Macrosynthesis

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That's a Wrap

The S&P 500 and Nasdaq declined by -4% and -6% last week respectively, impacted by company-specific issues and broader economic concerns. Nvidia and Netflix were notable losers, with sharp falls in their stock prices following structural changes to reporting from Netflix and Super Micro Computer. Netflix stated in their earnings they would stop tracking subscriber growth, while SMCI failed to report preliminary revenue figures as they had done in the past. This seemed to lead to speculative selling on beliefs that demand for both products may be waning.

SMCI's change may be a big nothing burger, but it was enough to start a selloff in stocks that had received a huge boost from the AI growth story. That story, paired with fears of stubborn inflation and higher for longer interest rates, began to unwind last week as investors took gains and reallocated capital towards government bonds and hard asset classes, namely Gold, Utilities, Airlines, and Consumer Staples, which all rose last week. Semiconductors, clean tech, and tech stocks sold off the most last week, with the semiconductor index down 11 percent.

In contrast, the Dow Jones Industrial Average was fairly flat last week, helped by a strong performance from American Express.

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Overall market sentiment is fearful, per CNN's Fear & Greed Index shown above (although this is pretty obvious in the price action). Equities had been priced on the assumption of multiple rate cuts this year but discounted cash flow models are being reworked to show inflation higher for longer, and rate cuts coming later than expected. The math makes companies with high valuations less valuable on paper, as the current value of future cash flows get discounted.

With commodity prices on oil, gas, coffee, cocoa, and various metals on the rise, and military conflicts happening all over the globe increasing poverty, misery and prices for goods and services, the inflation battle looks less likely to succeed in the short term than it did a few months back. The data is sending wealth managers looking to shift some money towards "safer asset classes."

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As we indicated in our January newsletter, the current volatility in the market today was predictable, as investors are focused on macroeconomic data and rate cut schedules. This is why we recommended buying VIX calls at the $14 strike price for April back then for Level 2 subscribers. Positive earnings reports can change the outlook quickly, however, and next week a number of large companies are reporting earnings.

Market corrections of 5-10% occur at least once a year on average, often following big runs in the market. If the average holds true for this quarter, we could be halfway through a -10% market correction in the S&P 500, with a price target of 4,710 as the support level.

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Looking forward

Traders are set to review several key economic indicators including the first quarter GDP growth rate and the PCE prices. Observers will also pay attention to personal income and spending data, along with durable goods orders and the S&P Global Manufacturing and Services PMI readings. In the real estate sector, statistics on pending and new home sales will be analyzed.

Defense Contractors Get Booster

The U.S. House passed a comprehensive $95 billion aid package, providing substantial support to Ukraine, Israel, and Taiwan in the form of purchases for weapons and ammo from U.S. defense contractors. This decision included $61 billion for Ukraine. The package is expected to pass in the Senate.  

Powell, the Dollar, and Everyone else.

Federal Reserve Chair Jerome Powell announced this week that "it's likely going to take “longer than expected.” to gain the confidence needed to lower rates. Higher U.S. rates strengthen the dollar, potentially pressuring other currencies.

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Stay Gold

Gold prices hit an all-time high due to Middle East tensions and safe-haven demand. The price was buffered by robust U.S. economic data and the Federal Reserve's hawkish stance. Saudi Arabia is advancing towards a significant investment in Pakistan's Reko Diq mining project, held by Barrick Gold Corp (GOLD). This $1 billion initiative by Manara Minerals Investment Co., supported by the Saudi sovereign wealth fund, aims to secure a minority stake in the mine, which also involves copper extraction.

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Commodity Movers

Cocoa

+12.94% (1W Chg)

+34.52% (1M Chg)

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Copper

+5.61% (1W Chg)

+11.23% (1M Chg)

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Silver

+2.95% (1W Chg)

+11.56% (1M Chg)

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Tea

+34.52% (1D Chg)

-11.96% (YoY Chg)

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Noteworthy Events    

Not So Super Week for SMCI

Super Micro Computer saw its stock fall over -23% on April 19th. The company announced that its fiscal third-quarter results would be released on April 30, however, it did not provide any financial guidance before this report. Although the drop was unexpected and large, SMCI is up over 560% in the last year.

The Blacklist

‍A House investigation revealed that Wall Street firms like BlackRock and MSCI invested billions in index funds containing shares of over 60 Chinese firms blacklisted for military links and human rights violations.

Taking Flight

United Airlines' stock rose +17.5% April 17th following a first-quarter performance where its losses were smaller than anticipated and its revenue of $12.54 billion exceeded the expectations of $12.45 billion. UAL is up over 45% in the last 6 months.

Show Stopper

Live Nation Entertainment's stock fell over 7% April 16th after reports in the Wall Street Journal indicated that the U.S. Department of Justice plans to initiate an antitrust lawsuit against the concert promotion company. LYV closed the week down over 11%.

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Upcoming Catalysts:

EARNINGS

Monday

• Verizon (VZ)
• Nucor (NUE)

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Tuesday

• Halliburton (HAL)
• MSCI (MSCI)
• Lockheed Martin (LMT)
• Tesla (TSLA)
• Enphase Energy (ENPH)
• Mattel (MAT)
• Steel Dynamics (STLD)
• Visa (V)

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Wednesday

• Biogen (BIIB)
• Boeing (BA)
• General Dynamics (GD)
• Hilton (HLT)
• Meta Platforms (META)
• Chipotle Mexican Grill (CMG)

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Thursday

• American Airlines (AAL)
• AstraZeneca (AZN)
• ADT (ADT)
• Caterpillar (CAT)
• Northrop Grumman (NOC)
• Newmont (NEM)
• Microsoft (MSFT)
• DexCom (DXCM)

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Friday

• Chevron (CVX)
• AutoNation (AN)
• Exxon Mobil (XOM)

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The LevelFields Team