Macrosynthesis
Last Week
US stocks closed the week with notable gains: the Dow increased by 0.9%, the S&P 500 rose by 0.3%, and the Nasdaq grew by 1.2%. These gains were fueled by a weaker-than-expected April jobs report, which raised expectations of a potential Federal Reserve interest rate cut in September rather than November. However, the Federal Reserve held interest rates steady at 5.3% for the sixth consecutive meeting, pointing to ongoing concerns about persistent inflation. This suggests that interest rates are likely to remain elevated for a longer period, despite earlier expectations of forthcoming rate cuts.
Showing positive momentum, the S&P 500 rose by 1.2%, the Nasdaq increased by 2%, and the Dow Jones Industrial Average climbed 450 points. The job addition in April was only 175K, below the expected 243K, and marked a slowdown from March's 315K. The unemployment rate increased slightly to 3.9%, and wage growth was also below expectations.
Key stocks such as Apple and Amgen saw significant increases following positive earnings reports, with Apple announcing a substantial $110 billion share buyback. However, Cloudflare's stock dropped sharply due to poor revenue guidance.
In terms of sector performance over the past five days, notable movements were observed in:
- Healthcare: +3.46%
- Utilities: +2.89%
- Conglomerates: +2.28%
Next week will be highlighted mainly by the Michigan consumer confidence index, several speeches by Federal Reserve officials, and the wrapping up of earnings season.
U.S Job and Wage Growth Slows
In April 2024, the US economy saw a lower-than-expected addition of 175,000 jobs, a decrease from the revised 315,000 jobs in the previous month and below last year's average monthly gain of 242,000. Notable job growth occurred in the healthcare, social assistance, and transportation sectors. Average hourly earnings for all private nonfarm employees increased by 7 cents to $34.75, representing a 0.2% rise, which fell short of the expected 0.3% increase. The annual wage growth rate was 3.9%, marking the smallest increase since June 2021.
A Big Mistake
A recent Bloomberg analysis revealed that the Bank of England's pandemic-related quantitative easing (QE) program is projected to cost UK taxpayers approximately £115 billion in net losses, mainly due to its bond purchases during 2020 and 2021. This stark contrast with earlier, marginally profitable QE phases will likely lead to significant fiscal impacts, with expected annual losses of about £20 billion over the next decade. The program has been criticized for exacerbating inflation and increasing public debt.
Yen Update
After plummeting to a 34-year low against the dollar, primarily driven by major interest rate disparities with the U.S., the yen mounted a significant rally. This surge followed a disappointing U.S. jobs report, which raised expectations of an earlier Federal Reserve rate cut. The softened dollar diminished the need for Japanese intervention to bolster the yen, culminating in its most substantial weekly gain (+3.20%) since November 2022.
Commodity Movers
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Natural Gas
+11.80% (1W Chg)
+21.20% (1M Chg)
Coal
+8.25% (1W Chg)
+13.57% (1M Chg)
Tea
+34.52% (1W Chg)
-11.96% (YoY Chg)
Cocoa
-24.85% (1W Chg)
+162.15% (YoY Chg)
Noteworthy Events
Apple Offers Olive Branch
Apple announced a $110B stock buyback, following a slight earnings beat and lower than expected revenue declines of 4%. IPhone sales declined but CEO Tim Cook offered an olive branch in the form of a future AI product launch in June. Like Google, the stock was out of favor given Microsoft's dominance in the generative AI space, but share prices bounced on news and look positioned for a major bullish run.
Expedia's Turbulent Journey
Expedia's stock fell 15.3% on May 3rd, after the company revised its annual forecast downward, citing challenges in its Vrbo vacation rentals division. Following this announcement, BMO Capital Markets downgraded its ratings for Expedia.
Dont Call it a Come Back
Shares of New York Community Bank surged over 31% on May 1st, following optimistic remarks from CEO Joseph Otting about the bank's profitability in the next two years. This announcement came despite the bank reporting a quarterly loss of $335 million, primarily due to an increase in problematic commercial loans and elevated expenses.
Buffet Talks
Warren Buffett discussed AI, Apple's stock reduction, and plans at Berkshire Hathaway's annual meeting on May 4th. BRK's profit rocketed to over $11 billion, citing benefits from insurance operations and higher interest rates. Cash piles have hit another record high, nearing $189 billion. Buffet also highlighted AI's potential risks, touched on succession, and honored Charlie Munger. The event also addressed changes in real estate commissions and Berkshire's significant cash reserves.
In other News...
Tesla is scaling back its gigacasting ambitions as part of broader cost reduction efforts. Meanwhile, Embraer is exploring opportunities to compete with aerospace giants Boeing and Airbus by potentially manufacturing rival planes. Carvana's stock is on the rise, which may challenge short sellers betting against the company. In the semiconductor sector, Qualcomm exceeded earnings expectations and provided a robust outlook. Pfizer has raised its full-year guidance, driven by significant cost savings, while Johnson & Johnson is seeking a $6 billion settlement to resolve claims related to its talc products potentially causing cancer.
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Upcoming Catalysts:
EARNINGS
Monday
- Spirit Airlines (SAVE)
- Tyson Foods (TSN)
- Marriott Vacations (VAC)
- Microchip Technology (MCHP)
Tuesday
- Disney (DIS)
- Builders FirstSource (BLDR)
- Celsius Holdings (CELH)
- Datadog (DDOG)
- Duke Energy (DUK)
- Transdigm Group (TDG)
- Reddit (RDDT)
- Occidental Petroleum (OXY)
Wednesday
- Dine Brands (DIN)
- Uber Technologies (UBER)
- Arm Holdings (ARM)
- HubSpot (HUBS)
Thursday
- Fiverr (FVRR)
- Cars.com (CARS)
- Hyatt Hotels (H)
- Tower Semiconductor (TSEM)
- Dropbox (DBX)
Friday
- AMC Networks (AMCX)
The LevelFields Team