Macrosynthesis

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TLDR

• Biden drops out of 2024 Presidential race
• Sector rotation out of popular tech stocks
• Trump says Taiwan should pay U.S. for defense, chip stocks tank
• Trump-Vance ticket is bullish for Bitcoin
• Amazon sets record $14B in sales for Prime Day
• Inflation projections lowered
• Crowdstrike software bug creates epic reputation damage
• FDA says vaping is good for your health [smokers]
• Match.com find new love from activist investors

Why is the stock market down? Sector rotation and Trump Comments

A large rotation out of popular tech stocks into smaller market cap stocks and underperforming sectors like real estate and regional banks marked the week. Nvidia shed -10%, Amazon dropped -6% despite setting a new $14B record for Prime Day sales, Microsoft lost -3.5%, Super Micro Computer fell -15%, Apple fell -5%, and Google and META fell -4 percent. Despite hitting new highs early in the week, the NASDAQ and S&P 500 both ended the week with losses.

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This rotation is a normal process among wealth managers and does not mean there are no buyers left - it just means the sellers are driving price action while buyers wait for the selloff to complete before moving in to pick up shares at cheaper prices.

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Trump Remark Drives Selloff in Chips Stocks

Shaking the crowded trades further was Trump's comment that Taiwan should pay the U.S. to defend it against a Chinese invasion. Despite the fact that Taiwan spends billions annually on US-made military equipment and ammo, Trump's remarks poured gasoline on the selloff in semiconductor stocks - many of which are assembled in Taiwan. The Semiconductor ETF (SMH) fell -10 percent last week. The selloff was a vivid reminder of the episodic market volatility experienced during Trump's presidency.

Real Estate, Financial, & industrial Stocks Outperform Last Week

Real estate, financial, and industrial stocks saw gains this week. In contrast, tech and retail experienced declines. The Russell 2000 rallied nearly 5.5% mid-week before selling off some, as investors purchased small caps on bets the Fed will cut interest rates substantially enough to lift small cap earnings.

Bitcoin Continues Rally, as VP-candidate Discloses Large Investments in Crypto

Bitcoin's price rose nearly 4% last week, following a recovery the prior week. Trump's VP pick, JD Vance, is a crypto bull. In 2022, Vance reported holding Bitcoin valued between $100,000 and $250,000. He has emerged as a prominent advocate for the cryptocurrency industry in the Senate, recently circulating a draft bill that aims to establish regulations favorable to the industry, according to Politico.

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Similarly, Trump has shown support for cryptocurrency by accepting donations in Bitcoin and planning to speak at a Bitcoin-themed fundraising event July 27th, which appears alongside a Bitcoin conference. It should provide another boost for the asset.

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Shares of Coinbase (COIN), largely tied to the price of Bitcoin given it earns commissions from trades of it, also rose over +12% last week.

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Inflation Projections Lowered, Fed Rate Cuts Anticipated

Economists have lowered US inflation projections through mid-2025 and expect a slight rise in unemployment, prompting potential Fed rate cuts. The core PCE price index is projected to end the year at 2.6%, with overall PCE at 2.4%. Unemployment is forecasted to average 4.2% in Q4 2024. These adjustments reflect the Fed's tightening measures and a cooling economy, with a 30% recession chance in the next year.

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Markets Rallied As "Teflon Don" Survives Impeachment, Prosecution, Conviction, and Now Assassination

Despite the assassination attempt on Donald Trump, U.S. stocks hit record highs early in the week before selling off. Historically, such events cause market dips, but strong fundamentals like the AI boom and inflation progress have kept stocks resilient. Notably, stocks likely to be favored under a possible Trump presidency saw a significant jump. DJT surged nearly 30% on the 15th. This was followed by the long-expected RNC convention in Milwaukee, where Trump announced his Vice Presidential pick: Ohio Senator JD Vance.

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Biden Drops Out of Race, Speculation to Turn to Kamala Harris' VP Pick

On the other side of the aisle, amid increasing pressure from top Democrats, President Biden dropped out of the race. The President is currently sidelined by COVID-19, following a recent outbreak across 45 states that may be giving a boost to Pfizer stock (+3% last week).

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Speculation is already swirling as to how the process will unfold next, but it's implausible for VP Kamala Harris to not become the democratic nominee for President. Who will she select for a running mate will be a matter of party politics and who can help her defeat trump. Penn. governor Josh Shapiro is likely a top pick, as the Dems need to win Pennsylvania and independents. Shapiro is considered a moderate democrat.  On the other hand, the party could use some star power and if smart, they may seek a prominent business executive to combat beliefs that only Trump is pro-business.

