $162/share stock now trades at $3 share.

Pills for All Losses

Hims & Hers Health shares jumped 27.7% on Monday, the 20th, after the telehealth company announced it will offer compounded GLP-1 injections to compete with more expensive versions from Novo Nordisk and Eli Lilly, enhancing its weight loss program introduced in December. Despite being up over 40% for the week, the stock sold off in the following days and received a downgrade from Citi to neutral.

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Copper Cools

The price of copper dropped this week due to lower than expected demand, following huge gains for the metal amidst speculation that demand from China and data centers will drive rapid demand. For a better understanding of the uses of copper, read our latest article.

The Story of the Hurricane(s)

NOAA expects an intense hurricane season, with eight to 13 hurricanes, and four to seven major hurricanes with 111-mph or higher winds. There were three major hurricanes in 2023.

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CASE STUDY

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Durect Corp. Up 35% After FDA Approval

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What is a Breakthrough Therapy?

‍When there's a powerful new drug in development better than anything on the market, the FDA labels it a breakthrough therapy. This means the drug is eligible for expedited review for approval to be made available to the public.

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How do stocks react to Breakthrough Therapy designations?

‍It depends on the size of the company and the size of the problem the drug would be treating. Illnesses affected many people equates to big revenue potentials. But the opposite is also true - small problem, smaller sales opportunity.

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In relation to company size, smaller companies will see share prices jump higher than larger companies on this news. Using the filters in LevelFields, you can set alerts based on company size and revenue for this event type.

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What happened to Durect Corporation's stock price?

‍The stock shot up 35% over the past week, following the FDA's decision to fast tract its therapy for Alcohol-Associated Hepatitis - a common ailment among alcohol users.

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What was unique about this event?

‍DRRX stock only has a $40M market cap. This breakthrough therapy designation is only given when the FDA feels the clinical research shows promising results. A company this size that creates a blockbuster drug, can go on to have a market cap in the billions. That would create a 1,000X return, for a market cap of $4B.

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How long will it take to get the drug to market?

‍We can't know for sure - it could be months or years. And the next set of trials could fail. But these events afford opportunities to multiply returns massively, so keep a watch on this stock.

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Upcoming Catalysts:

EARNINGS

Monday

• Market closed

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Tuesday

• Cava (CAVA)
• Digital Turbine (APPS)
• Macy's (M)

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Wednesday

• Discks (DKS)
• Chewy (CHWY)
• Salesforce (CRM)
• C3.Ai (AI)
• HP (HPQ)

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Thursday

• Dollar General (DG)
• Best Buy (BBY)
• CostCo (COST)
• DELL

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The LevelFields Team