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RealFacts Weekly Market Report

Updated: Apr 18



This Week's Topics


This Week’s Quick Market Update

Tesla stock and EV stocks alike have dropped, due to falling demand and a price war with China’s EV manufacturers. Chinese competitors in the EV sector are trying to force themselves into the market with low low costs. This could have a short-term impact on Tesla but for its smaller competitors in the market in the U.S. like Rivian (RIVN), it may affect their profits since they don’t have the scale and reputation of Tesla.


Gold traded to a new High above 2,150. Analysts believe this is due to the talk on rate cuts and bets that the Fed will move forward with monetary easing. We are seeing a 70% chance that the Fed will start cutting rates in June. Both gold futures finished at 2158.20, 0.8% higher, and silver 1.9% higher.


Source: Simply Wall Street


Stocks are correcting, but is it trending to a bear market?


Equities in markets around the world have risen to near record highs this year, Ted Hayes, Chief Global Investment Strategist at Ned Davis Research, cited reasons for why so many different markets are rising, “Investors are finding more opportunities to keep pushing markets higher by increasingly buying stocks that have trailed the broader indexes. This has driven the percentage of global stocks trading within 5% of all-time highs to north of 25%, its highest level since early 2022.” With the extreme bullish sentiment currently present one must be wary of the possibility for a harsh correction.


Hayes says, “The longer the period of excessive optimism, the greater the build-up of complacency and the greater the vulnerability to economic or earnings disappointments.” Although Hayes is warning of a possible correction once the “period of excessive optimism” wears off, he doesn’t see the possibility of a bear market. “We don’t expect a bear market any time soon. The macro outlook lacks sufficient evidence to expect the return of crippling inflationary pressures or enough economic weakness to make a global recession an increased probability.”


Investor sentiment is extremely bullish and prices are rising to record highs, these facts indicate that the market may be slightly overbought and in need of a correction. This correction will occur as buyers and sellers decide where assets should be valued, but this does not indicate that a bear market is here. The fundamentals show that growth is still likely and after the inevitable correction stocks should continue to trend higher.


Source: MarketWatch


Navigating the S&P 500's Winning Streak


As the S&P 500 stock index continues its all-time highs, investors are increasingly pondering its sustainability. Since hitting its low point in October, it has surged by over 25%, prompting many to question, "How much longer can this winning streak last?" This question is being talked about a lot in both trading rooms and investment forums, leading to widespread discussion and analysis.


To understand where the market might be headed, analysts look closely at a few important signs. One thing they're focusing on is specific patterns in the market that show it might keep going up for a while. These patterns are like a roadmap, checking things like how strong the support for stocks is, when prices break out of their usual ranges, and when they hit certain goals. Since October, there have been four of these patterns, all hinting that the market is strong and could keep rising.


Another pivotal indicator is the frequency and strength of daily market closures. Since October, the S&P 500 has consistently closed above its mid-point price for the day approximately 80% of the time. This consistent upward trend instills confidence in the market's bullish trajectory. Even on days when closure falls short, they are infrequent compared to the prevailing positive closes. This pattern of predominantly positive closures fosters optimism among traders regarding the market's outlook.


Additionally, analysts closely monitor "market breadth," which gauges the performance of various stock sectors. A robust market breadth implies broad-based strength across sectors rather than isolated pockets of success. Since October, approximately 70% of trading days have witnessed most sectors performing well, a figure that has risen to nearly 80% in the past four weeks. This broad-based success signifies overall market health rather than dependence on a few select sectors.


Taking these indicators into account, analysts adopt a cautiously optimistic stance. They remain vigilant, observing whether the market sustains its positive trends. While pinpointing the exact end of the winning streak remains elusive, monitoring these indicators can empower investors to navigate uncertainty with informed decision-making.


Source: NBC The Exchange


Market Effects of the Potential US TikTok Ban


The US House and Senate have voted and agreed on a bill that would ban the popular social media app TikTok from app stores in America. The reasons cited for this bill by those in favor of it have been the concern that TikTok has been being used by China to steal information and influence opinions in America. The bill was passed today in the House of Representatives on a bipartisan 352-65 vote; what's remarkable about this is the bipartisan nature of the voting. Leaders of our government on both ends of the political spectrum have come together in agreement on this bill. President Biden said that he would agree to the bill if it was voted on by Congress.


In an effort to combat this legislature, TikTok has spoken out in several ways and even wrote a letter to Congress and the House of Representatives outlining their side of the issue. One of the main arguments they presented was the potential harm that this ban might have on the American Economy. In a statement made by a TikTok spokesperson he said that TikTok is "hopeful that the Senate will consider the facts, listen to their constituents, and realize the impact on the economy, 7 million small businesses, and the 170 million Americans who use our service." This is a legitimate concern, due to the rapid growth and popularity of TikTok many people used the platform to start and grow businesses and their careers. What are the potential negative effects (if any) on the economy if several of these people/companies lose one of their main platforms?


Another concern raised by those opposed to the bill is the movement of users from TikTok to other platforms. With TikTok closing many users would move over to Instagram reels and YouTube shorts and advertising money would follow. This means that more users, advertisers, and market space will go to other large social media platforms. This flow of money to these other companies will have several long- and short-term effects that investors need to keep in mind.


