Macrosynthesis

Last Week

Last week, stocks faced challenges from rising interest rates and inflation, along with disappointing corporate earnings. Investors scrutinized Federal Reserve rate cut timing amid aligned inflation figures. Gap surged 28.6%, but Dell Technologies plummeted 17.9%. For the week, S&P 500 stayed flat, Nasdaq lost 0.4%, and Dow declined by 1%. Jamie Dimon issued a warning that valuations are too high to justify share buybacks in JP Morgan Chase.

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Biggest Sector Moves

Last week, the S&P 500 sectors saw varied performance. The strongest performers were Energy (+2%), Real Estate (+1.8%), and Utilities (+1.6%). Consumer Staples, Financials, and Materials each edged up by 0.1%. Conversely, Information Technology experienced a significant decline of -1.5%, while Industrials (-0.8%), Consumer Discretionary (-0.3%), Telecom (-0.6%), and Healthcare (-0.6%) also saw decreases.

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Inflation Intermission

In April 2024, the US core inflation reading (PCE) price index increased by 0.2% from the previous month, following a 0.3% rise in March. This was the slowest monthly increase in 2024 and was lower than the expected 0.3% rise. The overall PCE price index rose by 0.3%, consistent with the increases seen in March and February. On an annual basis, PCE inflation remained steady at 2.7%, the same as the four-month high reached in March. The annual core inflation rate was 2.8%, marking the lowest rate since March 2021. The 10-year Treasury yield fell to 4.51% Friday as the data pointed to potential Fed rate cuts.

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Personal Spending Growth Slows

In April, U.S. consumer spending rose by 0.2%, below the expected 0.3%, and down from March's 0.7% growth. Personal income increased by 0.3%, while the savings rate remained at 3.6%, the lowest since late 2022. Spending grew for services, especially in housing, healthcare, and financial services, but declined for goods, particularly recreational items. Real consumption expenditure fell by 0.1%.

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Did it Stump Trump?

Former President Donald Trump was found guilty on all 34 counts in his New York hush-money trial, marking a historic verdict. The charges involved falsifying business records related to payments made to his former lawyer, Michael Cohen, to silence adult-film star Stormy Daniels. Sentencing is scheduled for July 11, just before the Republican National Convention. Trump can appeal post-sentencing and potentially face prison time. Trump's campaign announced that it raised $34.8 million in small-dollar donations since conviction.

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No Fly Zone

Starting July 1, China will impose export controls on certain aviation and aerospace components to safeguard national security. These restrictions include equipment, software, and technologies related to aerospace structural components and engine manufacturing, requiring export licenses.

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Ironically, this comes after France’s Finance Minister, Bruno Le Maire, warned that the global economy is threatened by a glut of cheap Chinese exports. The Group of Seven finance chiefs called for a united response to China's overcapacities, highlighting the risk to domestic manufacturers.

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Commodity Movers

Cocoa

+14.45% (1W Chg)

+209.08% (YoY Chg)

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Natural Gas

-6.55% (1W Chg)

+34.13% (1M Chg)

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Copper

-3.05% (1W Chg)

+24.18% (YoY Chg)

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Silver

-3% (1D Chg)

+13.28% (1M Chg)

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Noteworthy Events

Sales Forced Down

Salesforce's stock plummeted 19.7% May 30th after reporting weaker-than-expected revenue of $9.13 billion for Q1, missing the $9.17 billion forecast, and issuing disappointing guidance. This was its first revenue miss since 2006.

The Wrong Path

UiPath's stock fell 34% after projecting second-quarter revenue between $300 million and $305 million, below analysts' expectations of $342.3 million. Full-year revenue guidance also disappointed. Additionally, CEO Rob Enslin announced his resignation, effective June 1. Cathie Wood's ARKK purchased 450,000 shares just prior to the drop.

Always in Style

Abercrombie & Fitch shares surged 23.4% May 29th after the retailer reported a 22% increase in first-quarter sales. The company's profit was nearly seven times higher than the previous year, surpassing Wall Street estimates.

The House Always Wins

Gambling stocks dropped significantly early in the week, with DraftKings down 10.29% and U.S.-traded shares of FanDuel parent Flutter Entertainment down 7.73%. This followed the Illinois Senate's budget approval, which includes a progressive tax increase on sports betting based on company revenue.

Brain Break

Agios Pharmaceuticals' shares surged 23.21% on the 28th after announcing the sale of its 15% royalty rights on the brain cancer drug vorasidenib to Royalty Pharma for $905 million. Agios will retain a 3% royalty on U.S. net sales exceeding $1 billion annually.

They Did What?

Semler Scientific's stock surged 24.36% early in the week after adopting bitcoin as its primary treasury reserve asset and purchasing 581 bitcoins for about $40 million, following a strategy similar to MicroStrategy.

Palantir Wins 480M Contract

Palantir won a large government contract with the Defense Department late last week.

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Case Study: Facebook's Remarkable 5X Turnaround

The Problem: Meta was overspending

In late 2022, Facebook (now Meta Platforms, Inc.) was facing shareholder backlash after reporting declining revenues and a series of quarters with declining profits, the worst of which was a -52% decrease in 4th quarter profits. The stock sold off -73% in 2022, following these earnings results.

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The Solution: Meta guts costs

At the end of the year, Meta initiated a series of drastic measures to restructure its business, beginning with a series of layoffs. These cuts were part of a broader strategy to streamline operations, reduce costs, and refocus the company on its core strengths in social media and advertising. This action catalyzed a significant shift in public sentiment, as investors began to see Meta’s commitment to growing profits.

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The Outcome: Meta made massive improvements in profit and the share price

As Meta’s leaner structure took hold, the company reported a 69% improvement in annual net income for 2023. The reduction in operational costs, coupled with a renewed focus on revenue-generating activities, had transformed Facebook into a profit machine. The positive financial results were boosted further by the announcement of a $50 Billion stock buyback program. This buyback demonstrated management's confidence in the company's future and their focus on returning value to stockholders.

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The Lesson: How to use AI to identify stock and options trading opportunities

LevelFields members were promptly alerted to these pivotal events as they unfolded by LevelFields AI, allowing stock traders to capitalize on the shifting market dynamics.

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The strategic actions by Meta led to an extraordinary 500% increase in Facebook's stock price over the next year.

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This case study reveals the importance of using events to identify turning points in a company’s trajectory and how to use events for longer term trading.

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Upcoming Catalysts:

EARNINGS

Monday

• CIBC (CM)
• GitLab (GTLB)

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Tuesday

• Bath & Body Works (BBWI)
• Core & Main (CNM)
• CrowdStrike (CRWD)
• Sportsmans Warehouse (SPWH)

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Wednesday

• Dollar Tree (DLTR)
• United Natural Foods (UNFI)
• Campbell Soup (CPB)
• Lululemon Athletica (LULU)
• Five Below (FIVE)

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Thursday

• Big Lots (BIG)
• Ciena (CIEN)
• Vail Resorts (MTN)

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The LevelFields Team