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  • Writer's pictureRealFacts Editorial Team

RealFacts Weekly Market Report

Updated: Apr 11


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This Week’s Topics



The Bitcoin Halving: Everything Investors Need to Know


In recent years, Bitcoin has captured the attention of investors worldwide, experiencing significant growth and volatility. Originally created to decentralize currency from banks and government. Bitcoin and other crypto has become more than its intended purpose; it has become an investment for most, seeing substantial gains for those who got in early to the game. As of April 3rd, 2024, Bitcoin trades at around $66,300, representing a 43% increase since the beginning of the year and reaching its highest level of $73,835.57. But what's driving this rally, and what role does the Bitcoin halving play in it?


At the heart of Bitcoin's structure lies its unique supply mechanism, which is governed by a process known as Bitcoin mining. Bitcoin’s technology is run on a blockchain or a network of computers (often called nodes). Anybody that has a computer that can download the entire blockchain and its history can participate in Bitcoin mining, they call themselves miners. This is very costly to do so and requires a lot of hardware to run the blockchain with constant updates. However, this is what makes Bitcoin special as it is decentralized not being regulated by the governments and banks like other currencies like the US dollar. Currently, about 18,830 nodes are running and all of these nodes will compete to mine a block. When mining a block they are keeping track of the bitcoins used in transactions and will approve and reject transitions as needed. These computers keep track of the bitcoins in circulation and determine the validity of a bitcoin in each transaction. The computers are rewarded not in money but in Bitcoin. It takes about 10 minutes to mine a block and the miner is rewarded with 6.25 Bitcoin although that is subject to change this month.


About every four years, the Bitcoin network undergoes a halving event, wherein the reward for mining Bitcoin is split in half or halved. This reduction in mining rewards serves to decrease the supply of new Bitcoins entering circulation, effectively slowing inflation and maintaining scarcity much like the US dollar; however, it is not run on a centralized system. The mechanics of the Bitcoin halving are straightforward. The Bitcoin protocol dictates that every time 210,000 blocks are mined, the reward for miners is halved, which typically occurs every 4 years. This process has occurred three times in Bitcoin's history, with previous halving events resulting in reductions from 50 to 25 Bitcoins in 2012, 25 to 12.5 Bitcoins in 2016, and 12.5 to 6.25 Bitcoins in 2020. The upcoming halving, expected to take place on April 16th, will halve the reward to 3.125 Bitcoins per block.



What does this mean for investors? Historically, Bitcoin halving events have been associated with price rallies. The reduction in the rate of new Bitcoin issuance decreases the available supply, driving up demand and pushing prices higher. In 2016 and 2020, Bitcoin experienced significant price increases following halving events, suggesting a correlation between supply reduction and price appreciation.




Miners, who operate nodes to validate transactions, receive rewards in Bitcoin and transaction fees. With halving events, miners face reduced profitability as their rewards are cut in half, leading to increased competition and operational challenges. Large mining operations, such as Marathon Digital Holdings, which controls 5% of Bitcoin's blockchain, have the resources to take on these challenges to stay afloat and may even benefit from increased market dominance. They have 231,000 miners and have bought more bitcoin on their balance sheet this year totaling 16,930. However, smaller miners may struggle to remain profitable, facing higher costs and diminishing rewards. This dynamic could lead to consolidation within the mining industry, favoring larger players over smaller ones.


For consumers or those who use Bitcoin as a means of purchasing goods rather than an investment, Bitcoin's halving may result in price fluctuations and increased volatility, potentially

affecting its utility as a form of currency. While Bitcoin was originally intended to be a decentralized digital currency, it has predominantly been used as an investment vehicle like gold, subject to speculative trading and price swings.


Looking ahead, the Bitcoin halving serves as a reminder of Bitcoin's deflationary nature and its potential to disrupt traditional financial systems. The last halving is expected to occur in 2140 at that time the reward for a mined block will be 0.00000001 Bitcoin, on that date it is expected the last bitcoin will be mined, marking the end of new Bitcoin issuance.


Bitcoin has caught the attention of billions including several large investment managers who have been investing for its long-term gains. Once seen as a scam and a trend that will likely die out has become a staple creating a new form of currency while disrupting the currency industry which many didn't know was possible. As investors navigate the evolving landscape of digital assets, understanding the implications of the Bitcoin halving will be crucial in assessing its long-term value and investment potential.


Source: Investopedia


Trading Around Consumer Weakness: Strategies for Investors


Consumer spending in 2023 was characterized by surges and contradictions. Despite facing some of the highest rates in 23 years from the Fed, consumer spending continued to surge, reflecting the resilience of consumer power within the US economy. However, under this apparent strength were concerning signs of increasing debt burdens, rising payment delinquencies, and a dwindling savings rate. As we step into the first quarter of 2024, these factors pose significant challenges and uncertainties for investors.


Consumer spending serves as the lifeblood of the US economy, constituting a staggering 68% of the Gross Domestic Product (GDP). Despite facing escalating food and commodity prices in 2023, consumer spending surprisingly grew, indicating steadfast confidence among consumers that prices are still reasonable, showing signs of willingness to pay for higher priced items. However, this confidence was marred by a stark reality – with a surge in credit card delinquencies by 50%, alongside a considerable new high rise in total debt, reaching a staggering $17.5 trillion, with $1.13 trillion in credit card debt past due for over 90 days.


