Macrosynthesis

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Trade Wins Shift

A growing economic war between the U.S. and China is shifting global trade on its axis. For the first time in 20 years, the U.S. is now importing more from Mexico than China.

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U.S. companies are increasingly looking for trading partners in countries outside of China to avoid the authoritarian government stealing intellectual property and imposing harsh rules on corporations. Diversifying the supply chain has increased business in Mexico, India, and Vietnam - where President Biden is currently visiting to boosts relations.

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Vietnam has emerged as an important alternative site for outsourcing manufacturing. U.S. imports of Vietnamese goods have risen 100% to $127 billion annually in the past few years. Over the weekend, Vietnam Air agreed to buy $10 billion worth of Boeing 737 planes.

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The Vietnam ETF (VNM) is up +26% this year.

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China Bans iPhones

In a move consistent with growing anti-U.S. sentiment, the Chinese government banned the use of Apple phones at government facilities, citing security issues. China makes up 18% of Apple's phone sales. Apple stock slide -6% on the news last week, before recovering some.

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China was recently labeled uninvestable by the U.S. Commerce Secretary given its inability to allow businesses to flourish without harmful government intervention.

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Last Week's Recap

US stocks experienced a rise on Friday, with investors keenly anticipating next week's August inflation report for insights on potential shifts in US interest rates. The Dow Jones elevated by 76 points, whereas both the S&P 500 and the Nasdaq saw a growth of 0.1% each.

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Tracking escalating oil prices, energy stocks like Marathon Petroleum, Valero Energy, and Phillips 66 emerged as substantial gainers.  Despite Friday's gains, the week ended with a downturn, witnessing a decrease of about 1% in the Dow Jones, 1.5% in the S&P 500, and 2.1% in the Nasdaq.

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Used Vehicles Get More Expensive in August

In August 2023, the US Manheim Used Vehicle Value Index rose by 0.2%, the first increment in five months, aligning with the historical average of 0.3% since 1997. Yearly, there was a 7.7% reduction in used car prices, marking the 12th straight month of decline. These trends are projected to stabilize wholesale prices through the end of the year.

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Oil Continues Rally

On Friday, WTI crude futures surged to approximately $87.4 per barrel, marking their highest value since early November and registering a nearly 2% weekly increase, primarily due to anticipated supply constraints. This boost came after Saudi Arabia extended its voluntary output reduction of 1 million barrels daily until the end of December, coupled with Russia's decision to cut its oil exports by 300,000 barrels per day through the year's end. Moreover, US crude stockpiles diminished significantly by 6.3 million barrels last week, vastly surpassing the projected 2.1 million barrel decrease. Despite this, there are ongoing concerns regarding potential decreased demand, attributed to China's weakening economy and the apprehension that forthcoming Fed interest rate increments might dampen energy consumption.

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Pound Gets Pounded

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The British pound fell below the crucial $1.25 mark, its lowest since early June, following comments from the Bank of England's Governor Andrew Bailey during a session in the UK Parliament. Bailey indicated that the BoE might be nearing the end of its consecutive interest rate hikes, but highlighted the lingering possibility of further increases due to ongoing inflationary issues. Meanwhile, strong economic data from the US, especially in the employment and services sectors, has shifted investors' focus towards the US dollar.

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Last Week's Top Events

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Noteworthy Events    

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You Can't Stay Here

AirBnb (ABNB) was dealt a blow by the New York City government, which began instituting a ban on short term AirBnB rentals in New York City. The market is worth $85 million annually to ABNB, and follows a string of other cities - Paris, Amsterdam, and Barcelona - imposing similar bans in an effort to reclaim affordable housing and fight inflationary drivers. Good news for Marriott (MAR) and Hilton (HLT).

Hudson Pacific Slides

Hudson Pacific Properties, a commercial real estate firm based in California, saw a decrease of -4.2% in their stock value Friday following the suspension of their common stock dividend. The CEO, Victor Coleman, cited challenging market conditions, including the ongoing Hollywood strike, as the reason for the suspension.

LevelFields users were alerted to the event under the Dividend Reduction scenario.

Kroger Pops

On Friday, Kroger - the supermarket giant - experienced a +3% rise in stock due to its impressive second-quarter earnings which surpassed expectations by 5%, registering an adjusted 96 cents per share. Despite this, the company failed to meet the anticipated revenue, reporting $33.85 billion for the quarter.

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RH Slides

RH, a retailer specializing in home goods, experienced a significant decline Friday, with shares dropping over -13% due to disappointing third-quarter earnings. CEO Gary Friedman alerted shareholders to anticipate continuing macroeconomic challenges, which are projected to exert additional pressure on the luxury housing market throughout 2023.

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Align Technology

Thursday, Align Technology witnessed a notable -7.8% decline in stock value. The company announced its acquisition of 3D printing business, Cubicure, in a deal valued at approximately 79 million euros, or about $84.6 million, on Wednesday.

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LEVEL 2 TRADE UPDATES

A snippet of what we send weekly to Level 2 subscribers:

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GCT - the stock rose +28% last week after we called it a buy. Our price target was 16, but it's likely got juice to hit 20/share.

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ELV - the healthcare stock formerly known as Anthem has forward earnings of $32/share. At a P/E of 16, the stock would trade at $512/share. It's currently trading under 450, making it highly discounted.

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ELV is quickly adopting AI tools for claims processing and customer support. As an insurance company, claims processing composes a large percentage of its personnel expenses. Imagine if half of it could be automated? The cost reductions would drive earnings considerably.

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Despite generative AI getting all the attention, it's the business process automation in human-centric, document heavy businesses like insurance companies where a lot of the economic benefits will be derived.

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CASE STUDY: UIPath +15% in 3 days

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LevelFields can be used to identify stocks with multiple catalysts as well as to find single events. Multiple event catalysts will drive the share price higher than single events as was the case with UIPath - a robotics company - last week.

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PATH announced a new stock buyback program Sept. 6th and beat earnings estimates by 5 cents per share the same day. Following the announcement, the price of PATH rose +15% over the next 3 days. Note, it was not all priced in by the open on the first day. Large asset managers don't deploy capital pre-market or quickly.

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It's important to note earnings dates when the alerts arise and to check to see what kind of earnings the company posted. While we're working to automate earnings analysis, it's quite difficult given the various ways companies report earnings (GAAP, non-GAAP, adjusted, unadjusted, diluted, non-diluted, USD, Yuan, Euro, etc).

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For now, it takes a manual check to see how the company did, but we include earnings dates on the application to ensure you don't miss it.

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Upcoming Catalysts:

Notable Earnings

Monday

Oracle (ORCL)
FuelCell Energy (FCEL)

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Wednesday

Cracker Barrel Old Country Store (CBRL)

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Thursday

Adobe (ADBE)

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This is not financial advice. All information represent opinions only for informational purposes.

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The LevelFields Team