Macrosynthesis
TLDR
- Tech stocks make big comeback
- Positive data on inflation and the economy boosts market
- The housing crisis can only be solve by 3 things
- Seventeen percent of U.S. household struggling to pay bills
- Chipotle CEO goes long on coffee
- Michael Burry bets big on China
- Teck and AI stocks make a big comeback
- Mpox stocks surge on pandemic news
The Dog Days of Summer Stocks Are Over
What a month it has been! After the violent week in the market at the start of August, the returns of the magnificent eight are indeed magnificent. Nividia is up nearly 37% since its August 5th low. The Nikkei 225 is second in gains with a 22% increase, followed by Bitcoin at 20%, and Tesla at 19%. Meta and Amazon have both seen 17% growth, while Apple and Netflix have each risen by 15%. The Nasdaq 100 has climbed 12%, the S&P 500 by 9%, and Microsoft matched that with 9%. Google, however, has lagged behind with only a 5% increase thanks to losing an anti-trust lawsuit. The S&P 500 is only 2% off its all-time high.
The recent surge can be attributed to a week of favorable economic data, including lower inflation, with the CPI marking its slowest growth since March 2021, strong retail sales, and fewer unemployment claims, all of which have alleviated recession concerns. The University of Michigan’s consumer sentiment rose to 67.8 in August 2024, marking its first increase in five months. Expectations improved for personal finances and the economic outlook, while inflation expectations remained steady.
The Consumer Just Keeps Shopping
U.S. consumer strength remained robust in July, as retail sales surged by 1%, significantly outpacing expectations. This strong consumer activity, despite ongoing inflationary pressures, highlighted the resilience of consumer spending, driven by increases in motor vehicle, electronics, and food sales. The data eased recession concerns.
The Housing Squeeze Tightens
In July 2024, shelter costs contributed 90% to the monthly rise in the U.S. Consumer Price Index (CPI), with housing expenses increasing by 5.1% year-over-year. Simultaneously, U.S. building permits fell by 4% to a four-year low of 1.396 million annually, below expectations. Multi-unit building approvals plummeted by 12.4%, while single-family permits remained mostly unchanged. Fewer building permits mean less housing supply, and with reduced supply, there is little relief in sight for the 49% of the 134.9 million households that cannot afford a $250,000 home.
The Fed Has to Fix the Housing Problem it Created
The U.S. Federal Reserve increased interest rates so much that the combination of high housing prices and high mortgage costs has made owning a home very expensive. Likewise, the quick pace of rate hikes following 0% interest rates has crushed incentive to sell your existing home and buy a new home. Nearly 80% of home owners have a mortgage rate below 4 precent, so it makes little financial sense to sell your home and buy a different home with a much more costly mortgage. As a result, there is very low supply of homes and thus no price wars among sellers that typically cause price drops.
The only short term ways out of this mess are to: 1) lower interest rates, 2) make mortgages portable, meaning you can swap homes but keep the original mortgage rates, and 3) eliminate taxes on selling a home to stimulate supply, especially among Baby Boomers looking to downsize. It doesn't seem like banks are willing to do option 2, and there is zero political leadership pushing for it or option 3. That means the Fed has to cut rates to increase housing supply and bring down shelter costs currently propping up inflation levels it so badly aims to cure.
Kamala's Long-term Plan to Address Housing Costs Released
Kamala Harris unveiled her economic plans this week, with a focus on addressing the housing crisis. Her strategy aims to boost housing supply by creating 3 million new units over four years. Key components include tax incentives for developers to build starter homes and rental units, along with a $40 billion federal fund to support innovative housing projects. Additionally, first-time homebuyers could receive up to $25,000 for down payments. Critics like Billionaire Hedge Fund owner Bill Ackman argue her plan will simply drive up short term demand without addressing supply, creating even greater inflation.
Record Number of U.S. Consumers Struggling to Pay Bills on Time
According to a May survey, a record number of U.S. consumers are struggling to pay their bills, with 17% reporting unpaid bills due to rising costs. The issue is more pronounced among renters, where 27% were behind, compared to 11% of homeowners. Lower-income households are particularly affected, with 36% of those earning less than $25,000 unable to pay their bills fully. Additionally, credit card delinquencies have risen above pre-pandemic levels, driven by increased risk in recent credit card issuances. Lenders loosened standards in 2021 and 2022, leading to a higher rate of delinquencies, particularly among cards issued during these years. Publicly available data do not actually measure consumer delinquencies in this way; they report the share of dollars delinquent, which is stated as 3 percent. This is likely a big reason Visa stock has underperformed this year. It's also likely to be a major driver for how voters vote in the U.S. November elections.
Tech Sector Outperforms Once Again in Last Week's Comeback
Last week, U.S. indices saw significant gains across the board. The Dow rose by 2.9% to 40,660, while the S&P 500 increased by 3.9% to 5,554. The Nasdaq experienced the largest jump, climbing 5.3% and the Russell 2000 also gained 2.9%. Meanwhile, the CBOE Volatility Index dropped sharply by 27.3% to 14.8, indicating reduced market anxiety.