The Federal Reserve's move to hike short-term interest rates to 5.25%, the highest in 23 years, further exacerbated the situation. Credit card interest rates skyrocketed to 21.5% from 14.5% during the pandemic, intensifying the burden on consumers when they have past due balances. Additionally, mortgage debt rose 2.8%, and mortgage payment delinquency rates with a worrying uptick of 0.82%. These are very concerning numbers showing that with increased interest rates consumers are still buying and going into more debt along with interest rates for past due balances increasing.


While those numbers seem dooming, household debt as a percentage of GDP hit a 20-year low. These factors above do raise red flags but as a percentage of the overall consumer seem to show a steadiness, however, one factor that is concerning is the personal savings rate. The personal savings rate skyrocketed during Covid-19 and plummeted to 3.6% in February, marking its lowest level since 2010. Lower savings rates, higher spending, higher amounts of

debt, and payments for delinquencies create insolvency for consumers on a rainy day, which can quickly lead to financial hardship.



United States Households Debt To GDP (tradingeconomics.com)



Personal Saving Rate (PSAVERT) | FRED | St. Louis Fed (stlouisfed.org)


Beyond the borders of the US, global economies are navigating unique challenges. In Asia, particularly China, economic recovery from the pandemic-induced recession is underway. Consumer confidence in China has risen from signs of a rise in the real estate market, which is their primary savings vehicle. Conversely, Japan had a better year than the rest of the world in 2023 for its stock market and economy; however, they and South Korea see less optimism in 2024.


In the chart below you can see the confidence levels of consumers in each of the listed countries. This was a survey given to consumers in each country of their own outlook and confidence in 2024. For the US consumers in particular, 50% felt confident that we would see a better year and stronger economy in 2024 than in 2023.



Confidence in the Global Economy, by Country (visualcapitalist.com)


Some other Economic World Facts of for the Day are:


Australia:


The Reserve Bank of Australia's March minutes hinted at a stable interest rate environment, which is positive news for investors and borrowers. However, concerns about inflation persist, with the board indicating it may take some time before confidence in returning to target levels is regained.


Eurozone:


Inflation in the Eurozone unexpectedly fell from 2.6% to 2.4%, contrary to expectations of remaining flat.


United States:


ISM Manufacturing data revealed a robust rebound in manufacturing activity, with increases in manufacturing employment, prices, new orders, and the PMI index surpassing expectations.

JOLTs Job Openings saw a slight rise, albeit lower than anticipated, indicating a stable labor market with 8.7 million job openings, slightly above the lowest level recorded in October.

The US ADP National Employment Report exceeded expectations with 184k new jobs compared to the consensus estimate of 125k.


Canada:


The trade surplus widened beyond expectations to CA$1.39 billion, significantly higher than the forecasted CA$500 million. Both imports and exports saw increases, and record gold exports contributed to the surplus expansion.


Investment Strategies for Consumer Weakness


In the face of consumer weakness, investors must adopt prudent strategies to navigate the volatile market conditions. Here are three key sectors you can invest in to protect your portfolio against consumer weakness:


➢ Defensive Sectors

○ Defensive stocks such as healthcare, utilities, and consumer essential products, typically exhibit less cyclicality.


➢ Energy and Material Sectors

○ Oil producers serve as a hedge against inflation. Materials businesses stand to benefit from sustained manufacturing activity or infrastructure development, offsetting consumer activity slowdowns.


➢ Technology Growth Sector

○ Technology growth stocks, with their forward-looking valuations, offer resilience amid slowdowns. However, their sensitivity to interest rates raises a need for cautious evaluation.


The essence of escalating consumer debt, dwindling savings rates, and rising interest rates paints a complex picture for investors in 2024. While consumer spending remains standing and looking to continue to rise, necessitates strategic diversification and risk management. Defensive sectors, energy and materials companies, and technology growth stocks offer avenues for investors to mitigate risks of consumer weakness.


Source: Visual Capitalist


The European Central Bank Wants to Cut Rates. Why U.S. Investors Should Watch


The central bank of Europe wants to begin cutting rates as soon as possible, this bodes well for the strength of the American dollar. Brian Swint of Barron’s wrote, “There are good reasons for U.S. investors to pay attention: If European central banks cut rates sooner and more aggressively than the Fed, that could reinforce the dollar’s strength. The Dollar Index, a measure of the dollar’s value against the currencies of most of the U.S.’s key trading partners, has already gained 3.5% this year.”



Originally, European central banks were planning to cut rates at the same pace as the United States central bank, but Brian Swint of Barron’s gave three reasons why they might be cutting rates sooner:


  1. Inflation rates in the U.K. are dropping rapidly while U.S. inflation remains sticky

  2. Many European policymakers are quite vocal about cutting rates

  3. The U.K.’s economic outlook is far worse than the U.S., thus they may decrease rates to grow lending and borrowing


Brian wrote, “With the U.K.’s inflation rate dropping to 3.4% in February from 4% in January, and forecasts calling for it to fall to the 2% target this quarter, one BOE committee member is already voting for cuts. The U.K. economy is emerging from a recession. Economists still see the first rate cut as most likely in August, but markets are pricing in a chance of a cut at the May meeting.” Although it is a foreign economy, there are several ways that the U.S. is affected by change in rates by European central banks. It affects currency exchanges, global trading, and global growth. It means that for a time the European markets may be better to borrow from than the American markets, this changes where global money flows.


