Macrosynthesis  

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Last Week's Recap

U.S. stocks saw a modest rise on Friday, buoyed by positive economic data suggesting a possible gentle economic downturn. Better-than-expected job growth and a decrease in unemployment to a four-month low suggested a less likely Federal Reserve interest rate cut. Consumer sentiment improved, and inflation expectations dropped to their lowest since March 2021. Lululemon Athletica's shares rose after strong results, while Paramount and Uber also saw significant gains, contributing to a six-week winning streak for major stock indices.

Too Much Work

In November 2023, the US economy saw the addition of 199,000 jobs, a figure higher than October's 150,000 and above market expectations. However, this was below the average monthly gain of 240,000 seen over the past year. Key sectors contributing included health care with 77,000 jobs and government payrolls with 49,000 jobs, while retail trade employment fell by 38,000. Manufacturing jobs increased by 28,000, mainly due to the end of the auto workers strike.

Happier Consumers

In December 2023, the University of Michigan's consumer sentiment index in the US soared to 69.4 from 61.3, exceeding expectations. This increase, the highest since August, was driven by declining inflation expectations and improved economic conditions, though still below pre-pandemic levels. Sentiment is correlated to S&P 500 index performance.

Yields Rise

The US 10-year Treasury yield increased to 4.26% from a 3-month low, driven by a robust job report surpassing expectations and a decrease in unemployment to 3.7%, challenging predictions of early Federal Reserve rate cuts.

Moody on China

Moody's recent downgrade of China's outlook to negative has heightened Beijing's struggle with market challenges. This change, due to concerns over growth prospects, rising municipal debt, and property market issues, has led to increased pressure on the government to implement measures to support declining stocks and stabilize the yuan. Moody's decision has sparked comparisons to Japan's economic stagnation, causing a sell-off in Chinese assets and necessitating state intervention in markets. The YANG ETF - a leveraged short on Chinese stocks - rose +9% last week on the downgrade.

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Market Trends

Airlines (+6.5%), homebuilders (+4.4%) and regional banks (+3.2%) were the biggest industry gainers last week on hopes for lower interest rates, sustained decreases in gas prices, and stable consumer spending. The S&P 500 rose 1% while the NASDAQ 100 gained 1.5%.

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As we head toward the end of the year, the next Fed meeting, and the last earnings reports, we can see the worst performing sectors for the year have been Utilities (-10%), Consumer Staples (-5.5%), Energy (-2.5%), and Health Care (-2.5%). The worst performing sectors tend to be the best performing sectors the following year, as wealth managers rebalance portfolios. Recent gains in utility stocks and health care stocks support this trend.

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Commodity Movers

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Coal

+12.56% (1W Chg)

+21.43% (1M Chg)

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Propane

+8.54% (1W Chg)

+11.04% (1M Chg)

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Lithium

-12.44% (1W Chg)

-34.98% (1M Chg)

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Silver

-3.2% (1D Chg)

-9.49% (1W Chg)

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Noteworthy Events    

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Lululemon

Lululemon's shares saw an increase of over 4% Friday following the release of their third-quarter earnings, which exceeded expectations. However, the company projected a modest outlook for the holiday season.

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Restoration Hardware

RH saw its shares drop by 14% Friday following a third-quarter earnings report that failed to meet expectations. The company reported revenues of $751 million, falling short of the anticipated $757 million. Additionally, RH revised its full-year revenue forecasts and noted an increase in promotional activities within the home furnishings market.

Paramount

Paramount's stock rose over 12% Friday following reports that Skydance and RedBird Capital are considering a takeover of National Amusements, which holds a majority of the media company's voting shares.

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Google

Alphabet's stock saw a significant increase of over 5% Thursday following the announcement of its new, highly advanced AI model, Gemini. This model is set to enhance Google's products, including the Bard chatbot.

Sphere Entertainment

Sphere Entertainment experienced a 10% increase Wednesday after Guggenheim upgraded its rating from neutral to buy, citing robust demand as the key reason for this positive shift.

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LEVEL 2 TRADE PREVIEW

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A snippet of what we send each week to Level 2 investors.

ARDX - the young biotech is up +44% since our alert a few months ago that the stock was set for take off following a successful drug launch. Target exit is still 7/share, leaving plenty of upside for those willing to hold.

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PHM - the homebuilder hit our exit price of 95 for a gain and 52% gains on the June 2024 calls. However, this is an extremely well managed company with strong earnings growth and a new tailwind of interest rates coming down which could spur additional growth next year. Holding this stock long-term has rewarded shareholders with a 4X return over the last 5 years. The trend is likely to continue but as it's had a big run, it's best to wait for a pullback before opening a new position.

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CASE STUDY: GAIA +5.11%

Gaia, Inc., an alternative digital video subscription service and online community provider, announced on December 5th, the appointment of James Colquhoun as its new Chief Executive Officer. Following this announcement, Gaia's stock rose from $2.82 to $2.88, marking a one-day gain of 5.11%.

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This movement aligns with a general trend where the stock prices of communications services companies with negative earnings rise on the hiring of a new CEO. That information below is found by selecting the filters for the sector and negative earnings.

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Upcoming Catalysts:

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Notable Earnings

Monday

Casey's General (CASY)

Oracle (ORCL)

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Tuesday

Wednesday

Adobe (ADBE)

Nordson (NDSN)

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Thursday

Costco Wholesale (COST)

Jabil (JBL)

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Friday

Darden Restaurants (DRI)

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The LevelFields Team