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  • Writer's pictureRealFacts Editorial Team

RealFacts Weekly Market Report

Updated: Apr 18

This Week's Topics

Big Moves Amid the Magnificent Seven

On Monday, significant market movements occurred, propelled by the strong performance of several large growth stocks, which led to gains in both the Nasdaq and S&P 500. This uptrend, however, was not seen by the small-cap stocks. David Saito-Chung, Investor’s Business Daily author, wrote, “While the Nasdaq composite advanced 0.8%, edging a 0.6% lift by the S&P 500, the Russell 2000 sank 0.7%. That came on top of a 2.1% slide by the small-cap index last week.” This widened the gap in growth between large-cap and small-cap stocks, with the majority of the growth concentrated among the larger, well-known companies.

Significant movements were observed within the group of stocks commonly referred to as the "Magnificent Seven." This collection comprises Nvidia (NVDA), Meta Platforms (META), Apple (AAPL), (AMZN), Microsoft (MSFT), Alphabet (GOOGL/GOOG), and Tesla (TSLA). Dubbed the "Magnificent Seven" due to their notable growth in recent months, these stocks have garnered attention for their strong performance. On Monday “Google stock gapped up 4.6% to 147.68…Shares soared on a report that Apple (AAPL) is in talks with its Magnificent Seven peer to use Google's Gemini AI engine in the iPhone. Apple stock edged up 0.6%, closing near session lows.” (Ed Carson).

Recent controversies have surrounded Gemini due to issues with generating historically inaccurate images of individuals. Consequently, Google has halted Gemini's ability to create human images. However, despite these controversies, Alphabet has the potential to benefit significantly from this possible partnership with Apple. This positive development was reflected in Alphabet's stock price, which surged nearly 5%. Additionally, Apple also saw moderate gains following this news.

Tesla was another member of the Magnificent Seven that displayed significant growth on Monday. Ed Carson said, “Tesla stock jumped 6.3%.. The EV giant is raising Model Y list prices in the U.S. and Europe on April 1, though inventory prices already are much lower. Tesla bulls touting the latest Full Self-Driving Beta version also may have fueled TSLA stock beyond a technical boost.” Tesla is preparing to raise the pricing of its Model Y by $1,000 starting April 1st. This announcement has contributed to the stock’s uptick observed today.

With all this volatility seen in the market, IBD experts suggest “buying stocks with strong earnings and price performance. Look for leaders in strong industries that are showing superior earnings growth and sales.” Focusing on companies that post strong earnings and price performance helps investors capture the potential market upswings ahead.

Source: Investor’s Business Daily

Finding Solid Ground: Analyst-Supported Stocks for the Long Haul

Amid concerns over prolonged interest rate hikes, TipRanks highlights three stocks favored by industry experts for long-term investment. CrowdStrike (CRWD), a cybersecurity firm, stands out for its strong quarterly performance and optimistic guidance. Analyst Gregg Moskowitz from Mizuho emphasizes CrowdStrike's momentum in large transactions and year-over-year deal volume surge, reaffirming a buy rating with a $390 price target. Moskowitz's endorsement adds weight to CrowdStrike's promising outlook, bolstered by its unique cloud platform and effective go-to-market strategy.

In the athletic footwear and apparel sector, Guggenheim analyst Robert Drbul favors Nike (NKE) amid a recent stock pullback. Drbul anticipates Nike's strategic focus on impactful product launches, especially in basketball and running categories, to drive accelerated top-line growth. He foresees sustained strength in the Nike and Jordan brands, particularly in international, women's, and kids' segments, highlighting Nike's prominent presence expected at the 2024 Summer Olympics. Drbul also envisions potential gross margin expansion driven by various factors, strengthening Nike's compelling investment proposition amidst evolving market dynamics.

Source: CNBC

Market Rotation Unveiled

In an interview with Bloomberg Markets host Alix Steel, Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, discussed market dynamics, highlighting a notable rotation underway. While the S&P and Nasdaq indexes have reached or traded near all-time highs, Sonders pointed out significant nuances beneath the surface. Despite the Nasdaq experiencing minimal drawdowns year-to-date, individual members within the index have seen substantial drawdowns, indicating a broader rotation. Sonders emphasized the strength in sectors such as financials, materials, and energy relative to their 50-day moving averages, signaling a shift away from tech-heavy names. She views this rotation as a healthy trend for the market, saying “That's a healthy underpinning where you're seeing that rotation, and I think it would only be weaker economic conditions that might more definitively shift money and attention back toward that small handful of techie AI-related names.". This analysis underscores the importance of considering sector breadth beyond headline indexes in understanding market dynamics.