Source: Brian Swint, Barron’s


Oil Prices Soar Amidst Geopolitical Turmoil: A Delicate Balancing Act in Global Energy Markets


The recent surge in oil prices, marking their highest point since October, highlights the intricate interplay between geopolitical tensions and global energy markets. With tensions escalating in both the Middle East and Eastern Europe, oil prices experienced significant gains. The U.S. West Texas Intermediate contract for May delivery rose by 1.72%, reaching $85.15 a barrel, while the Brent contract for June delivery increased by 1.75% to $88.94 a barrel.


Throughout the year, Brent futures had largely remained within the $75 to $85 per barrel range.

However, the recent spike suggests a departure from this trend, driven by heightened geopolitical risks and robust economic data. In the article “U.S. crude oil cracks $85 to hit highest level since October as geopolitical tensions mount,” Sam Meredith quotes Analyst Tamas Varga from oil broker PVM Saying, “The new week, the new month and the new quarter was greeted with escalating tension in the Middle East with indirect Iranian involvement,”

Varga highlights the emergence of tensions in the Middle East, particularly noting potential indirect Iranian involvement, which could escalate into a broader conflict with implications for oil supply dynamics.


The situation intensified when Ukraine launched a drone attack on one of Russia's biggest oil refineries in the Tatarstan region. In the same article Tatarstan's leader Rustam Minnikhanov states, “There is no serious damage, the technological process of the enterprises is not disrupted,” Despite reassurances from Rustam that the attacks didn't cause major damage, this incident highlights the fragility of energy infrastructure during geopolitical unrest. Russia, a major player in the global oil market as part of OPEC+, has been targeted by retaliatory attacks from Ukraine, highlighting how energy security and geopolitical stability are closely linked on a global scale.


Source: CNBC


Cyclical Stocks: What They Are And Why They’re Hot Right Now


A cyclical stock is a stock whose performance is directly connected to the current economic and market conditions. When the economy is doing well, these stocks are doing well, and vice versa. Cyclical stocks generally include car manufacturers, home-goods, dining/restaurants, hotels, and any other industry that thrives on discretionary spending. They may also include materials companies who provide the raw materials for cars,houses, etc. The demand for all of these cyclical stocks goes way up in a robust and growing economy.


Cyclical stocks are currently outperforming the S&P 500 to start this year, Jacob Sonenshine of Barron’s wrote, “Driving the gains, at large, has been better-than-expected economic data, such as manufacturing and a U.S. economy that keeps growing. Also helping is the fact that the Federal Reserve is more likely to cut interest rates than raise them this year. While the economy has shown strength, the rate of overall inflation has been declining. The best news of all is that the gains in these stocks could probably keep coming for the next few months. For oil and metals mining companies, the prices of commodities have risen, which bodes well for their earnings. WTI crude oil and copper are both up by double-digit percentages since mid February.” With many of these cyclical stocks and the cyclical stock ETFs showing solid gains and earnings growth, analysts expect the upward trend in these areas to continue. Several of these companies, especially raw materials providers, will probably raise prices here as the economy gets back on its feet, if inflation can begin lowering that means that profit margins for these companies will increase rather drastically. This will bode well for their earnings, profits, and sustained growth.


Source: Jacob Sonenshine, Barron’s


Disney Prevails Over Activist Investor Nelson Peltz in Proxy Battle


On Wednesday, CEO Bob Iger and Disney successfully defended against activist investor Nelson Peltz's bid for board seats at the company. Geetha Ranganathan at Bloomberg Intelligence reported, “There are some reports out there suggesting that 75% of the retail investor base, the individual investors, which account for almost 30% of all of Disney's stockholders voted for the Disney plan.” Not only did Iger secure backing from the majority of retail investors, but he also garnered support from institutional shareholders.


Harrison Miller, Investor’s Business Daily author, reported, “BlackRock (BLK), Disney's second-largest shareholder with 78 million shares, and Baltimore-based T. Rowe Price, which owns 9.3 million shares, are backing the House of Mouse.” With the backing of these major supporters, Nelson Peltz's plan was frustrated, yet this victory for Disney marks just one chapter in its ongoing concerns. The origin of this proxy fight primarily revolves around two pivotal factors. Firstly, the timeline for Disney's streaming business to become profitable, and secondly, the details of Bob Iger's succession plan.


Iger's intention to step down in 2026 leaves many pondering about Disney's future leadership and the strategies to sustain the company's growth. Amid these significant questions, Iger has emphasized that the company's board is diligently focused on two key priorities: achieving profitability in streaming services and succession planning. As these answers are awaited, Bank of America remains optimistic about the future prospects of Disney. Miller wrote, “BofA on Monday raised its price target on Disney stock to 145 from 130 and kept a buy rating on the shares… The firm said theme park performance remains robust and projects operating income to grow in the low-to-mid teens in the second quarter.” Investors should continue to monitor these developments as they consider potential investments in the company.


Source: Investor’s Business Daily


Wall Street Earnings Analysts Estimate Lag


Romaine Bostick interviewed Kevin Nicholson this week on Bloomberg Markets. Nicholson serves as the global fixed-income CIO and Partner at Riverfront Investment Group. Bostick inquired why there hasn't been a more pronounced increase in earnings targets by Wall Street strategists and analysts for this year and the next, especially considering the significant market rally observed.


