Macrosynthesis

That's a Wrap

On Friday, U.S. stocks had a mixed close with the Dow Jones dropping 305 points, contrasting the earlier rally driven by rate cut hopes. The S&P 500 slightly fell, while the Nasdaq saw a minor increase, buoyed by Nvidia's gain, which propelled semiconductor stocks to their best quarter since 2001. Nike and Tesla faced declines, whereas FedEx enjoyed a surge from cost-reduction benefits. Over the week, the Dow, S&P 500, and Nasdaq all finished higher following the Fed's announcement of three projected interest rate cuts this year. The S&P 500 hit an all-time high, while all sectors rose last week except real estate, with the largest gains coming from communications services companies and industrials. Within industries, interest rate sensitive companies performed the best with semiconductors, solar manufacturers, and homebuilders outperforming all others.

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Saved By the Bell

The President signed a $1.2 trillion funding bill, averting a government shutdown by maintaining current spending levels for defense with a 3% increase and keeping domestic funding flat. This bill, which also includes a 5.2% military pay raise and investments in child care and cancer research, faced mixed reactions within the Republican party, with some conservatives attempting to challenge the leadership over the deal. The legislation did not include funding for Ukraine, Israel or the U.S. border crisis. A separate bill is expected for those provisions, leaving defense contractors on hold somewhat.

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Moscow Attack

President Putin announced the detention of supposed ISIS members who are linked to a deadly mass shooting in Moscow, claiming they were heading to Ukraine, without directly accusing Ukraine. The attack, attributed to Islamic State and resulting in 133 deaths, occurred during a concert. Putin vowed retaliation against those responsible, amid increased security and national mourning. This represents Moscow's worst terrorist incident in over two decades, highlighting ongoing security challenges within Russia. Putin attempted to spin the event to have been enabled by Ukraine, in an overt attempt to garner support for his war against the country and a pretense for escalating attacks. Shortly afterwards, Russia launched 57 drones and hypersonic missiles at Ukrainian infrastructure.

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DOJ Strikes Again

The U.S. Department of Justice's, recently announced, antitrust lawsuit against Apple could span years, involving extensive legal battles that threaten Apple's business model. If successful, the DOJ might push for significant alterations to Apple's operations, most notably forcing Apple to accept apps on its phone purchased through 3rd parties. Most often, these battles result in a fine and some changes to business operations but rarely threaten long term success.

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Commodity Movers

UK Gas

+3.29% (1W Chg)

+24.42% (1M Chg)

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Tea

+2.12% (1W Chg)

+16.43% (1M Chg)

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Uranium

-6.59% (1W Chg)

-16.63% (1M Chg)

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Cocoa

+11.49% (1W Chg)

+211.68% (YoY Chg)

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Noteworthy Events

Lulu Loses Sex Appeal

Lululemon's dropped 16% on March 22nd due to disappointing future earnings projections amid slowing demand in North America, despite surpassing earnings and revenue estimates for its fiscal fourth quarter.

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r/Pump&Dump

Shares of Reddit fell by 9% on March 22nd, a day after its initial public offering, after having surged 48% on its debut, highlighting a volatile start for the social media platform in the stock market. The company announced they were pursuing content licensing agreements with Google and other AI language model creators which may, effectively, make Reddit far less useful. Why go to Reddit for product reviews when the same reviews would be available in ChatGPT? This puts in question entirely what the company is worth long term, and many Redditors are calling the IPO a pump and dump for this reason.

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Micronomics

Micron surged +14.1% March 21st following its fiscal second-quarter results, which exceeded analyst forecasts. The company reported earnings of 42 cents per share and revenue of $5.82 billion, surpassing the anticipated loss of 25 cents per share and $5.35 billion in revenue. Micron's third-quarter earnings and revenue projections are above analysts' expectations.

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Beans for Everyone

Chipotle climbed 6.4% to an all time high on March 20th following the announcement of a proposed 50-to-1 stock split. Additionally, Deutsche Bank increased its price target for Chipotle, highlighting the company's promising growth potential.

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Nordstrom Prefers Privacy

‍Nordstrom surged 9.4% on March 19th following a Reuters report that the retailer is exploring a private acquisition with assistance from Morgan Stanley and Centerview Partners, targeting potential private equity deals.

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CASE STUDY: CROX

What Happened: A selloff in CROX began April 2023 after the company reported lower than expected revenue growth. The stock rebounded when investors realized the merits of the CEO's strategy.

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Why? Investors thought of CROX as a growth stock, driven by high revenue growth. But the company changed its approach from selling through 3rd party retailers to using its strong brand to sell directly to consumers online, lowering revenue growth but raising profits.

Action: LevelFields analysts sent an Alert in July 2023 to Level 2 users informing them the stock was being misunderstood and mispriced, noting the current earnings growth would drive the price in the future - not the top line revenue growth.

Outcome - Shares of CROX continued to fall for two quarters, then began rising following earnings reports they were growing earnings by 89%. Shares moved from 113/share at the time of our alert, to 142/share.

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Key Takeaway - there are always pricing inefficiencies in the market to leverage for gains, if the noise is ignored. Eventually, the market gets the correct price of an equity, but it can take several quarters for this to happen. It's important to stay patient and not jump to conclusions if the stock price doesn't go your way immediately.

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Below is the alert we sent in July

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Upcoming Catalysts:

EARNINGS

Tuesday

• DT Synnex (SNX)
• GameStop (GME)
• Concentrix (CNXC)

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Wednesday

• Paychex (PAYX)
• Verint Systems (VRNT)

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Thursday

• Walgreen Boots Alliance (WBA)
• Oxford Industries (OXM)
• BRP (DOOO)

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The LevelFields Team