Source: Bloomberg

Strategic Sector Selection and Global Outlook

This week on Bloomberg Markets, Sinead Colton Grant, CIO at BNY Mellon Wealth Management, shared strategic insights into which sectors investors should be keeping their eye on. Grant highlighted technology, healthcare, and industrials as promising sectors for investment growth and acknowledged the popularity of technology but emphasized its positive cash flow and innovation track record, predicting broader benefits beyond a few dominant players. Healthcare, Grant says, despite challenges in 2023, offers potential for recovery, while industrials present opportunities across various segments.

During her interview, Grant advised a strategic allocation within these sectors and suggested limiting exposure to international and emerging markets due to lower growth expectations and challenges in China's property sector. She said, "We’re overweight the US, we’re underweight international and emerging markets, and that's driven by a couple of things, lower expectations for economic growth in those regions, and particularly with emerging markets, the dominance of China in that index, headwinds coming from the property sector of which we think are going to persist at least through 2024, if not longer."

Grant anticipates these challenges persisting through 2024, influencing their underweight position in these markets. According to data from the National Bureau of Statistics (NBS), property investment in China declined by 9.0% year-on-year during the first two months of 2024, with a 24.0% decrease recorded in December 2023. The numbers aren’t looking promising, so Grant’s cautious approach aligns with expectations of ongoing economic uncertainties and market dynamics.

Source: Bloomberg

Market Overweight: Pullback Needed?

This week, Scarlet Fu interviewed Binky Chadha, Head of Asset Allocation and Chief Global Strategist at Deutsche Bank Securities, to discuss the ongoing stock rally and potential market pauses. During the discussion they highlighted the overweight status of the market and posed the question, is pullback needed?

Chadha noted the rapid and steady rise in equity markets, suggesting a flattening out, channel break, or pullback may occur, though not immediately. He pointed to market positioning, measured by a z-score, to assess the extent of market overweight. With the current z-score around 0.6, the market is overweight but not extreme, Chadha suggested that an unwind is unlikely at this time. He linked market positioning to recent macroeconomic data, indicating no immediate cause for concern. Investors should keep in mind the importance of monitoring market dynamics and positioning for potential shifts in market sentiment and take into account this information when guiding their investing decisions.

Source: Bloomberg

Stock Plunges on News of Justice Department Suing Apple

News of a lawsuit directed at Apple caused the stock to tumble this week. Kimberley Koenig, an Investor’s Business Daily author, wrote, “Dow Jones component Apple tumbled 4.1% on news the Justice Department and 16 states sued the tech giant on Thursday. The antitrust case contends Apple limits competition on phones and other products, and blocks software developers from offering consumers other options… Apple stock was the worst performer among blue chips in Thursday trades.”

This news reflects a pattern of increased scrutiny of Big Tech companies by the government. Currently, the Justice Department has a pending lawsuit against Google parent Alphabet (GOOGL). Additionally, the Federal Trade Commission is pursuing antitrust cases against Facebook parent Meta Platforms (META) and (AMZN).

Source: Investor’s Business Daily

Apple and Google in Talks for Joint AI Venture

“Apple is in talks to build Google’s Gemini AI software for use with the Iphone, a move that could give Gemini a competitive edge with billions of potential users”, reported Bloomberg Analyst Sonali Basak this week. This could be a huge development in the current world of AI craze. According to Bloomberg News analyst Mark Gurman, “Apple has 2 billion products with its logo on it in circulation right now. Google, according to many industry experts, has the best generative AI engine on the market right now”. The collaboration between these two could put them both at the forefront of the AI movement, the market has already begun to price in this news with Apple shares starting the week with a 0.64% up move and price and Google having a 4.6% up move in price (Google’s biggest daily gain of 2024).

This would be an extremely symbiotic relationship for the two firms. Google would have Gemini be the default search engine for billions of products across the globe and Apple would get access to Google’s more well rounded AI framework. Eric J. Savitz of Barron’s wrote, “For Alphabet, a win with Apple has the potential to give Gemini an edge over rivals LLMs from OpenAI and others. For Apple, which to date hasn't announced any material moves into the AI software market, a relationship with Google on AI software could calm some of the concerns about competitiveness that have lately plagued the company’s stock price.” Although Apple has been working on its own in-house LLM (Language Learning Model) and has also been in contact with OpenAI about using ChatGPT as the default for IOS devices going forward, it appears that Apple is closest to signing a deal with Google.