Nicholson said, "The biggest issue has been the earnings that the investors are paying for have all come in mega-cap tech. And that's why there has been this reluctance by analysts to raise earnings estimates going forward because they think that too much has transpired with AI.” He went on to describe how this overpaying for mega-cap tech in the eyes of some analysts has created a “sugar high” that will eventually pop, leading to a market downturn.


This factor has led some prominent analysts to maintain relatively conservative estimates compared to the current level of the S&P. Notably, bearish forecasts come from analysts like Morgan Stanley’s Mike Wilson and JP Morgan's Mislav Matejka, who anticipate the year-end S&P to reach 4500 and 4200, respectively. This suggests a potential drop of nearly 20% from the current levels.


Source: Bloomberg


Skydance's Unconventional Bid: Redefining Paramount Global's Future


Skydance Media's possible acquisition of National Amusements, followed by a merger with Paramount Pictures, represents a different approach to takeovers compared to what's typically seen. Paramount Global shareholders are facing a critical question: Is this unconventional offer more attractive than having no deal at all? Skydance's proposal introduces a new method, as reported by sources familiar with the offer's guidelines. Paramount Global would maintain its public trading status, with Skydance, alongside its private equity partners RedBird Capital Partners and KKR, acquiring either a significant minority or majority stake through a merger and upcoming equity raise.


The ownership structure of the proposed entity is still uncertain, with speculated ownership percentages ranging from around 45% to just over 50%. Paramount Global and Skydance have chosen not to comment, highlighting the sensitive and confidential nature of the ongoing discussions. The suggested equity injection, although it may dilute the ownership of current shareholders, is intended to rebalance voting and economic control, which currently predominantly lies with the Redstone family. It's worth noting that Larry Ellison, co-founder of Oracle and father of Skydance CEO David Ellison, might offer financial support and grant access to Oracle's cutting-edge technologies, such as artificial intelligence.


Paramount Global boasts a rich portfolio of legacy media assets, including CBS, Paramount Pictures, and popular cable networks. However, recent years have seen stagnation and financial challenges, shown by declining revenues and a debt downgrade. The Skydance plan resembles Oracle's prosperous transition towards cloud services and AI, hinting at a strategic move towards forward-looking media ventures. Key figures like former NBCUniversal CEO Jeff Shell are expected to play significant roles in the potential restructuring, which might involve selling off certain assets and reevaluating Paramount Global's position in the changing media industry.


Source: CNBC


US Treasuries Push Higher


Early in the week, there were notable increases in the 10-year Treasury Yield, pushing past 4.4% for the first time in months. This was accompanied by a modest decline seen across the market. Romaine Bostick, host on Bloomberg, touched on this issue stating, "US Treasuries for weeks have been readjusting to this new reality and today a further push higher for bond yields that has effectively erased the equity risk premium. That's the difference between the S&P earnings yield and the benchmark 10-year Treasury, now the most negative since 2002."


The equity risk premium represents the additional return investors expect from the stock market compared to a risk-free rate. As Bostick highlighted, it is currently at its most negative level since 2002. Additionally, Bostick reported, “Compared to corporate bonds, the S&P's 4% earnings yield is still about 1.44 percentage points below the Bloomberg US corporate bond index's yield to worse of 5.4%... That implies stocks right now are at their least attractive valuations relative to corporate bonds since 2008."


These numbers shed light on the fact that many investors might start favoring the relatively attractive and lower-risk treasury yields and corporate bond yields over the volatile stock market. If these trends persist and the Fed decides against cutting rates in June, investors may withdraw capital from the equity markets, potentially triggering the correction that many analysts fear.


Source: Bloomberg


Navigating Market Volatility: Caution and Opportunity


Given the current near-euphoric levels of bullishness in the market, investing can be challenging as investors aim to balance seeking returns while guarding against a potential downturn. Ed Carson, an author at Investors Business Daily, offers guidance on navigating this current bull market. He wrote, “So far, the market rally and most leading stocks are acting normally. Losses are never fun, but this could create a number of buying opportunities from stocks pulling back to key support or forging bases, such as Meta Platforms, Uber and, perhaps soon, Nvidia.”

With occasional downturns, limited opportunities arise to invest in companies that have pulled back from their record highs. With this in mind, Carson cautioned, “It's not a good time to be buying, unless you are very nimble and quick to exit.” He further advised that investors heavily exposed to equities should consider taking profits now and preventing some losing stocks from becoming significant losers.


Source: Investor’s Business Daily


ISM Index Breaks 50%, Good News For Manufacturing And Production


In recent months and years, high inflation, high prices, and stingier consumer spending have caused the production and manufacturing industries to struggle in the U.S. However, there is good evidence that the industry may be on the recovery. The Institute for Supply Management’s Index of Manufacturers (ISM), “a barometer of business conditions for U.S. manufacturers” according to MarketWatch, broke the 50% benchmark and has entered “positive” territory for the first time since October 2022. The index has been falling for 16 months in a row but increased more than analysts expectations this last month to 50.3%. Levels above 50% are generally seen as a good sign for the industry.


This is just the beginning of the healing phase for manufacturers but the signals are good right now. Timothy Fiore, chair of the survey that the ISM is based on, said, “Demand remains at the early stages of recovery, with clear signs of improving conditions.” An executive at a fabricated metal parts company said, “Business is still strong — we are meeting or exceeding our forecasts.” Overall, things are looking good, the following data is given by Jeffry Bartash of MarketWatch regarding other measures of the production industries:


  • The index of new orders rose 2.2 points to 51.4%, turning positive again.

