Macrosynthesis  

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Last Week's Recap

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Jumping into 2024

December's employment data surpassed expectations, with the economy adding 216,000 jobs compared to the predicted 170,000. This increase in payrolls and a rise in wages pushed Treasury yields higher and reduced expectations for Federal Reserve rate cuts this year.

Notably, Nvidia and AMD shares rose by over 1.8% each amidst the market volatility. Airline stocks also saw an upturn, with American Airlines, Delta, and United increasing over 3.1%, recovering from a seven-day slump following the Japan Airlines crash in Tokyo.

Healthcare stocks significantly outperformed the S&P 500, with the XLV rising 2% and the SPY dropping -2%. Utilities also outperformed as investors rotated into cheaper, safer asset classes. The tech-heavy Nasdaq 100 ended the week down by -3.5%, while the Dow Jones Industrial Average fell by -0.6%.

Keep Em' Coming

In December 2023, the US economy added 216K jobs, surpassing forecasts of 170K. Significant gains were seen in government (52K), leisure and hospitality (40K), health care (38K), and construction (17K), while transportation and warehousing declined (-23K). The total job increase for 2023 was 2.7 million, marking the smallest annual rise since 2019. Key sectors like leisure and hospitality still lag behind pre-pandemic levels.

Not as Bad as Expected

In December, the Eurozone inflation rate rose to 2.9% year-on-year, up from November's 2.4%, but below the expected 3%. This first increase since April was driven mainly by energy prices, which decreased less sharply than in November. Services inflation remained at 4.0%, while food, alcohol, tobacco, and non-energy industrial goods inflation slowed. The core rate, excluding food and energy, cooled to 3.4%, its lowest since March 2022. Monthly, consumer prices grew by 0.2%.

Global Conflicts Rising

Taiwan's Ministry of National Defense reported the presence of six Chinese military aircraft, including a Shaanxi Y-8 anti-submarine plane, and six naval ships near Taiwan, raising invasion concerns. Taiwan deployed its forces in response.

Additionally, three Chinese spy balloons were observed in the Taiwan Strait. In total, China has sent 19 military aircraft and 13 naval ships close to Taiwan this month. These actions align with China's gray zone tactics and its claim over Taiwan, despite Taiwan's efforts for self-governance.

Chinese President Xi Jinping recently reiterated his stance on "reunification" with Taiwan as inevitable, in his New Year address, emphasizing a shared destiny for all Chinese.

Defense contractors Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTX), and BAE Systems (BAESY) were all up last week.

Give and Take

The Biden administration is gradually refilling the U.S. Strategic Petroleum Reserve (SPR), after its record 2022 drawdown following Russia's invasion of Ukraine. Initially, 180 million barrels were sold, with an additional 38 million mandated by Congress. To date, 13.82 million barrels of domestically produced, high sulfur oil have been repurchased, along with an accelerated return of nearly 4 million barrels loaned to oil companies. This restocking process is cautious, considering maintenance at SPR sites and potential impacts on oil and gasoline prices ahead of the presidential election.

Prices & Opinions Vary

Opinions vary over whether inflation has been tamed, as investors see rising shipping prices due to conflicts in the Middle East and simultaneously, many commodity prices falling significantly. Recent standouts include Natural Gas prices (+16% last week), Uranium (+12% last month), Coal prices (-10% last week),  tea prices (-12% last week), egg prices (+12% last week), and overseas shipping prices (+40% last week).

Commodity Movers

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Natural Gas

+3.08% (1D Chg)

+15.66% (1W Chg)

Orange Juice

-6.58% (1M Chg)

+61.96% (YoY Chg)

Tea

-11.54% (1W Chg)

-18.10% (1M Chg)

Coal

-10% (1W Chg)

-67.07% (YoY Chg)

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Noteworthy Events    

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Bite of the Apple

Apple shares slid on reports the U.S. government is preparing an anti-trust lawsuit. The news follows analyst downgrades on slowing iPhone sales and increasing competition in China.

Palantir

Shares of Palantir dropped by almost 2% Friday. This decline followed a downgrade by Jefferies to 'underperform', citing worries that recent enthusiasm around artificial intelligence might have led to an inflated and unsustainable valuation of the company.

Walgreens

Shares of Walgreens Boots Alliance dropped by 5.1% Thursday following the company's decision to reduce its quarterly dividend from 48 cents to 25 cents per share. This move is part of a strategy to enhance its long-term financial stability and cash reserves.

APA

Shares of APA, an oil-producing company, declined 7.4%  Thursday following their agreement to acquire Callon Petroleum, a Permian Basin producer, in an all-stock transaction valued at $4.5 billion, inclusive of debt. Callon Petroleum, with a market capitalization of $2.3 billion as of the close of trading on Wednesday, saw its shares increase by nearly 4% as a result of the deal.

Xerox

Xerox declined over -12% Wednesday following its announcement of a workforce reduction by 15% in the first quarter, as a part of a comprehensive restructuring plan.

Moderna

Moderna's stock saw a boost of 13.1% Tuesday after Oppenheimer upgraded its rating to outperform. This optimism came from an anticipation of several product launches by Moderna in the upcoming 12 to 18 months, which are expected to drive an increase in sales starting in 2025. This positive development comes after a challenging 2023 that came with a decline of over -40%.

CASE STUDY: COLL +65%

Using LevelFields for Longer-term Investments

Collegium Pharmaceutical Inc. (COLL) is a pharmaceutical company that specializes in developing and commercializing pain management products, focusing on managing severe and acute pain with an approach towards less addictive opioids.

Demonstrating confidence in the company's undervalued share price, the board initiated a new share repurchase program November 2021.

This is a significant move for a young biotech, as biotechs usually need to devote more resources to either sales efforts or R&D.

Users were alerted to the news within the Stock Buyback scenario. While there was a small price increase on the news of the event, the big move happened for longer term holders who put two and two together and saw a company rapidly increasing revenues and doing stock buybacks to create greater shareholder value.

Two years later, the stock was up 65% percent, representing over 6X the return of the S&P 500 index.

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Upcoming Catalysts:

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REPORTS

Monday

Fed Bostic Speech

Tuesday

US Balance of Trades

Thursday

US CPI

US Inflation Rate

US Initial Jobless Claims

EARNINGS

Monday, January 8 - Jefferies Financial Group (JEF) and Helen of Troy (HELE).

Tuesday, January 9 - Albertsons Companies (ACI), PriceSmart (PSMT), and Acuity Brands (AYI).

Wednesday, January 10 - KB Home (KBH)

Thursday, January 11 - Infosys (INFY)

Friday, January 12 - UnitedHealth Group (UNH), JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), BlackRock (BLK), Delta Air Lines (DAL), and Bank of New York Mellon (BK)

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The LevelFields Team