Among the S&P 500 sectors, Information Technology led the way with a 7.5% increase. Consumer Discretionary also performed strongly, rising by 5.2%. Financials grew by 3.2%, Industrials by 2.1%, and Materials by 2.2%. The Energy and Healthcare sectors both saw gains of 1.9%, while Consumer Staples rose by 1.6%. Utilities and Telecom each edged up by 1%, and Real Estate remained relatively flat, with a modest 0.1% increase.
Next Week, All Eyes Are on Jobless Claims for Recession Signals
The upcoming week includes key economic events such as Fed speeches, the release of July's FOMC meeting minutes, and important data reports. Highlights include initial jobless claims on Thursday, with expectations of 230,000 claims, and existing home sales on Wednesday, forecasted at 3.95 million units.
Commodity Movers
Gasoline
-3.53% (1W Chg)
-7.90% (1M Chg)
Silver
+5.70% (1W Chg)
-4.66% (1M Chg)
Copper
+3.77% (1W Chg)
-6.01% (1M Chg)
Orange Juice
+8.1% (1W Chg)
+44.24% (YoY Chg)
Noteworthy Events
Rocket Lab Lifts Off
Rocket Lab's shares surged to a 52-week high on August 16th after the company successfully shipped two Mars-bound spacecraft to Cape Canaveral for launch. These spacecraft, part of NASA's ESCAPADE mission, will study Martian plasma and magnetic fields, providing insights into Mars' atmospheric evolution. Rocket Lab's success in this project continues to bolster its reputation in space exploration.
H&R Block Proves Death & Taxes Are Still Good Bets
H&R Block shares surged 18% after the company reported better-than-expected Q4 results, announced a 17% dividend increase, and introduced a $1.5 billion share buyback program. LevelFields AI alerts went out in the early morning and the stock surged 20% thereafter. The company also provided strong fiscal 2025 guidance, anticipating higher revenue and adjusted EPS.
Starbucks Swaps CEOs, Boosts Share Price 24% by Plucking Chipotle's CEO
Starbucks (SBUX) made headlines by replacing its CEO, Laxman Narasimhan, with Brian Niccol from Chipotle (CMG). Niccol officially takes over on September 9. The CEO replacement is a classic move by activist investors, who are pushing for changes at Starbucks. Following LevelFields AI Activist Investor alerts would have already netted you a 28% return on Starbucks stock. This activist scenario is great for novice or busy investors looking for passive, exceptional returns over a 6-18month period.
Walmart Defies Expectations, Beats Earnings Estimates
Walmart's shares surged after the company reported better-than-expected Q2 results, with revenue growing 4.8% to $169.34 billion. The retailer benefited from higher-income consumers seeking value amid inflation, leading to increased store sales and growth in its eCommerce, membership, and ad businesses. Walmart also raised its full-year outlook.
Cisco's Earnings Surprise Fuels Stock Surge
Cisco shares surged 7% after the company reported better-than-expected quarterly earnings and announced plans to cut 7% of its workforce. Revenue for the quarter reached $13.64 billion, surpassing estimates. Despite a 10% year-over-year revenue decline, the results were well-received, especially with significant growth in AI-related orders.
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MPOX Drug Makers Rise on Outbreak
The World Health Organization (WHO) declared mpox, previously known as monkeypox, a public health emergency due to a new outbreak in Central and West Africa. The virus has spread to 11 countries, including Sweden, marking the first case outside Africa. Over 17,000 suspected cases and 537 deaths have been reported, with children and young adults being the most affected.
The Danish biotech company, Bavarian Nordic (BVNRY), saw a 14.8% surge on August 16th after submitting data to the European Union’s drug regulator to extend the use of its mpox vaccine for teenagers. The stock rose 48% last week following news of the pandemic and its contracts with government agencies to supply tens of thousands of mpox vaccine jabs.
SIGA Technologies' stock went on a roller coaster ride last week after its oral mpox therapy, tecovirimat, failed to meet the primary endpoint in a clinical trial but showed great promise treating certain subpopulations. SIGA ended the week up 19%.
LevelFields AI Level 2 subscribers were alerted to these stocks in last week's newsletter, 4 days before the WHO declared mpox an emergency, and before their big moves up. We also bought some stock for ourselves.
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Upcoming Earnings:
Monday: Estee Lauder (EL), Fabrinet (FN), Palo Alto Networks (PANW)
Tuesday: Lowe's (LOW), Medtronic (MDT), Vipshop (VIPS), Coty (COTY)
Wednesday: Target (TGT), Analog Devices (ADI), TJX (TJX), Snowflake (SNOW)
Thursday: Intuit (INTU), Ross Stores (ROST), Workday (WDAY), Peloton Interactive (PTON)
The LevelFields Team