  • The production barometer jumped 6.2 points to 54.6%.

  • The employment gauge edged up 1.4 points, but it was still negative at 47.4%

  • The prices index, a measure of inflation, rose 3.3 points to 55.8%. It’s still well below a pandemic-era peak of 92.1%, however.


Source: MarketWatch


The Magnificent Seven Drive Market Momentum


The market rally's momentum has often been attributed to the performance of the Magnificent Seven, a group of leading companies known for their strong earnings and growth. However, recent data suggests that the rally is supported by broader strength across the market.

Ryan Detrick of Carson’s Group revealed that the number of S&P 500 stocks hitting 52-week or all-time highs recently reached 118, marking the highest peak in three years. Additionally, approximately 83% of S&P 500 stocks are trading above their 200-day moving average, indicating upward trends beyond the Magnificent Seven.


Despite this broad strength, the Magnificent Seven continue to play a significant role in driving the market. These top companies were responsible for 37% of the S&P 500’s 10.2% move, according to Howard Silverblatt of S&P Global Indices. Although their influence has decreased slightly from 2023, the Magnificent Seven remain key players in market performance.

As the first-quarter earnings season begins, investors anticipate the impact of the Magnificent Seven on S&P 500 earnings growth. Companies like JPMorgan Chase, Wells Fargo, and Citigroup are set to report earnings, with FactSet forecasting a 3.6% earnings growth rate for the index.


The Magnificent Seven's earnings are expected to drive a significant portion of this growth, with projections indicating nearly 40% year-over-year earnings growth collectively. This observation underscores the importance of these top stocks in buoying market performance.

While the Magnificent Seven's influence remains strong, investors are advised to monitor broader market trends and upcoming earnings reports closely. The performance of these top companies will continue to shape market movements, highlighting the importance of a diversified investment strategy amidst evolving market dynamics.


Source: MarketWatch


Stock Market Broadening


In recent weeks the stock market has seen a broadening and it appears to be rotating constructively. Ed Carson, Investor’s Business Daily author, wrote, “Investors can find actionable or promising stocks in the housing, financial, medical, travel and consumer sectors.” He highlighted actionable stocks from these sectors, citing notable companies such as Eli Lilly (LLY), Uber Technologies (UBER), XP (XP), Royal Caribbean (RCL), East West Bancorp(EWBC), Axon Enterprise (AXON), and Warren Buffett's Berkshire Hathaway (BRKB).


With the observed broadening, Carson advises investors to "cast a wide net" when selecting companies and industries for investment. He emphasizes the presence of value across multiple sectors and encourages investors to seek financially sound companies with the potential for future growth.


Source: investor’s Business Daily


Jeremy Siegel Sees Continued Momentum in Bull Market Run


Jeremy Siegel, Finance Professor Emeritus from the Wharton School of the University of Pennsylvania, remains confident in the continuation of the bull market well into the coming months. On Bloomberg Markets, he said, “The momentum is so strong in this market. I don't think this bull run is over. I think that we have more to go.” He pointed out compelling data that showcased the disparity between the valuation of the tech sector and that of the broader market. He noted that the tech sector and the magnificent seven, trades at approximately 25-30 times earnings, whereas the multitude of other sectors maintains a more modest price-to-earnings ratio of around 17.


Siegel asserted that the current valuation of 17 times earnings is "an extremely reasonable level of valuation and pretty much on par with historical averages." Furthermore, he pointed out that bull markets typically do not conclude solely at fair valuations. He explained, "They often go too far before they back off. So arguing that this market is fully valued, or even slightly overvalued is certainly no argument that says this bull trend and run is soon to stop." With this perspective, Siegel maintains a bullish outlook for the market as it enters the second quarter of 2024.


Source: Bloomberg


Second Quarter Starts with Market Dip: Inflation Worries Tarnish Recent Gains


The Dow Jones Industrial Average stumbled at the onset of the second quarter, casting a shadow over the market's recent rally amidst fresh U.S. inflation data. Leading the downturn, the Dow lost 272 points, or 0.7%, followed by a 0.3% drop in the S&P 500 and a slight 0.1% dip in the Nasdaq Composite. Investor concerns mounted regarding the Federal Reserve's stance on rate cuts and its ability to meet the 2% inflation target. Federal Reserve Chair Jerome Powell's remarks, emphasizing economic growth strength and inflation exceeding the target, hinted at a cautious approach to rate adjustments. This sentiment, coupled with pivotal inflation figures, prompted a surge in Treasury yields, with the benchmark 10-year Treasury yield climbing more than 11 basis points to reach 4.303%.


Market reaction results following the release of the personal consumption expenditures price index, unveiling a 2.8% rise in core PCE inflation on a 12-month basis in February, aligning with expectations. On a monthly basis, the metric recorded a 0.3% uptick from the previous month, as reported by the Commerce Department. Despite a robust first-quarter performance, highlighted by the S&P 500's strongest showing since 2019 and a 5.6% increase in the Dow Jones Industrial Average, Monday's downturn tempered prevailing optimism. While the market's recent winning streak spanned through March, marking its fifth consecutive positive month and propelling the Dow close to the 40,000 mark, Monday's setback hindered this milestone achievement. Quincy Krosby, chief global strategist at LPL Financial, acknowledged the market's overbought status and anticipated a correction, foreseeing it as a potential catalyst for renewed investor engagement and a more constructive market outlook.