Source: Bloomberg Markets and MarketWatch


Oracle Cloud Power and AI Drive Record-Breaking Earnings


This week, CNBC Senior Markets Correspondent, Dominic Chu Reported that Cloud Power and AI are seeing, “Up 12% better than expected earnings, slight missing revenues, but everybody's very excited about the growth they're seeing with regard to Oracle's cloud business, especially that of OCI Oracle Cloud infrastructure.” In the latest update on Oracle Corp.'s financial performance, the company has once again demonstrated its resilience and potential for expansion, leading to a surge in its stock value during early trading. What's driving this surge? Well, it's primarily Oracle's stellar quarterly earnings report, which surpassed the expectations of analysts. These impressive numbers were mainly fueled by strong demand in their cloud business and the effective integration of artificial intelligence (AI) into their operations, which has sparked renewed confidence among investors.


Breaking down the numbers, Oracle reported adjusted earnings per share of $1.41 on total sales of $13.28 billion for the quarter ending in February, marking a 16% increase in adjusted earnings and a solid 7% uptick in sales compared to the previous year. Notably, Oracle experienced remarkable growth in cloud infrastructure revenue, surging by 49% compared to the previous year to reach $1.9 billion for the quarter. This growth reflects Oracle's success in strengthening its position in the competitive cloud services arena.


Oracle CEO Safra Catz attributes this achievement to robust demand for the company's Gen2 AI infrastructure, which consistently outpaces supply. Additionally, Oracle's backlog of remaining performance obligations exceeds $80 billion, indicating sustained momentum and significant potential for future revenue generation. These positive indicators have propelled Oracle's stock price up by more than 12% in early trading, positioning the company for continued growth and profitability.


In essence, Oracle's latest earnings report paints a picture of a company that is not only weathering challenges but also thriving in a competitive landscape. With robust performance across key metrics and promising future prospects, Oracle stands poised to maintain its upward trajectory in the tech industry.


Source: Investor’s Business Daily


Tech Stocks: Sell, Buy, or Hold?


In an interview with Bloomberg Markets, Mark Spellman, CEO of Alpine Saxon Woods, talked about the current state of tech stocks and how they are in what he calls a “melt-up”. To explain this concept he used Nvidia as an example saying, “If you own it I’d hold it, if you haven’t bought it yet I’d wait”. What Spellman is saying is that these stocks are excellent investments at the moment in the sense that they will continue higher, but they need a brief correction/dip in price. So, hold if you’re in the stock, buy off the inevitable price dips if you’re not.


Spellman then goes on to defend these stocks against accusations of being in a bubble. He agrees that due to the AI craze these prices have “melted-up” rather high and will reach exhaustion soon, but then breaks down that these companies have the underlying financials and cash flows to defend these prices. “Companies are making a lot of money right now, they are generating lots of cash, they have lots of options to do things with that money,” said Spellman. He referred to this as a “healthy atmosphere” for these companies and their stock prices. “We’re not bearish by any means, we're just looking for good opportunities and trying to discern between names we want to buy now rather than later”.


Source: Bloomberg Markets interview with Mark Spellman


Game On: Inside Dick’s Sporting Goods' Winning Strategy


Dick’s Sporting Goods recently made headlines by announcing a 10% increase in its dividend following a stellar fiscal fourth quarter. CEO Lauren Hobart attributes this success to several factors, including an increase in average ticket size despite flat transaction volumes, indicating effective sales strategies.


In the last quarter, Dick’s reported impressive financial results, with net income reaching $296 million and sales rising to $3.88 billion, exceeding Wall Street's expectations. Adjusted earnings per share of $3.85 surpassed anticipated figures, reflecting the company's strong market position. The retailer's success can be attributed to its industry-leading product assortment and operational excellence, resulting in a 2.8% rise in same-store sales, surpassing analysts' predictions.


Looking ahead to fiscal 2024, Dick’s forecasts earnings per share between $12.85 and $13.25 and revenue ranging from $13 billion to $13.13 billion, aligning closely with market estimates and demonstrating confidence in future performance. However, challenges lie ahead, particularly a dip in gross margin due to increased shrink rates. To mitigate risks, Dick’s is collaborating with loss prevention efforts and law enforcement.


Despite uncertainties, Dick’s remains cautiously optimistic, emphasizing its strategic outlook and commitment to prudent management as key factors reinforcing its resilience in the retail landscape.


Source: CNBC


“Bird In Hand” Investing


Richard Weiss, CIO of Multi-Asset Strategies at American Century, discussed his current investment strategy on Bloomberg, emphasizing a conservative approach amid market volatility. While acknowledging the market's valuation concerns, he favors "bird in hand" investments.


Bird-in-hand investing involves opting for more conservative investments to secure gains, such as bonds, T-bills, and dividend-paying stocks, rather than pursuing potentially larger but riskier capital gains. Despite advocating for a bird-in-hand approach, Weiss still maintains capital invested in the markets.


When asked about selling equities by Bloomberg Host Alix Steel, Weiss stated "Well, we are already underweighted at the margin… not selling, certainly not buying, just holding, standing pat where we are." He expressed a preference for undervalued small-cap stocks and potentially REITs due to their attractive valuations and the anticipated benefits of lower interest rates, considering them safer options in both up and down markets.


In short, with the prospect of interest rates being cut later in the summer, Weiss believes that small-cap companies and the real estate market will experience significant benefits. In his view, these positions are considered a safer alternative compared to investing in large-cap stocks, especially in the event of a market downturn.


Source: Bloomberg Markets: The Close


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