Macrosynthesis

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TLDR

• New feature: paper trading now available in Watchlist
• LNTH stock skyrockets on Medicaid change
• Falling inflation, rising unemployment set bullish tone for rate cuts
• Asset managers rotate out of Big tech stocks
• NATO spending to increase by $180 billion
• JP Morgan (JPM) posts record profits amidst renewed M&A activity
• GM gets half a billion dollars for EVs from government
• Dominion Energy (D) expecting massive electricity demand
• Q2 earnings seasons starts this week

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S&P 500 Sees Strongest Weekly Gain Since April; Tech Stocks Dip Amid Rotation

The S&P 500 kicked off the second half of 2024 with its strongest weekly gain since late April, buoyed by rising unemployment 3data that bolstered the likelihood of Federal Reserve interest rate cuts. This rally was further fueled by dovish remarks from Fed Chair Jerome Powell and insights from the central bank's recent monetary policy meeting minutes. Over the week, the S&P 500 rose by 2%, the Nasdaq Composite surged by 3.5%, and the Dow Jones Industrial Average increased by 0.7%.

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Thursday saw a significant shift in the market dynamics as investors initiated a sector rotation away from the big tech AI names that have been the driving force behind the recent rally. This move led to a sell-off of Nvidia, Amazon, Google, Apple, and Microsoft, following a cooler than expected inflation reading showing month over month disinflation of -.1%.

Real Estate led S&P 500 sectors with a 4.4% gain, followed by Utilities at 3.9%, and Materials at 3%. Financials rose by 2%, Healthcare by 2.6%, Industrials by 2.4%, and Information Technology by 0.5%. Consumer Staples edged up 0.1%, Energy increased by 0.5%, and Consumer Discretionary gained 0.4%. In contrast, Telecom declined by 3.6%.

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Consumer Sentiment Hits Low Amid Economic Concerns and Upcoming Election

In July 2024, the University of Michigan's consumer sentiment for the US fell for the fourth consecutive month to 66, the lowest since November.  Almost half of consumers remain concerned about high prices and economic uncertainty, especially with an upcoming election. Additionally, both the year-ahead and five-year inflation expectations fell to 2.9% from 3%.

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NATO Spending on Defense Increased by $179.59 billion

Over the week, NATO members met in D.C. to discuss Russia, Ukraine's initiation into the group, China, and climate change. As a result, for 2024, NATO's combined defense expenditure will reach $1.47 trillion, up from $1.29 trillion in 2023. This 13.87% increase reflects the alliance's commitment to military readiness, with 23 of its 32 members meeting the 2% GDP defense spending target, a significant rise from previous years. However, the United States alone will account for about $967 billion.

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NATO allies committed $43 Billion to Ukraine next year to fight Putin, including $6B from Biden for 5 patriot missile systems built by Raytheon (RTX). Coincidentally this is the same amount of money that the Federal Emergency Management Agency is now short in their budget for disaster relief.

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Since Russia invaded Ukraine, over 500,000 troops on both sides have been killed or injured. Roughly 30,000 Ukrainian civilians have been killed or injured, with millions displaced.

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U.S. Debt Payments Exceed a Trillion Dollars Annually

The annualized interest payments on US federal debt reached an all-time high of $1.14 trillion.

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Central Banks Sound Alarm on Debt

Central banks are increasingly worried about global sovereign debt, with 37% of reserve managers identifying it as a primary concern, up from 14% last year. According to the IIF, global government debt will hit a record $91.4tn this year.

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Why Bitcoin prices are falling

Bitcoin prices have fallen by 9% over the past month. The selloff is largely attributed to Germany selling 50,000 bitcoins over the past few weeks and the selling pressure causing less die hard bitcoin enthusiasts to sell as well. Now believed to be a hedge against a weakening dollar, Bitcoin enthusiasts see prices recovering as the U.S. debt rises and cuts interest rates.

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Next Week

Next week, earnings reports from major companies like GS, BlackRock, UnitedHealth, BoA, Morgan Stanley, Charles Schwab, J&J, Netflix, and Amex are expected. Key US economic data releases include retail sales, industrial production, export/import prices, building permits, and housing starts. Fed Chair Powell and other officials' speeches are also anticipated.

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Commodity Movers

Coffee

+8.06%  (1W Chg)

+53.81% (YoY Chg)

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Germanium

+4.51% (1W Chg)

+25% (1M Chg)

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Rice

-13.58% (1W Chg)

-21.01% (1M Chg)

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Cocoa

+6.76% (1W Chg)

+158.48% (YoY Chg)

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Noteworthy Events

GM Gets $500M from Uncle Sam

The U.S. Gov't just provided $500M to retrofit GM plants to produce EVs, equating to 5% of the company's net income. GM delivered 21,930 electric vehicles in Q2, up 34% over Q1 and 40% year over year, with first-half EV deliveries at 38,355. First-half retail sales increased by 5%. The company recently approved a new $6 billion stock buyback program in addition to a previously announced $11.4 billion buyback authorization.

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Coal Demand Strong Due to Cooling Needs from Record Heat Wave

Coal demand is rising due to fires at multiple coal plants, stronger demand for power due to global heat waves, and lower coal supplies. India's heat wave is putting increased demand on their coal burning power plants which generate 70% of the country's energy while decreasing the available hydro power.

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Dominion Power Seeking Nuclear Reactors to Address Growing Energy Needs of AI

The largest utility provider to the federal government and the U.S. military industrial complex, Dominion Power (D), issued a request for proposal to build small nuclear reactors to help offset the increased demand for energy stemming from the cooling needs of data centers and warming temperatures.  A small number of modular nuclear reactor companies, including NuScale (SMR), are expected to participate in the proposal process to build the nation's first modular nuclear facility.

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Pepsi Sales Slow on Slimming Snack Sales

PepsiCo reported disappointing Q2 2024 revenue growth of 1.9%, missing the 2.9% forecast. Persistent inflation led budget-conscious shoppers to cut back on snack and drink purchases, causing a 2% drop in food volume sales. Additionally, Quaker Foods experienced a 17% year-over-year decline due to significant recalls.

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Lantheus (LNTH) Stock Jumps 54% On New Medicaid Payments Rule

The Centers for Medicare & Medicaid Services’ (CMS’) Proposed New Rule for 2025 offers improved payments for specialized diagnostic radiopharmaceuticals to support patient access for Medicare beneficiaries. The diagnostics company is set to benefit from increased payments.

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Level 2 users were alerted to LNTH's incredible progress in April when the stock was just $65. The stock hit $125/share Thursday.

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Citigroup Surpasses Q2 Expectations

‍Citigroup's Q2 2024 results exceeded expectations, with earnings of $1.52 per share and revenue of $20.14 billion. This performance was driven by a 60% surge in investment banking revenue, though the company faced challenges in regulatory compliance and a decline in fixed income revenue. JP Morgan (JPM) also reported record profits and 25% profit growth, fueled by increased M&A activity.

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Upcoming Catalysts:

EARNINGS

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Monday

• BlackRock (BK)
• Goldman Sachs (GS)

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Tuesday

• Bank of America (BOA)
• Morgan Stanley (MS)
• PNC (PNC)
• UnitedHealth Group (UNH)

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Wednesday

• Johnson & Johnson (JNJ)
• Elevance Health (ELV)
• Northern Trust (NTRS)
• Bank OZK (OZK)

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Thursday

• M&T Bank (MTB)
• Snap-On (SNA)
• Netflix (NFLX)

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Friday

• American Express (AXP)
• Comerica (CMA)

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The LevelFields Team