Source: CNBC


Disney's Shareholder Showdown: Clash of Titans Reveals Deep Divisions and Leadership Confidence


The recent shareholder meeting at The Walt Disney Company showcased a fierce battle for board seats, shedding light on the profound divisions within the media conglomerate's investor base. Despite a relentless campaign led by activist investor Nelson Peltz and former Marvel CEO Ike Perlmutter, Disney's existing board members retained their positions, as confirmed by CEO Bob Iger. In his statement following the meeting, Iger expressed gratitude to shareholders for their continued trust and confidence in Disney's management, signaling a collective commitment to prioritizing growth, value creation, and creative excellence.


Peltz, representing Trian Partners, had spearheaded the push for change, citing concerns about the company's share performance and governance practices. However, preliminary results indicated a resounding victory for Disney's current leadership, with Iger securing an impressive 94% of the total vote. Despite significant financial resources invested in the proxy battle, estimated at around $40 million, Peltz and allies failed to sway shareholder sentiment sufficiently.


The defeat suffered by Peltz underscores the widespread support for Disney's strategic direction and management team. High-profile endorsements from industry figures like George Lucas and Jamie Dimon further bolstered confidence in the company's leadership. Yet, amidst the celebration of this triumph, enduring challenges loom large for Disney, including the evolving media landscape and the critical issue of succession planning.


While recent successes, including a surge in share prices following positive announcements, have buoyed investor confidence, uncertainties persist regarding Iger's successor and Disney's long-term strategy in the streaming market. As the company navigates these complexities, the clash with Peltz serves as a stark reminder of the intricacies involved in steering a media giant through turbulent times.


In a decisive victory, CEO Bob Iger and The Walt Disney Company thwarted activist investor Nelson Peltz's bid for board seats, reaffirming shareholder confidence in Disney's leadership. The battle, which garnered significant attention in financial circles, saw overwhelming support for Iger's vision from both retail and institutional investors.


Reports indicate that approximately 75% of retail investors, constituting nearly 30% of Disney's shareholder base, backed the company's leadership, underscoring broad-based support for Disney's strategic direction. Moreover, major institutional shareholders such as BlackRock and T. Rowe Price stood firmly behind Disney, further solidifying its position against Peltz's challenge.


The proxy fight revolved around key concerns regarding the profitability timeline of Disney's streaming business and the succession plan for CEO Bob Iger, who is set to step down in 2026. While these questions remain unanswered, Iger has assured stakeholders that the board is diligently focused on addressing them.


Despite the victory in the proxy battle, Disney faces ongoing challenges, including the need to sustain growth in its streaming services and identify a suitable successor to Iger. However, optimism remains high among analysts, with Bank of America recently raising its price target for Disney stock and maintaining a buy rating, citing robust performance in theme parks and anticipated growth in operating income.


As investors await further developments, the outcome of Disney's clash with Peltz underscores the company's resilience and investor confidence, while also highlighting the pressing issues that lie ahead in charting its future course.


Source: investor’s Business Daily


U.S. Trade Deficit Increases By Largest Margin Since Last April


U.S. trade deficit data was reported this week and came in well below analyst expectations. The deficit grew 1.9% in the month of February to $68.8 billion. February was the third month in a row where the deficit grew and we now have the largest imbalance since April of last year. Wall Street economists had predicted the deficit would grow to $67.7 billion, well below the actual level reported. U.S. exports rose 2.3% to $263 billion in February while imports rose 2.2% to $331.9 billion. The greater number of imports to exports is what widens the deficit. Greg Robb of MarketWatch wrote, “The deficit has started to trend higher as imports have been more resilient than exports. It is expected to be a slight drag on first-quarter GDP growth. Overall global trade remains weak given the geopolitical tensions in many regions.”


Source: Greg Robb, MarketWatch


Dividend Stocks — The Relationship Between Yields and Dividends


Dividend stocks and yields have an interesting relationship. As yields increase, dividend stocks look less desirable, the inverse of this is also true, as yields go down, dividend stocks look more desirable.


Karishma Vanjani of Barron’s wrote, “The SPDR S&P Dividend exchange-traded fund rose 4.4% in March while the ProShares S&P 500 Dividend Aristocrats ETF ended 4.2% higher. Both funds had their best monthly performance since December.” This is really good news for dividend paying stocks because they have been struggling in the last few years. As inflation has gone up, yields have gone with it. This has caused dividend stocks to struggle. But with yields remaining constant this month and the prospect of lower inflation and interest rates this year, dividend stocks are on the rise. Nicholas Colas of DataTrek research said, “This [dividend] investment style has been deeply out of favor since the October 2022 lows, so it is good to see it starting to work better (even over just a month).”


As far as the future for dividend paying stocks is concerned, Vanjani wrote, “The path ahead for dividend funds will largely depend on how yields perform. If investors have to pare back their projections for rate cuts because of higher-than-expected inflation readings or new Fed commentary, the 10-year yield could rise much more than a few points over a month—even if the Fed still cuts rates later this year.” The fact that the dividend ETFs are performing better should be a good sign for the economy, a sign that inflation and interest rates are cooling and should be getting cut by the Fed in the coming months.