Source: Bloomberg Markets, Barron’s

Spicing Up the Stock Market: Chipotle's Split Strategy and Investor Optimism

Chipotle Mexican Grill Inc. made waves recently by announcing a 50-to-1 stock split, slated to go into effect this June. While largely seen as a cosmetic move, such actions historically suggest the potential for increased performance. The news of the split caused Chipotle shares to jump by approximately 8% on Wednesday, hinting at the possibility of further gains in the near term.

Stock splits typically don't alter a company's fundamental standing or financial standing, but they often render shares more affordable for individual investors, potentially driving up demand. CNBC reporter, Alex Harring suggests that despite being a relatively minor change, splits historically indicate a forthcoming rally, as per Morgan Stanley data. According to Harring, it's more advantageous to buy the stock upon the announcement rather than after the split, slated for June in this instance, to maximize potential gains. Insights from Morgan Stanley support this notion, indicating that stocks announcing splits tend to outperform the broader market both post-announcement and six months following the split. This trend is particularly pronounced for companies like Chipotle, which have consistently surpassed market expectations. Chipotle's robust performance in 2024, including a notable 70% increase, aligns well with this historical pattern.

In the same article, Alex quotes Baird analyst David Tarantino, saying, “The stock split theoretically does not change the underlying economic value of CMG,” he said. But, “we view this announcement as a positive for the shares in the sense that the move should aid trading liquidity and ultimately broaden the investor audience.” David predicts a short-term rise in Chipotle shares following the split announcement and maintains an outperform rating on the stock. While acknowledging that the split doesn't change Chipotle's economic value, Tarantino sees it as a positive move that could improve trading liquidity and broaden the investor base. It's worth noting that Morgan Stanley highlights a diminishing impact of stock splits on share prices over time, mainly due to the widespread availability of trading platforms. However, for high-priced stocks like Chipotle, the psychological barrier of lofty share prices remains a factor to consider.

Source: CNBC

GE's Transformation Sparks Investor Optimism

GE is undergoing a significant transformation as it prepares to split its power business from its aerospace operations, a reorganization initiated in late 2021. This move highlights the company's commitment to enhancing shareholder value. Since commencing the restructuring, GE's stock has surged, reaching over $170 from the $60s following the health-care spinoff. The impending split of its power business has sparked investor excitement and analyst optimism. Analysts predict GE Vernova shares could rise by up to 50% over the next fourteen months.

Bank of America analyst Andrew Obin sees GE's breakup as a catalyst for changing investor perceptions, setting a price target of $175 for GE and citing its superior earnings compared to peers. GE's aerospace and defense business, considered the industry's crown jewel, maintains a dominant position with a strong backlog of contracts. Portfolio manager Tony Bancroft emphasizes the strength of GE's aerospace business, particularly its lucrative aftermarket services segment.

Despite challenges, GE Vernova, focusing on sustainable energy, presents an appealing opportunity for investors, with anticipated demand from ESG funds. With CEO Larry Culp at the helm, shareholders are optimistic about the company's future amid this transformative phase.

Source: CNBC

Intel’s Stock Moves Higher After Billions in Fed Funding is Announced

Intel's stock surged after the announcement of the "Chips and Science Act," which allocates billions of dollars in government funding to Intel for building new chip plants in the United States. MarketWatch's Emily Bary reported that the Department of Commerce's preliminary deal with Intel includes up to $8.5 billion in direct funding and $11 billion in loans through the Chips Act. This funding will support facility construction and expansion in Arizona, Ohio, New Mexico, and Oregon, aiming to create thousands of American jobs, reduce reliance on Chinese chips, and boost American production and innovation.

The geopolitical importance of reducing dependency on Chinese chips is underscored by the growing awareness of global semiconductor supply chains. The Biden administration, alongside Republican lawmakers, advocates for increased U.S.-made chips to ensure resilience, particularly in times of crises like the pandemic. The initiative aims to mitigate disruptions caused by delayed shipments from China, particularly affecting industries such as automotive.

President Biden's vision of "inventing in America" aligns with the administration's goal of increasing domestic production, emphasizing the importance of making products in the country where they are invented. This partnership between the government and Intel is expected to have positive impacts on job creation, self-sufficiency, and production across various sectors of the American economy.

Source: Marketwatch

Silicon Renaissance: Intel's Semiconductor Funding and the American Innovation Odyssey

The Biden administration's proactive approach to bolstering domestic semiconductor production is evident in the announcement of up to $8.5 billion in funding from the CHIPS Act to support Intel, signaling a significant move to revitalize semiconductor manufacturing in the United States. Anticipation surrounds a potential additional $11 billion funding extension for Intel under the CHIPS and Science Act, expected to be announced by President Biden in Arizona. This regulatory support fosters investor confidence in Intel's future prospects, amid revenue and market capitalization challenges. Intel's pivotal role in the U.S. semiconductor landscape, coupled with its commitment to expansion and job creation, suggests growth potential and long-term investment viability in the semiconductor industry.

