Macrosynthesis

That's a Wrap

On Friday, US stocks neared record highs, with the S&P 500 and Dow Jones showing slight improvements, while the Nasdaq saw a minor decline despite earlier gains. Overall, the week concluded with the S&P 500, Dow Jones, and Nasdaq each posting gains of over 1%.

Materials, consumer staples, and healthcare stocks outperformed other sectors last week, while semiconductor and agriculture stocks emerged as the best performing industries last week.

Next week, investors will eye PCE indexes, income, spending, Fed speeches, ISM PMI, GDP, durable goods, consumer sentiment, home sales, global inflation, and GDP data.

Loans Under Stress

In January, the distress rate for commercial real estate loans in collateralized loan obligations jumped to 8.6%, a dramatic increase from the previous year's 1.5%, reported by CRED iQ. This marks a 480% rise since last February, primarily affecting multifamily complex investors who are now struggling due to higher interest rates and operational challenges.

The surge in distress is attributed to increased borrowing costs, with Arbor Realty Trust Inc. among the lenders facing potential losses. Despite the current peak stress, Arbor's Chairman remains hopeful, emphasizing efforts to manage and recover underperforming assets.

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The report highlights a growing concern in the $80 billion CRE CLO market, with distress defined by delinquencies of 30 days or more.

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China and US Team Up

The US and China are collaborating on innovative strategies to prevent a surge in defaults across emerging markets. This collaboration - a significant gesture of economic cooperation - focuses on preemptive measures like extending loan repayment terms to alleviate the debt service burden exceeding $400 billion annually. These discussions, still in preliminary stages, aim for a joint proposal to address sovereign debt challenges, necessitating support from the G20, IMF, and World Bank. Amidst concerns over slow debt restructuring progress for nations like Zambia and Ghana, this initiative could mark a breakthrough in managing global debt from nations, especially for developing countries facing high borrowing costs.

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U.S. Debt Warning

Olivier Blanchard, a former IMF chief economist, has expressed serious concerns over the United States' fiscal health due to its rapidly increasing deficits.  Blanchard is alarmed by the US government's lack of initiative in addressing the soaring deficits, which have surged under the administrations of both Donald Trump and Joe Biden. He highlighted the risk of a fiscal crisis, emphasizing the unique position of the US compared to other countries like the UK, where he perceives less immediate danger.

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On the consumer side, the difference between the personal savings rate and the percent of disposable income that goes to household debt flipped negative, which historically happens prior to a recession, as shown in the header image.

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Trump Train Steamrolls Haley

Haley lost to Trump by 20 percent of the vote in her home state of South Carolina. The loss makes it highly unlikely she will defeat Trump in other states, making Trump the likely contender for President Biden's job. In a virtual race, Trump and Biden are statistically tied, meaning that unless Trump is convicted of a crime first, there's equal chance either will become the next U.S. President.

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Commodity Movers

Natural Gas

-8.52% (1D Chg)

-29.96% (1M Chg)

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Gold

+1.10% (1W Chg)

+12.04% (YoY Chg)

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Cocoa

+15.00% (1W Chg)

+37.14% (1M Chg)

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Salmon

+5.60% (1W Chg)

-1.38% (YoY Chg)

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Noteworthy Events    

Berkshire Hathaway

Warren Buffett's Berkshire Hathaway reported a record cash pile of $167.6 billion, attributing the surge to the scarcity of meaningful acquisition opportunities. Translation: stocks are overpriced.

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Block (formerly Square) Surges

Block surged over +16% Friday, following an unexpected quarterly profit announcement. The company also provided optimistic earnings guidance.

NVIDIA

Nvidia shares dropped -10% prior to earnings, as market influencers attempted to manipulate the price, presumably to buy more (this is our opinion). Post-earnings, the stock surged +16% as Nvidia posted a 265% revenue increase and earnings of $5.16 per share on $22.1 billion in revenue, surpassing all forecasts. The company projected continued growth from high demand for its GPUs, essential for AI development.

Palo Alto Networks

Palo Alto Networks' stock plummeted by -28.4% after the company revised its full-year revenue and billings forecast downwards, now expecting a growth rate of 15 - a decrease from the 25% growth rate it experienced over the previous few years. BTFD?

HSBC

HSBC's U.S.-traded shares dropped -8.9% following its fourth-quarter earnings report, revealing profit and revenue declines.

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CASE STUDY: IBP +100%

On Feb. 22nd, Installed Building Products, Inc. announced a 6% increase in its regular quarterly cash dividend to $0.35 per share and declared an annual variable dividend of $1.60 per share, up $0.70 from last year. This dividend growth reflects the company's strong financial performance, including record fourth quarter and fiscal year 2023 results, marked by significant revenue and net income increases. These dividends are part of IBP's strategy to return value to shareholders, alongside a robust stock repurchase program.

After the dividend increase alert to users at 7:30 am, and with shares already up nearly 5% before the market opened, IBP experienced a further surge of 11% combined over Thursday and Friday, closing at $234.09.

This is typical of dividend increases, as the price action is not as fast as other scenarios, like stock buybacks. However, the bigger gains come from zooming out and looking at the company's events over the past year, where they raised the dividend 3 times leading to a cumulative gain of 100% - all for an industry that was supposed to be trash due to interest rates being high.

In this case, the stock got a double boost from a strong earnings report and the dividend increase. But the strong earnings report was predictable, if the previous 3 dividend increase events were examined as predictive of strong leadership faith in the company's revenues.

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Upcoming Catalysts:

EARNINGS

Monday

• Domino's Pizza (DPZ)
• Workday (WDAY)
• Zoom (ZM)

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Tuesday

• AutoZone (AZO)
• Bumble (BMBL)
• First Solar (FSLR)

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Wednesday

• Salesforce (CRM)
• C3.ai (AI)
• Snowflake (SNOW)
• Baidu (BIDU)

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Thursday

• Birkenstock Holding (BIRK)
• Best Buy (BBY)
• Celsius (CELH)
• Dell (DELL)

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Friday

• Plug Power (PLUG)

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The LevelFields Team