Source: Barron’s


Steve Eisman's Strategic Shift: Infrastructure Stocks Take Center Stage


Renowned investor Steve Eisman, known for his prescient moves during the 2008 mortgage crisis, has recently shifted his focus to infrastructure stocks following an extensive two-year analysis of the industry. As a senior portfolio manager at Neuberger Berman, Eisman has carefully chosen 80 stocks that are suitable for investment. Among these, he has identified around 30 stocks that he considers especially promising. To clarify, Eisman is adjusting his strategy because there's been a notable increase in government spending on infrastructure projects. He sees this as a chance to find profitable investment prospects within that sector.


During a recent appearance on Bloomberg's "Odd Lots" podcast, Eisman discussed his investment strategy, particularly steering clear of residential solar companies. Despite their impressive performance during the pandemic, these companies have faltered amidst rising interest rates. Instead, Eisman has expressed a preference for solar panel companies serving utilities, recognizing their strong fundamentals. Among his favored picks is Eaton Corporation, renowned for its involvement in factory electrification. Although Eisman does not currently hold Eaton Corporation stock, his detailed research underscores its appeal, evident in its impressive 36% surge this year, following a notable 53% rally in 2023.


Another notable addition to Eisman's portfolio is CRH PLC, a materials company headquartered in Ireland but with significant operations in the U.S. market. With CRH's stock witnessing a noteworthy 24% increase this year, following a substantial 73% surge last year, Eisman's confidence in the company's prospects is notable. This view is further underscored by his strategic decision to initiate purchases following the company's relisting in the U.S. in September. Eisman's impressive investment maneuvers not only highlight his ability to identify emerging trends but also emphasize his relentless pursuit of profitable opportunities in today's financial landscape.


Source: Bloomberg


Intel Stock Weakens After Reporting Huge Losses, But It Might Still Be a Buy Long Term


Intel shares have dropped about 6.5%-8% early this week as they gave investors a look into its new business structure, a structure that is currently operating with larger-than-expected losses. Intel is launching into the semiconductor foundry business but is currently in the early, non-profitable stages. The foundry segment of the company lost $5.2 billion in 2022, $7 billion in 2023, and losses are expected to peak in 2024. This is occurring at the same time as revenue from that part of the business dropped 37% to about $18.9 billion. These losses are much higher than was expected by analysts, and more importantly, investors.


There is light at the end of the tunnel, however, it might be a rather long tunnel. Eric J. Savitz of Barron’s wrote, “Intel said it expects to reach the fab business to achieve break-even operating margins midway between now and the end of 2030, or in roughly 2027. It aims to reach non-GAAP gross margins of 40% and non-GAAP operating margins of 30% by the end of 2030. Operating losses in the chip-manufacturing business should peak this year.


Intel said it has more than $15 billion of lifetime deal value committed from external customers for the Foundry unit. The company said its goal is to be the world’s second-largest foundry by 2030, which would put it behind only Taiwan Semiconductor.” Intel has plans to make this strategy profitable and competitive in the coming years, however, it's going to incur serious losses before getting to that point. Several analysts that listened to the report by intel said that they believe the strategy to be sound, but that doesn’t mean it's going to be easy to accomplish, especially not in the short term.


Overall, Intel is having some struggles right now as they get this new restructuring off the ground, but the future looks bright. If a long-term perspective is kept in mind, Intel might be a decent buy, especially with declining prices due to their current struggles.


Source: Eric J. Savitz, Barron’s


Fed Policy Is Causing People To Keep Cash On The Sidelines


Since the Fed began raising rates at record speed two years ago, many people have not been actively putting cash to work in investments. There is a general sense of fear among consumers regarding inflation and the state of the overall economy. Because of this, people are waiting for Fed rate cuts to begin putting money to work. If the Fed actually cuts rates this year then this could be really good news. What will happen when the Fed cuts rates is we will see a large increase in liquidity and a rather bullish market that will grow. When the economy is in good shape, more people are putting money to work.


Source: MarketWatch


Macy's Downsizing Sparks Rival Retailers' Race for Market Share


Amidst Macy's strategic decision to close roughly 150 of its stores, competitors in the retail sphere are swiftly assessing potential opportunities. Executives from Target and Kohl's, including CEO Brian Cornell and CEO Tom Kingsbury, view Macy's downsizing as an opportunity to enhance their own sales figures. Similarly, T.J. Maxx, an off-price chain, stands to benefit, particularly given its proximity to Macy's locations that may shutter. This sentiment is echoed by other retailers such as Ross and Nordstrom, who already share a substantial customer base with Macy's.


Macy's strategic maneuver to shutter a quarter of its namesake stores, which account for nearly $2 billion in market share, reflects a response to dull sales and the need for a comprehensive business model overhaul. CEO Tony Spring perceives the closures as an opportunity to redirect focus towards boosting sales at remaining locations, particularly those housing higher-end brands like Bloomingdale's and Bluemercury. While the specifics regarding store closures remain undisclosed, the ramifications extend beyond Macy's, impacting shopping malls reliant on the retail giant as an anchor store.


The ascent of off-price chains like T.J. Maxx presents a formidable challenge to department stores, capitalizing on offering similar products at more competitive prices in easily accessible locations. With Macy's closures, these off-price retailers stand to gain even more traction, considering their overlapping customer demographics and enhanced convenience. As department stores scale back, competitors like Kohl's and Target perceive an opportunity to expand, leveraging their presence in strip centers and focusing on customer growth, despite encountering challenges in attracting younger shoppers and coping with softer discretionary spending.