U.S. Secretary of Commerce Gina Raimondo emphasizes the significance of the funding, highlighting its role in maintaining America's leadership in advanced semiconductor technologies. Despite recent challenges, Intel remains integral to the U.S. semiconductor industry, recognized for its contributions to PC and data center server technologies. The funding aims to incentivize domestic chip production, reducing vulnerabilities to supply disruptions and reinforcing America's semiconductor infrastructure. Intel's plans include scaling up advanced manufacturing operations by 2026, with significant job creation expected, reinforcing its role in driving innovation and economic growth within the United States.

Source: CNBC

NVIDIA: The AI Juggernaut

The market’s leading stock this year, Nvidia, has seen unbelievable growth in recent months due to it being at the forefront of the AI craze, and the company seems to be going full throttle with AI developments. They’re creating new AI chips, working with SAP to fine tune AI models, teaming up with Johnson & Johnson MedTech to advance AI surgery, and advancing 6G wireless through AI. These are just a few of the projects that Nvidia has announced.

The Nvidia effect is being showcased in the stocks of other companies that have announced deals with Nvidia. After SAP announced that it would be using its ginormous business data collection in tandem with Nvidia, the stock price of SAP rose 6% in after-hours trading. The following is an excerpt from a Barron’s article by Eric J. Savitz about why SAP is primed to be at the forefront of the AI trend, ““SAP is well positioned to take advantage of the trend. CEO Christian Klein said in a recent interview that the company’s access to the most basic kinds of corporate financial, sales, and HR data makes it better positioned than rivals like Microsoft and Salesforce to revolutionize the way companies glean insights from their data.“No other software company has access to as much business data as we have,” Klein told Barron’s. “The more data you have, the better it matter if you do pricing with SAP, or order management, or logistics....We are not only relevant, we are reliable, because we have this access to a ton of business data.”

In terms of Nvidia’s deal with J&J, Tae Kim of Barron’s wrote, “J&J MedTech is in 80% of the world’s operating rooms and trains more than 140,000 healthcare professionals each year. The company believes Nvidia’s AI technology could improve data analytics from devices, patient, and other surgery data. “A collection of AI models could act like driver-assistance technology for surgeons, amplifying their ability to deliver care while reducing cognitive load,” said Shan Jegatheeswaran, vice president and global head of digital at J&J MedTech.”

On top of this all Nvidia just announced its new Blackwell Architecture AI chip that will be pioneering how individuals and businesses use AI to augment their lives. And to bring it all together we get to revenue for Nvidia, revenue is up 266% in the last year and not slowing down.

Source: Bloomberg Markets, Barron’s , Marketwatch

Reddit Stock Soars with IPO

Thursday marked the debut of Reddit on the public stock market. Scarlet Fu, host of Bloomberg Markets: The Close said, "Well, let's continue with what you're saying about Reddit because it finally makes its debut two-plus years after the social media site began making plans to list on the stock exchange. We see the stock opened up 38% and then climbed to as high as $57.80 compared with the IPO price of $34.” Reddit's performance on its first day of trading was undeniably impressive, with shares jumping nearly 70%. While these gains moderated as trading progressed, Reddit still closed the week with a remarkable increase of over 35% by market close on Friday, reaching a share price of $46.00.

Dave Lee, from Bloomberg, offered insights into Reddit's IPO and its relative success. He said, "I think success today, but I think, ultimately, we're going to see whether Reddit's IPO is successful not today, but long into the future when it starts to answer some of those questions about its advertising model and whether it can sell enough data to turn around its losses at the moment." Despite Reddit's lack of profitability over the past two decades, many investors remain optimistic about the platform's potential to achieve profitability shortly.

The successful Reddit IPO carries broader implications for the current landscape of initial public offerings (IPOs). During an interview on Bloomberg Markets: The Close, Carin Pai, Head of Portfolio Management at Fiduciary Trust International, shared, “Seeing the strong performance of Reddit certainly speaks to a favorable environment for IPOs, this also coming off the back of the Fed's comments about keeping interest rates easy.” If IPOs continue to perform positively, more private companies may opt to pursue the path of going public.

