Macrosynthesis

U.S. Stock Indexes Hit New Highs

U.S. stock indexes rebounded, with the NASDAQ and S&P 500 hitting new highs, driven by AI enthusiasm. May's jobs growth of 272,000 exceeded forecasts, raising bond yields amid bets the Fed would not cut rates in September due to a strong economy. Large-cap growth stocks outperformed others. On the positive side, mortgage rates dipped below 7% for the firs time in 10 months and oil prices fell after OPEC+ announced they'd be phasing out production cuts.

The European Central Bank cut interest rates .25% last week, marking confidence in fighting inflation.

Inflation May Have Peaked, But Pain From Cumulative Inflation Still Hurts

In the U.S., inflation is tempering but the cumulative impacts of inflation are draining savings rates, which now sit at 3.6%, down from a 32% high at the onset of the COVID-19 pandemic. Since the end of 2019, as shown in the image above, car insurance is up +46%, gas costs 36% more, eating out costs +25% more, rent and mortgage prices are +23% higher, and used vehicles cost +29% more. On the flip side, U.S. GDP has grown 3.5X more over than the average G7 country over the same period.

The Biggest Sector Moves Last Week

Non-Energy Minerals, Energy Minerals, and Utilities sectors declined, losing 4.81%, 2.83%, and 2.11% respectively. In contrast, Technology, Health, and Technology Services sectors gained, with 3.64%, 3.04%, and 2.36% increases. Semiconductors, software  and biotechs all did well last week too.

U.S. Economy Adds More Jobs Than Expected

The US economy added 272K jobs in May 2024, significantly higher than April's 165K and well above forecasts. Major gains were seen in health care (68K), government (43K), and leisure and hospitality (42K). While the Fed is expected to maintain current rates, robust job growth raises discussions on whether policy is sufficiently restrictive. The debate on the neutral rate, influenced by recent data, will continue at the June 11-12 policy meeting. However, the unemployment rate rose to 4% from 3.9%.

Rate Cuts Have Finally Arrived, Just Not in the U.S.

The Bank of Canada cut its key policy rate to 4.75% from 5%, the first G7 country to do so, aiming to relieve indebted consumers. Further cuts will be gradual and data-dependent. Additionally, the European Central Bank cut interest rates for the first time in five years, lowering the deposit rate by 25 basis points to 3.75%. Despite this move, future rate cuts remain uncertain due to ongoing inflation concerns and potential wage pressures.

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‍Ex-Brazilian President Calls for Multiple Superpower World in Support of China

At the St. Petersburg International Economic Forum, Dilma Rousseff, president of the New Development Bank (NDB) and former Brazilian president, emphasized the need for a multipolar economy to mitigate global economic instability caused by large economies. She criticized developed countries for failing to address persistent global problems and advocated for new economic centers to withstand global shocks. BRICS, including Brazil, Russia, India, China, South Africa, and others, established the NDB in 2015 to provide an alternative to the IMF and World Bank.

Home Prices Coming Down in the U.S., Finally

Over the last four weeks, 6.4% of home sellers reduced their asking prices, the highest rate in 18 months and the second highest since 2021. In comparison, June 2023 and 2022 saw reductions of 4.4% and 3.9%, respectively. Consequently, the median asking price fell by approximately $3,000 to $416,623, marking the first drop in six months according to Redfin. Additionally, pending US home sales reached their lowest level since 2020.

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U.S. Personal Savings Have Dried Up

The excess money people accumulated over the course of the COVID-19 pandemic and afterwards, following trillions in government stimulus, has vanished. Credit card delinquencies have hit 9%, and there's concern the consumer is finally beginning to pull back on spending. The graph below shows the cumulative U.S. savings in Trillions of dollars plummeting.

