Macrosynthesis
Last Week
Last week, the Dow and Nasdaq hit new highs, driven by strong earnings reports and positive market sentiment, thanks to a lower than expected inflation reading. Gold prices rose on renewed rate cut hopes, while crude oil experienced volatility due to demand concerns. Additionally, the ECB signaled potential rate cuts, impacting EUR/USD. Market sentiment showed mixed reactions across different assets, reflecting ongoing economic uncertainties and central bank policies. Walmart and Caterpillar shares rose 1% and 1.5%, respectively, boosting the Dow. Reddit surged 10% after announcing a partnership with OpenAI, while meme stocks like GameStop and AMC declined for a third session. Cannabis stocks also rallied as DOJ proposed reclassifying marijuana, opening the way for improving financing of Mary Jane-driven operations and payment processing.
Morgan Stanley is predicting M&A activity will pick up the back half of 2024, which would create revenue for brokers like, well, Morgan Stanley. No conflict in that prediction.
Top Weekly Performing Sectors
- Technology: +2.94%
- Technology Services: +2.71%
- Non-Energy Minerals: +2.69%
- Consumer Durables: +1.84%
- Finance: +1.71%
Party Never Stops
Stock markets worldwide are hitting record highs, with 14 of the 20 largest markets reaching new peaks. The S&P 500 and Nasdaq 100 in the US hit record levels, alongside significant gains in European, Canadian, Brazilian, Indian, Japanese, and Australian markets. Key drivers include strong corporate earnings, positive economic data, hopes for interest rate cuts, and the green energy shift. Tech stocks, especially AI-related companies, significantly contributed to these gains. Commodities like gold and copper also boosted markets like Canada’s.
Silver and Nickel
Silver surpassed $30 per ounce, its highest since January 2013, driven by solid investment and industrial demand, especially in solar panels. Physical sales have increased despite little ETF interest. The gold-to-silver ratio narrowed from over 90 to 80 and may drop to 70 with potential Fed rate cuts and economic resilience. Rising export and import prices and hawkish Fed comments have tempered some rate cut expectations.
Meanwhile, Nickel surged to nearly $21,000 per tonne, the highest since September 2023, due to fears of supply disruptions from protests in New Caledonia. Rioting over voting law changes led to a state of emergency, threatening nickel mining operations. Inflation hedging and hopes for central bank rate cuts also boosted prices.
Rust Belt Love
President Biden announced significant new tariffs on Chinese electric vehicles, batteries, solar cells, steel, and aluminum, highlighting Chinese government subsidies as unfair competition. This move, during a heated campaign, aims to bolster American manufacturing and protect jobs. It also comes at a pivotal moment for the Biden campaign to try and close the gap in polling where Trump is heavily favored on economic issues. The tariffs, phased in over three years, reflect ongoing trade tensions and are expected to affect various sectors, including green energy and advanced technology, while China criticizes the move as political manipulation and economic bullying. Shares of First Solar and Enphase rose on the news.
Commodity Movers
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Natural Gas
+17.14% (1W Chg)
+32.83% (1M Chg)
Silver
+11.83% (1W Chg)
+34.05% (YoY Chg)
Copper
+3.55% (1D Chg)
+13.83% (1M Chg)
Orange Juice
+14.33% (1W Chg)
+69.07% (YoY Chg)
Noteworthy Events
GameStopped
GameStop shares plummeted 19.7% May 17th following the announcement of an at-the-market offering of up to 45 million class A common shares. This decision came after a brief surge in GameStop's stock earlier in the week, driven by renewed interest in meme stocks. Additionally, the company reported preliminary first-quarter results indicating a decline in sales.
Buffet Reveals Chubb
Berkshire Hathaway (BRK.B) just revealed a $6.7B stake in insurance provider Chubb (CB), sending the stock up 8%. The stock does look compelling and a rare one with a P/E below 12.
AT&T Spaces Out
AT&T (T) is teaming up with AST SpaceMobile (ASTS) to bring satellite internet connectivity to cell phones.
Reddit Read By AI
Reddit shares jumped 10% on May 17th after the company announced a partnership with OpenAI. The deal will integrate artificial intelligence features into Reddit's platform and provide OpenAI access to Reddit’s Data API for training its AI models.
Walmart Breaks that Wall
Walmart shares surged 7% on May 16th after the company reported adjusted first-quarter earnings of 60 cents per share, exceeding analysts' expectations of 52 cents. Revenue was $161.5 billion, surpassing the consensus estimate of $159.5 billion. Walmart attributed its success to significant gains in e-commerce and attracting more high-income shoppers. Walmart executives said that wealthier customers are migrating to the store for its discounted prices. That is good for Walmart, but spells possible storm clouds ahead for consumer spending overall.
What's the Computer that can sing? A Dell?
Dell Technologies experienced a significant share boost, surging over 11.2% on May 15th after Morgan Stanley raised its price target on the stock. This positive outlook was driven by Dell's increasing momentum among enterprise clients, particularly in the demand for artificial intelligence servers. They provide the computers powered by Nvidia GPUs in large data centers.
Lobster in the Rough
Red Lobster will reportedly file for bankruptcy next week. It also closed around 100 locations, with locations and equipment being auctioned off.
CASE STUDY
MEDS RISES 272% IN 3 DAYS AFTER DIVIDEND ANNOUNCED
Trxade Group, Inc., together with its subsidiaries, owns and operates a business-to-business (B2B) web-based marketplace focused on the pharmaceutical industry in the United States. On March 5th, the stock was trading at $8/share. The next day, the company announced a special dividend of $8/share. Following the announcement, the stock rose 272% over the next three days.
What's Special about a Special Dividend?
Special dividends are one-time cash distributions to shareholders. They are typically given out when companies have more cash on hand than they need. This follows sales of assets or times when the company has done far better than expected in terms of profits. Special dividends are effectively profit sharing programs.
How Does a Special Dividend Work?
The Company issues a special dividend on the award date to shareholders that own the stock before the ex-dividend date. As an investor, you can buy the stock a day before the ex-dividend date, hold through the Record Date, which is usually a day or two later, then sell the stock and still be entitled to the dividend on the pay date, as you owned the stock on the record date and bought before the ex-dividend date.
As a stock owner, you are then given the per share value of the special dividend.
Are Special Dividends Valuable?
In the case of Trxade Group, their special dividend was the same value as a share of stock. They gave out $8.00 to shareholders for each share of stock owned. So, if you owned 100 shares, you would receive $800 in cash - a 100% return from the share price on March 5th.
How to Trade Special Dividends
There are a variety of ways to trade special dividend events. One could simply buy the stock before the ex-dividend date and sell after the record date. This can be flawed, however, as the value of the stock is reduced by the dividend value on the ex-dividend date at the opening bell.
Another way to trade is to day trade the news and exit before the ex-dividend date. And a final way is to simply buy and hold the stock, if the special dividend is indicative of positive longer term tailwinds for the company.
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Upcoming Catalysts:
EARNINGS
Monday
- Li Auto (LI)
- Wix.com (WIX)
- Palo Alto Networks (PANW)
Tuesday
- AutoZone (AZO)
- Lowes (LOW)
- Macy's (M)
Wednesday
- Target (TGT)
- Analog Devices (ADI)
- Vipshop Holdings (VIPS)
- Nvidia (NVDA)
- Synopsys (SNPS)
Thursday
- Ralph Lauren (RL)
- Intuit (INTU)
- Workday (WDAY)
Friday
- Booz Allen Hamilton (BAH)
The LevelFields Team