Macrosynthesis
That's a Wrap
On Friday, the S&P 500 and Nasdaq hit record highs, fueled by a tech-led rally as worries about Federal Reserve's delay in cutting interest rates subsided. Despite this, February's ISM data showed a significant contraction in factory activity, and Michigan consumer sentiment dropped some. The PCE inflation report eased some inflation concerns, and unexpectedly high initial jobless claims hinted at potential Fed rate cuts in June.
New York Community Bancorp's shares plunged -26% over loan risk issues, Nvidia surged over 4%, and Apple fell about 0.6% following its removal from Goldman Sachs' conviction list. Overall, the S&P 500 rose 1% weekly, and the Nasdaq increased by 1.7%, continuing their upward trend for the seventh week in eight, while the Dow slightly declined by -0.11%.
EuroZone Inflation
In February 2024, the Euro Area's annual inflation rate decreased to 2.6%, slightly above the expected 2.5%, marking the lowest rate in three months but still over the ECB's 2% target. Energy prices fell by 3.7%. The core inflation rate dropped to 3.1%, the lowest since March 2022 but above the 2.9% forecast.
Housing Market and MBS
In 2024, the U.S. housing market experienced its worst sales year in nearly three decades due to low supply and record costs. However, certain smaller city markets have bucked this trend.
Federal Reserve Governor Chris Waller advocates for the Fed to eliminate its $2.4 trillion mortgage-backed securities (MBS) holdings, accumulated to support the housing market and financial markets during crises. As part of quantitative tightening, the Fed aims to reduce its balance sheet, including allowing $35 billion of maturing MBS to run off monthly.
Going Off the Rails
A Norfolk Southern freight train derailed in Pennsylvania near Allentown, sending cars off the tracks and into the Lehigh River. Reported early Saturday, the incident involved no injuries, hazardous materials, or required evacuations, however, some diesel fuel from the train's engine spilled. This event occurs as Norfolk Southern faces scrutiny over the East Palestine disaster's anniversary, with President Biden criticizing the company's greed and announcing studies on the incident's effects. The CEO of Norfolk Southern also received a significant pay increase despite the disaster.
Regional Banks, CRE, and the Fed
The commercial real estate (CRE) sector poses significant risks to regional banks, as exemplified by New York Community Bancorp's (NYCB) current turmoil, including a CEO shakeup and internal control concerns. NYCB's specific vulnerability stems from its rent-regulated multi-family exposure, constituting 22% of its total loans, which is substantially higher than its peers. The broader regional banking sector is also at risk from CRE pressures, significantly as interest rates rise. The impending end of the Federal Reserve's emergency bank lending program on March 11 exacerbates these challenges, removing a crucial safety net for banks at a time when the CRE sector's vulnerabilities could lead to increased financial instability within the regional banking sector.
Year-to-date, US regional bank stocks have experienced declines this year, with New York Community Bank leading the downturn at a 66% drop. Valley National Bank and Metropolitan Bank both saw a 26% decrease, followed by HarborOne at -18%, Zions Bank at -15%, Western Alliance at -13%, Comerica Bank at -12%, and both Citizens Financial and US Bank at a 6% drop each.
Unsweetened
Rising cocoa prices are forcing candy makers likes Hershey's and Mars to cut back on the amount of chocolate in their chocolates, and to push other ingredients like nuts, caramel, and even air (WTH) into their candies to reduce costs. Cocoa prices reached a record high this year due to bad wether conditions for crops as well as crop diseases.
Commodity Movers
Coal
+9.72% (1W Chg)
+11.02% (1M Chg)
Gasoline
+4.03% (1W Chg)
+9.06% (1M Chg)
Gold
+1.95% (1D Chg)
+2.32% (1W Chg)
Cocoa
+35.14% (1M Chg)
+145.25% (YoY Chg)
Noteworthy Events
Spirit
Spirit AeroSystems' stock surged over 15% Friday amid reports that Boeing is discussing reacquiring the company, almost two decades after it was spun off as an independent entity.
Root
Root's stock soared almost 22% Friday and reached a new 52-week high following an upgrade from Jefferies, shifting its recommendation from neutral to buy. The investment bank cited a significant growth potential for Root, increasing its price target from $30 to $40, suggesting an approximate 25% potential gain.
C3.AI
C3.ai's stock saw a 24.5% jump Thursday following the company's report of a smaller-than-anticipated adjusted loss per share of 13 cents, alongside revenue that surpassed Wall Street forecasts.
Beyond Meat
Beyond Meat's stock soared over 30% Wednesday after outperforming expectations with a fourth-quarter revenue of $73.7 million, exceeding the $66.7 million forecast. It was also driven by its strategy of price hikes and significant cost reductions amidst a high volume of shorted shares. The company also announced plans for significant cost reductions throughout the year.
Super Micro Computer Inc. and Deckers Outdoor Corp. will join the S&P 500 on March 18. Whirlpool Corp. and Zions Bancorp will exit the index. SMCI and DECK stocks rose on the news. TIPS: Why does this matter?
CASE STUDY: DELL +90%
On Sept. 1, 2023, our Analysts sent the Alert below to Level 2 Members:
Shares of DELL are on the rise, following multiple event catalysts including an earnings beat of 60 cents per share, with the company reporting EPS of $1.74 and projections for the full year at $6.30 per share. Revenue also surpassed expectations by about $2 billion for the quarter.
This is a comeback story, rooted in its recent partnership with Nvidia to build servers to feed the soaring demand for servers being created by the rollout of AI across the globe. Dell will use Nvidia chips in its servers.
Analyst, CNBC, and Barron's are all touting the stock as a surprising part of critical AI infrastructure and that is sure to get the attention of investors. The stock, unlike Nvidia and other AI ecosystem components, is fairly valued at a forward P/E of about 10 (as of the time of writing this). We see the stock rising to at least $70 a share on these catalysts, and some analysts are projecting DELL will be included in the S&P 500 index in the near term - which would add another catalyst.
DELL rose from $56 to $70 a share a few days later. It traded sideways until 2024. The next event catalysts March 1, 2024 - being added to the S&P 500 and another earnings beat - drove the stock another leg up from $90 $124/share. A long position entered on our alert would have resulted in 90% gains.
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Upcoming Catalysts:
EARNINGS
Monday
- Sea Limited (SE)
- AeroVironment (AVAV)
Tuesday
- Target (TGT)
- Nio (NIO)
- Bank of Nova Scotia (BNS)
- CrowdStrike (CRWD)
- ChargePoint (CHPT)
Wednesday
- Abercrombie & Fitch (ANF)
- Foot Locker (FL)
- Korn Ferry (KFY)
Thursday
- Broadcom (AVGO)
- American Eagle Outfitters (AEO)
- Kroger (KR)
- Costco (COST)
- DocuSign (DOCU)
Friday
- Genesco (GCO)
The LevelFields Team