Macrosynthesis

Last Week

This week, U.S. stock markets saw significant gains, particularly in technology, as robust earnings propelled the Nasdaq up by 3.5% and the S&P 500 by 2.2%. Notable performers included Alphabet, soaring 10.2% to a record high after announcing its first dividend, and Microsoft, which climbed 1.8% after surpassing earnings forecasts. Conversely, the Dow Jones saw modest growth, up 0.5%. Intel's disappointing revenue outlook led to a 9.2% decline in its shares, significantly impacting the semiconductor sector despite broader tech strength. The energy sector displayed mixed results: ExxonMobil dropped 2.8% due to earnings shortfalls, while Chevron managed a slight gain. Utilities and transportation sectors struggled, with the Utility Average down 1.15% and the Transportation Average declining by 0.82%. Overall, the market trend reflects strong tech sector performance contrasting with weaknesses in utilities, transportation, and specific energy stocks.

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U.S GDP and Unemployment Slows While Inflation Grows

In the first quarter of 2024, the US economy grew at a slower pace of 1.6% annually, a decline from 3.4% in the previous quarter and below the expected 2.5%.This reading is roughly 50% below Goldman Sach's expectations. This represents the weakest growth since early 2022.

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The growth was mainly supported by increases in consumer spending, residential and nonresidential investments, and state and local government spending, but was partially offset by a decrease in private inventory investment. Imports also rose during this period. Meanwhile, unemployment claims fell to 207,000 in the week ending April 25th, the lowest in over two months and below expectations of 214,000.

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The US Core PCE Price Index, a key indicator of inflation, unexpectedly jumped from 2.0% to 3.7%, surpassing the estimated 3.4%. This indicates a rising trend in inflation amidst a weakening economy, presenting a challenging scenario for the Federal Reserve as hiking interest rates further to battle inflation could send the economy into recession.

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Baby Blues

U.S. birth rates dropped to an historic low, according to a recent CDC report. The birth rate has fallen under the death rate, meaning that without immigration, the U.S. population would be shrinking. Globally, this is happening in many countries, with China and South Korea having the largest population decreases.

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At first, this may appear good news as natural resources around the earth get stretched. But the situation will put strain on younger, smaller demographics to pay for entitlement programs like social security and medicare for older adults. And for some businesses, it can equate to shrinking addressable markets for their products.

Foreign Aid Bill

The Biden Administration signed into law a $95 billion aid package for Ukraine, Israel, and Taiwan, despite opposition from some Republicans. The bill purchases advanced weapons, armored vehicles, rockets, and ammo from major defense contractors to replenish U.S. and foreign supplies.

Yen Continues Decline

The Japanese yen is facing a severe decline, reaching a 34-year low against the dollar, primarily due to significant interest rate disparities with the U.S.

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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    

META Spending Ramps Up

Meta Platforms Inc., announced significant spending on artificial intelligence, triggering a sharp -15% premarket stock drop due to unmet sales growth expectations and heightened expenditures on April 24th. Zuckerberg's reassurance about AI's future benefits failed to quell investor concerns, emphasizing substantial investments that may take years to yield returns. The key beneficiary of this spending is Nvidia, as META bought $18B in chips from them.

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Ford Tough

Ford’s electric vehicle unit lost $1.3B in its most recent quarter. This equates to a loss of $132,000 for every EV it sold. Perhaps catching Tesla isn't as easy as it sounds.

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Bad News Means Good News

Tesla's stock rose by 9% on April 24th, even though the company reported weaker financial results for the first quarter. The increase in share value was influenced by CEO Elon Musk's announcement during an earnings call that Tesla intends to start producing new, more affordable electric vehicle models either in late 2024 or early 2025, advancing the previously projected timeline of the second half of 2025.

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The Jet Blues..

JetBlue Airways' shares fell by 19% on April 23rd, as the airline revised its revenue forecasts downward for both the second quarter and the full year of 2024. Despite this, JetBlue's revenue for the first quarter met expectations, and the company reported a more minor adjusted loss per share than analysts anticipated.

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And Southwest is shutting down service to 4 airports due to a lack of planes coming out of Boeing. The airline only flies Boing 737 planes.

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LEVEL 2 TRADE UPDATE

WE JUST CLOSED OUT A 21% GAIN FOR LEVEL 2 USERS IN 85 DAYS FOLLOWING THIS ALERT WE SENT ON JANUARY 31ST

Stock: GOOGL

Risk Level: Low
Product: Equity
Current Price: $144

Trade: Swing trade

Google just beat estimated quarterly earnings but came up a few hundred million short on the revenue target. Overly anxious investors sold on the headlines without reading much into the incredible numbers Google just put up:

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• EPS $1.64 (+60% y/y)
• Revenue of $86 Billion (+13% y/y growth)
• Profit of $20 Billion (+46%)

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The stock sold off 6% on the news, creating an interesting swing trade. Often when this happens, it's the novice retail traders driving price action in the afterhours. The professionals come in at 930am and will look at the stock with calmer eyes and see what we see: Google put up big numbers and continues to improve.

There was a big run up in the share price prior to earnings, which always makes investors jumpy out of fear they will miss taking profits if earnings are bad. They weren't bad, they were strong. But shaking the tree a little causes the unattached to fall.

An interesting note in the financials is they include a 1.9B writeoff in severance fees for laying people off. Yes, they paid to fire people. But they won't need to do that again after the first quarter of this year. This leads to ongoing savings from all those people who no longer work at Google as well as from not having to pay them again to leave. That will be a savings of 10% to the bottom line just for not paying severance again, and that does not count the salaries they won't have to pay.

Now, capital expenses on servers and hardware went up a few billion, so these cuts will pay for those additional expenses net net.

So let's get to the current numbers. With these earnings, the trailing earnings per share for the 12-month period is $5.83. The historical P/E ratio on Google is 29. 29 x 5.83 = a share price value of 169/share. The stock is trading at 144 so there should be easy upside here to grab as the stock rebounds and heads back towards the 160-169 range.

A subsequent alert was sent calling an exit price target of 174/share.

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Upcoming Catalysts:

EARNINGS

Monday

• Domino's Pizza (DPZ)
• ON Semiconductor (ON)
• Crown Holdings (CCK)
• Yum China (YUMC)

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Tuesday

• Coca-Cola (KO)
• Eli Lily (LLY)
• Amazon (AMZN)
• Advanced Micro Devices (AMD)

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Wednesday

• Mastercard (MA)
• AerCap Holdings (AER)
• Global Payments (GPN)
• Avis Budget (CAR)

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Thursday

• Cummins (CMI)
• Wayfair (W)
• Apple (AAPL)
• Amgen (AMGN)

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Friday

• Hershey Foods (HSY)

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The LevelFields Team