Source: Bloomberg

Micron Pushes Higher After AI Chip Euphoria: Good News For Chip Makers

Micron Technologies, a key player in the semiconductor sector, surged following robust earnings reports, signaling positive momentum for chip makers amidst the AI frenzy. Micron's earnings of 71 cents per share, a significant turnaround from a year-earlier loss, surpassed analysts' estimates by a wide margin. This strong performance drove Micron's stock up by 14.5%, with other sector players like Western Digital and Seagate Technology also experiencing gains. Nvidia, a prominent AI chip maker, saw a modest increase, reflecting the broader sector's bullish sentiment.

The demand for AI-related chips is propelling growth not only for Micron and Nvidia but for the entire semiconductor industry. Analysts project continued success for Micron, with CEO Sanjay Mehrotra highlighting the strong demand for the company's HBM chips, already sold out for 2024 and most of 2025. Tight supply, increasing demand, and normalization of excess inventory are driving significant improvements in pricing, as noted by Piper Sandler's Harsh Kumar.

Micron's high demand and supply constraints are expected to benefit the entire sector, as evidenced by the rise in the sector ETF and related stocks alongside Micron. This sustained demand trajectory positions chip makers for continued growth and success in the short term and beyond, signaling a promising outlook for the industry as a whole.

Source: Bloomberg, Marketwatch, Barron’s

Is Electric Trucking The New Wave in Transporting Goods?

The surge in large trucking stocks this year, with some experiencing significant price increases, prompts discussions on the viability of electric trucks in the transportation industry. Daimler Trucks CEO Martin Daum acknowledges the demand for electric trucks, attributing their appeal to emissions reduction benefits.

However, Daum also highlights the current cost disparity between electric and combustion engine vehicles, suggesting that until electric truck prices align with or surpass those of combustion engines, widespread adoption may be limited. Additionally, Daum comments on Tesla's goal of building an electric truck for the same price as a diesel truck, citing logistical and cost challenges for mass production. Despite enthusiasm for electric vehicles, there are concerns about declining demand in the U.S. market, signaling potential shifts in the transportation landscape.

Source: Bloomberg Markets

Shift to Income Oriented Equities

Carin Pai, Head of Portfolio Management at Fiduciary Trust International, provided valuable guidance this week on investment strategies and where investors should consider allocating their funds. She advised, "I do think that this is a market where earnings growth will be rewarded, but I also believe that it's a good time for investors to really pay attention to valuation and shift into some income-generating strategies."

These strategies encompass dividend-paying stocks, treasuries, and bonds, with Pai noting a favorable environment for fixed income investments offering decent yields. She highlights healthcare and consumer staples sectors as areas with attractive valuations, while also noting income-generating opportunities within the technology sector. Pai's advice to be selective aligns with recommendations from analysts like Ed Carson at Investors Business Daily (IBD), who advises incremental purchases and looking beyond AI names for value in the tech sector. This approach allows investors to diversify their portfolios and capitalize on income-generating opportunities amidst market fluctuations.

Source: Bloomberg

Should I invest in PPD Holdings?

PPD Holdings, a multinational e-commerce brand originally from China but now headquartered in Ireland, boasts a diverse portfolio including Pinduoduo and Temu e-commerce platforms. These platforms specialize in offering heavily discounted products directly from China, positioning themselves in direct competition with both small and large e-commerce players like Amazon. Temu, in particular, has seen remarkable growth, with over 82 million downloads in 2023, marking a staggering 1266% increase from the previous year as you can see below.

Often dubbed as "Amazon on steroids," Temu offers products at significantly lower prices compared to its competitors by leveraging direct shipping from China, thereby eliminating the need for expensive warehousing and minimizing labor costs. Despite controversies surrounding issues such as textile waste, pollution, and employee wages, PPD Holdings continues to disrupt the industry and gain market share.

Turning to financial performance, PPD Holdings reported impressive year-end earnings for 2023, as you can see in the chart below.

PPD Holdings exceeded analyst estimates by a substantial margin. With a net profit margin of 24.4%—far surpassing the industry average of 7.3%—and a debt ratio of only 3.1%, the company demonstrates robust financial health. Analysts project a promising outlook for PPD Holdings, anticipating a return of 32.9% in 2024, outperforming the market in both earnings and revenue.

Despite short-term controversies, PPD Holdings, along with industry peers such as Alibaba and JD, exhibits significant long-term potential. While uncertainties linger around JD, PPD and Alibaba stand out as better-positioned players, backed by strong performance history and optimistic future projections. As the landscape evolves, monitoring these companies' performance and navigating potential short-term hurdles will be critical for investors seeking to capitalize on the promising opportunities presented by PPD Holdings and its counterparts.

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