Macrosynthesis
Last Week's Recap
US indexes finished higher on Friday after considering Fed Chair Powell's comments from the Jackson Hole Summit. The Dow Jones increased by 247 points, with the S&P 500 and Nasdaq rising 0.7% and 0.9% respectively. Affirm surged 28.8%, and Workday climbed 5.4% due to positive earnings. Gap rose 7.1% following mixed results, while Nordstrom dropped 7.7% despite strong results. Marvell Tech declined 6.6% after sharing a cautious future outlook. Over the week, the Dow decreased 0.4%, but the S&P 500 and Nasdaq grew by 0.2% and 1.1%.
Stuck in a Hole
At the Jackson Hole Symposium, Federal Reserve Chair Jerome Powell highlighted the need to balance the risk of overtightening monetary policy against the potential need for more interest rate hikes to manage inflation, balancing it against the strong performance of the economy and labor market. Markets rejoiced on the measure approach.
Concurrently, the dollar index hit an eleven-week high of 104.2, set to mark its sixth consecutive weekly gain.
Nvidia Shines
Chipmaker Nvidia delivered a significant outperformance in its Q2 earnings announcement. Expected EPS was 2.09 vs 2.70 delivered. Revenue was up 101% year over year to $13.5 billion - an incredible feat for the now Trillion dollar company. The company projects $16 billion in revenue for Q3.
NVDA stock rose 60 points in the overnight action, reaching a price of 520/share, then sold off 70 points over the intraday trading - reaching 450/share before stabilizing.
Oil on Fire
Marathon Petroleum Corp. shut down the third largest US oil refinery following a fire in south Louisiana late Friday afternoon. It’s the third fire there in less than a year. Nearby residents were told to evacuate and that the fire was contained.
Gasoline future prices rose as the refinery outage puts a drag on supplies. Big oil stocks like COP rose in response to higher prices.
Next Week
The US is forecasted to add approximately 170,000 jobs in August, the smallest gain since the 268,000 job loss in December 2020. The unemployment rate is likely to hold at 3.5%. The Federal Reserve's inflation gauge, Core PCE prices, is projected to grow by 0.2% in July, matching June's increase. Personal income is set to rise by 0.3%, and spending is expected to go up by 0.6%.
Key data to watch includes JOLTs job openings, ISM Manufacturing PMI, Q2 GDP, home price, pending home sales, and the CB Consumer Confidence Index. Also, updates on goods trade balance, wholesale inventories, and the Dallas Fed Manufacturing Index and Chicago PMI are awaited. Canada and Brazil will report Q2 GDP growth rates, manufacturing PMI, and unemployment figures.
Get BRIC'ed
Werner Hoyer, President of the European Investment Bank (EIB), warns that the West is in danger of losing the trust of the global south, as countries like China and Russia provide increased support. The recent BRICS summit in South Africa and the push to elevate the BRICS bank as an alternative to Western lenders emphasize the urgency for the West to boost its lending.
Hoyer noted that many developing countries, particularly in Africa, now lean towards emerging markets for support over traditional Western institutions. The EIB, backed by the EU's 27 member nations, is the largest of the world's multilateral development banks. Hoyer's statements emphasize the BRICS countries' efforts to become a global alternative to the West.
Commodity Movers
Gasoline
+2.71% (1D Chg)
+9.68% (1Y Chg)
Heating Oil
+5.08% (1W Chg)
+16.93% (1M Chg)
Tea
+10/56% (1W Chg)
+40.67% (1M Chg)
Eggs
+13.91% (1W Chg)
+18.01% (1M Chg)
Last Week's Top Events
Noteworthy Events
The Mug Shot
Former President Donald Trump was detained at Fulton County jail on Thursday, facing state charges related to alleged attempts to reverse the 2020 presidential election results in Georgia.
Trump-affiliated SPAC, $DWAC, rose +9.40% on Friday.
Shop Until You Drop
Nordstrom shares dropped 7.73% Friday despite exceeding earnings and revenue predictions. Earnings were 40 cents, surpassing the 44 cents expected. However, sales remained below pre-pandemic levels, and Nordstrom maintained its earlier full-year outlook, anticipating a single-digit revenue decline. The company also highlighted record-high theft-related losses.
An Affirmation
The "buy now, pay later" company, Affirm, saw a 28.82% surge in its shares Friday after reporting fiscal fourth-quarter results that exceeded expectations due to increased gross merchandise volume. Affirm also provided a robust revenue projection for the next quarter, estimating between $430 million to $455 million.
Not so Beautiful
Shares of the beauty retailer dropped 3.69% Friday, despite Ulta reporting better-than-anticipated quarterly results. The company registered $6.02 earnings per share on $2.51 billion revenue in the second quarter. Additionally, Ulta increased its full-year guidance.
AMC
Shares dropped 13.5% Friday after the company converted its preferred equity units to common stock. AMC is down -68% in the last month -85% in the last year.
Hawaiin Electric
The utility stock dropped 18.55% Friday after Maui County filed a lawsuit against Hawaiian Electric, blaming them for the island's wildfires which resulted in over 100 deaths. The county claims the company ignored National Weather Service warnings about the heightened fire risk due to strong winds and drought and kept its power lines active.
LEVEL 2 TRADE UPDATES
YANG - the leveraged China short ETF reached our target of 12/share last week. Jan 2024 calls at the $10 strike hit a 52% profit in just a few days.
NVO - the maker of diabetes and weight loss drugs is crushing it and recently published a new study showing obese patients on Wegovy walked 17-times further than control groups and had far fewer heart problems. Sales of the drug are soaring - reaching $1B last quarter - and it's likely to find new legs as the company seeks approval for use of the drug in the treatment of heart disease and other ailments. At current pace, the price of NVO is likely to double over the next few years (sooner if they can ramp up supply faster).
CASE STUDY: Splunk up +40%
Cybersecurity provider, Splunk (SPLK), was losing money in 2022. In Q3 2022, they reported a loss of 20 cents per share. In its most recent quarter, Splunk reported positive earnings per share of 71 cents. What happened in between? What prompted this turnaround?
In October of 2022, an activist investor took a sizable position in the company with the goal of bringing profitability to the company and returns to shareholders. Activists work to drive up the share price and bring costs down by influencing the executives, the Board of Directors, and other shareholders that changes are needed.
Following the activist playbook, Splunk cut 4% of its workforce and began streamlining processes while working to bring costs back in line.
The end result was a blowout Q3 2023 quarter for the company, and the stock soared on these "surprise" results. But this is what's expected from this scenario - over time, a company will be changed and profits will be realized.
Over a 10-month period from the event alert, SPLK gained +40 percent.
Those seeking an easy to play scenario should look to this one but note: note all activists are the same. We only track the ones that moves the needle.
Upcoming Catalysts:
Notable Earnings
Monday
- HEICO (HEI)
Tuesday
- Best Buy (BBY)
- Box (BOX)
- Pinduoduo (PDD)
- American Woodmark (AMWD)
Wednesday
- Salesforce (CRM)
- Chewy (CHWY)
- Five Below (FIVE)
- MasterCraft (MCFT)
Thursday
- Dell Technologies (DELL)
- Lululemon Athletica (LULU)
- Broadcom (AVGO)
- UBS (UBS)
- Hello Group (MOMO)
- Signet Jewelers (SIG)
This is not financial advice. All information represent opinions only for informational purposes.
The LevelFields Team