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Crowds Disrupted by CrowdStrike's Epic Software Bug

CrowdStrike's flawed software update caused a major IT outage, affecting global businesses and taking down Microsoft systems. The outage is being reported as the largest outage in history. The ripple effects were seen across airports, Amazon, and even event breakfast spots like First Watch (FWRG) that were unable to accept credit cards (we tried).

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The underlying issue was fixed on Friday morning, but recovery was slow. The blackout caused significant industry disruptions, including widespread flight groundings, banking interruptions, and 911 outages. CrowdStrike's CEO apologized, acknowledging reputational damage. Elon Musk wrote on X that Crowdstrike software was removed from all systems, adding salt to the wounds at one of the largest cybersecurity firms in the world. Shares of CRWD fell -18% on the event.

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Next Week

In the United States, important data releases will include the advance Q2 GDP growth rate, PCE inflation, and personal spending and income. Key reports will also feature the S&P Global Manufacturing and Services PMI, durable goods orders, and existing home sales. The earnings season will peak as over thirty companies with market caps over $100 billion announce their financial results.

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Commodity Movers

Natural Gas

-8.81%  (1W Chg)

-22.52% (1M Chg)

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Copper

-7.76% (1W Chg)

+10.48% (YoY Chg)

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Lithium

-5.52% (1W Chg)

-10.47% (1M Chg)

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Lumber

+14.94% (1W Chg)

-8.23% (YoY Chg)

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Noteworthy Events

Beyond Meat's (BYND) Stock Performance is Beyond Bad

Beyond Meat's stock dropped over -10% on the 18th, following a report by The Wall Street Journal which revealed that the company has started discussions with bondholders to restructure its balance sheet by selling debt.

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Warning: Charles Schwab's (SCHW) Balance Sheet

Charles Schwab shares fell -9% on the 17th after TD Cowen downgraded the stock to hold. The downgrade was due to Schwab's "ongoing mixed execution" which showed that bank deposits had fallen and supplemental borrowing increased.

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HSBC downgraded Qualcomm (QCOM) to hold from buy

HSBC downgraded Qualcomm to hold from buy, citing a "lackluster" AI PC narrative and potential to miss Q4 revenue targets, causing the stock to slip nearly -8% on the 17th.

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Activist Investors Pushes for Changes, Sale at Match Group (MTCH)

Starboard Value, holding a 6.5% stake in Match Group, is pushing for product innovation and margin improvement. If changes aren't made, they suggest the company should go private. Match shares rose +8% following the announcement.

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Macy's (M) Shares Plummet -15% After Ending Takeover Talks

Macy's stock plummeted 15% on the 15th after terminating takeover talks with Arkhouse Management and Brigade Capital due to a lack of compelling financing. The stock reached a seven-month low, amid ongoing restructuring efforts and store closures.

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Vaping Good for Your Health? Big Tobacco Winning Over the FDA

‍The U.S. FDA has approved the marketing of 7 more e-cigs, and 34 to date. Shares of Phillip Morris (PM) and Altria (MO) are up 8% this month and these approvals are one reason.

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"Scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body’s exposure to harmful or potentially harmful chemicals.” -- US FDA

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No Fly Zone

Pivotal, the flying car startup backed by Google cofounder Larry Page, has delayed its first shipments to 2025. Initially scheduled for June 2024, the company struggled to get its Helix vehicle production-ready on time.

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Upcoming Catalysts:

EARNINGS

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Monday

• Bank of Hawaii (BOH)
• Verizon (VZ)
• Nucor (NUE)
• NXP Semiconductor (NXPI)
• Zions Bancorp (ZION)

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Tuesday

• Coca-Cola (KO)
• General Motors (GM)
• GE Aviation (GE)
• Lockheed Martin (LMT)
• Phillip Morris (PM)
• Google (GOOGL)

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Wednesday

• CME Group (CME)
• Teledyne Technologies (TDY)
• Tower Semiconductor (TSM)
• Chipotle Mexican Grill (CMG)
• Newmont (NEM)
• Teck Resources (TECK)

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Thursday

• AbbVie (ABBV)
• AstraZeneca (AZN)
• Honeywell (HON)
• Southwest Air (LUV)
• Union Pacific (UNP)

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Friday

• 3M (MMM)
• Booz Allen Hamilton (BAH)
• Aon (AON)

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The LevelFields Team