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Commodity Movers

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Eggs

+19.29% (1W Chg)

+44.17% (1M Chg)

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Natural Gas

+13.51% (1W Chg)

+34.27% (1M Chg)

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Cocoa

+7.60% (1W Chg)

+18.70% (1M Chg)

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Silver

-6.95% (1D Chg)

-4.12% (1W Chg)

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Noteworthy Events    

GameStop's Roaring Kitty Barely Purred

GameStop's stock plummeted 39.4% on June 7th after trader "Roaring Kitty" provided no new insights during an overly anticipated YouTube livestream. Around the same time, GameStop reported poor earnings, with first-quarter net sales of $881.8 million, a 29% drop from the previous year, and a quarterly loss of $32 million. Thankfully, the company is better at selling stock than video games. They did manage to pocket about $1B by selling newly issued stock amidst the recent GameStop meme trading, and they plan to sell another 75 million shares ($2.1B at today's valuation), further diluting the stock.

FDA Approves Geron's Blood Disorder Treatment

Geron's stock surged +18% June 7th after the FDA approved its blood disorder treatment, Rytelo. Although analysts had anticipated the approval, it occurred sooner than expected.

Five Below Shares Drop 10 Below after Poor Guidance

Five Below's shares dropped -10.6% June 6th after missing Wall Street's first-quarter revenue estimates and providing disappointing guidance. The retailer projected current quarter revenue between $830 million and $850 million, falling short of analysts' expectations of $883 million.

Investors Sour on Bourbon Sales Forecasts

Brown-Forman's stock, Jack Daniels' parent company, fell on June 5th 5.9% to a new 52-week low after reporting disappointing fiscal fourth-quarter revenue. The alcohol seller posted $964 million in revenue for the period, below the $1.03 billion expected by analysts.

Bath & Body Works Shares Plummet 13% - The Worst Day in 3 Years

Bath & Body Works' shares dropped nearly -13% June 4th, heading for their worst day since 2021. Although the retailer surpassed first-quarter earnings and revenue estimates, it provided disappointing guidance for the second quarter. The company expects earnings between 31 cents and 36 cents per share, below estimates of 38 cents per share.

People Are Still Cruising Despite Savings Dropping: Carnival Stock Rises

Carnival's shares rose +5.8% June 4th following the announcement that it will merge P&O Cruises Australia into Carnival Cruise Line. This move is part of a broader strategy to expand capacity for its flagship brand.

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CASE STUDY

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How to Double Your Money in 15 Months By Using Events And Ignoring the Market Pundits

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What?  From January 2023 to April 2024, PWR stock rose 100 percent.

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Who? Quanta Services, Inc (PWR). designs, installs, upgrades, repairs, and maintains electric power transmission and distribution infrastructure. It also offers emergency restoration services, including the repair of infrastructure damaged by inclement weather. As climate change continues to make storms stronger and more frequent, Quanta is relied upon for fixing problems and expanding the utility grid.

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Why?  Power initiated a 17% increase in its dividend in January 2023. The stock rose 3% that day on the news, and another 15% over the next few months. At the end of the year, the increased the dividend by double digits again, sending the stock on a +20% run over the next several months. In the coming months, they authorized a stock buyback and a 3rd dividend increase. The sum of these return of capital events continued catalyzing the stock to double, and end May 130% higher.

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Takeaway Lesson - Using LevelFields as a research tool for finding longer term swing trades or long-term holding is very effective. Sequential return of capital events paired with strong financials are a powerful indicator of share price growth. It's important to note that while each event had day trading gains, for these types of events, the gains are much larger over time.

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Note the swing in performance of the stock was caused by market narratives seeded by pundits and billionaires looking to manipulate the market for their own benefit. Sticking to just the events will bring you far greater returns than listening to the noise.

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Upcoming Catalysts:

EARNINGS

Monday

• FuelCell (FCEL)
• Lovesac (LOVE)

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Tuesday

• Oracle (ORCL)
• Casey's General Store (CASY)

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Wednesday

• Broadcom (AVGO)
• Dave & Busters Entertainment (PLAY)
• Oxford Industries (OXM)

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Thursday

• Signet Jewelers (SIG)
• Adobe (ADBE)

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The LevelFields Team