Source: CNBC


Swing for the Fences: Atlanta Braves Franchise Set to Dance with Destiny as Acquisition Target


In the CNBC article “Buy the Atlanta Braves tracking stock since it will likely be bought by a billionaire, analyst says” Jesse Pound Quotes Rosenblatt Securities saying, “In our new, updated price target, we assume a 10% premium for the Braves in 2025 to the 2024 Sportico valuation, to reflect normalized inflation of pro team values,” As excitement grows for the return of baseball season, investors are considering an intriguing chance to buy shares in a respected team. Rosenblatt Securities indicates that this chance might disappear quickly by the start of the next season. Analyst Barton Crockett, in a recent message to clients, increased the expected price for Atlanta Braves Holdings by more than 10%, foreseeing the team as a possible target for acquisition soon.


Previously part of John Malone's Liberty Media group along with brands like Formula One and Sirius XM, the Atlanta Braves franchise started operating on its own last summer, setting the stage for a potential sale. In the same article, Crockett suggests in the report that the Braves might move into private ownership by a very rich investor after some time for tax planning, likely lasting at least a year and possibly up to two, after being separated from Liberty Media. Rosenblatt remains optimistic about the stock, emphasizing this view by maintaining a recommendation to buy.


Source: CNBC


Meta's Meteoric Rise: Analysts Bullish on Digital Advertising Dominance


Meta witnessed a significant surge in its stock price on Thursday, climbing by 4.6% and hitting a new all-time high. This surge was largely attributed to the positive assessments from market analysts regarding Meta's growing power in the digital advertising sector. Analysts at Jefferies raised their price target for Meta from $550 to $585, emphasizing the company's anticipated growth in the advertising market for the current year. Similarly, RBC Capital Markets increased their target to $600 from $565, echoing sentiments of confidence in Meta's trajectory. Notably, RBC's target aligns with the highest estimates among approximately 50 tracked by FactSet, on par with those of Wells Fargo and First Shanghai.


Meta's remarkable rally began in early 2023 after a challenging 2022, driven by CEO Mark Zuckerberg's declaration of it being the “year of efficiency.” The company applied significant cost-saving measures, including substantial workforce reductions, and at the same time, it boosted its advertising division by using more advanced artificial intelligence technology. Zuckerberg, the CEO, repeated in a February announcement that they're sticking to a plan to keep the company running as efficiently as possible.


In the article “Meta shares hit intraday record after analyst says company ‘has too many advantages to count” Ashley Capoot quotes Jefferies saying, “Meta has too many advantages to count,” Jefferies analysts highlighted Meta's various advantages, pointing to their strategic strength due to the $27 billion they spent on capital expenditures last year. They predicted that Meta could grab 50% of the additional money companies spend on advertising in 2024. This is a significant jump from the 33% they managed in 2023, possibly even overtaking Amazon's growth in the advertising business for the first time since 2015. Meanwhile, Amazon has also been making waves in digital advertising thanks to big investments from sellers who want to make their products more visible.


RBC's analysis contrasts Meta's market share growth with Google's, noting that Google's Performance Max ad campaigns have faced some resistance. They emphasize that Meta delivers better returns on advertising spending and superior artificial intelligence performance compared to Google. Additionally, Meta is expected to gain substantially from ad spending shifting away from TikTok due to regulatory uncertainties in the U.S. In Thursday afternoon trading, Meta's shares rose by 2% to $517.30. This marks a 46% increase in value since the beginning of the year, following a remarkable performance that almost tripled its value in 2023.


Source: CNBC


Coal Industry plight


The collapse of the Francis Scott Key Bridge in Baltimore raises significant economic questions, particularly regarding its impact on the coal industry. Approximately two and a half million tons of coal are expected to be blocked as a result of this tragedy. However, the solution isn't as straightforward as redirecting the coal to different ports. Ernie Thrasher, CEO of xCoal Energy & Resources, discussed this issue with Bloomberg. He said, "Coal is designed to move to specialized terminals that have the equipment that's designed to unload and load it in a very quick and efficient manner. So it's very challenging to move coal to terminals that are not designed to handle coal."


Thrasher anticipates that exports could be blocked for up to six weeks, which will undoubtedly impact both coal consumers and companies alike. He states, “There is an extra cost but companies have a responsibility to their customers and also to their shareholders and employees to keep the assets running. So those issues will be either absorbed or worked out with the customers in order to keep the flow moving." In summary, Thrasher emphasizes the necessity for companies to balance their obligations to customers, shareholders, and employees by managing the additional costs and ensuring the uninterrupted flow of coal despite export disruptions.


Source: Bloomberg


Gold Hits Record High Causing Market Optimism


Gold prices surged to a new all-time high, encouraged by expectations of a U.S. interest rate cut and the enduring appeal of gold as a safe haven asset. Spot gold rose by 0.3%, reaching $2,240.04 per ounce, while U.S. gold futures climbed 0.8% to settle at $2,257.10 per ounce, hitting a peak of $2,286.4. In the CNBC article “Gold prices hit another record high after fresh U.S. data spurs Fed cut expectations” Lee Ying Shan quotes Joseph Cavatoni, a market strategist at the World Gold Council, saying, “What’s really driving it is, I think, many market speculators really getting that confidence and comfort [in] the Fed cuts,” Joseph expressed optimism, citing growing confidence among market speculators regarding potential Federal Reserve cuts. This sentiment was echoed by analysts anticipating a rate cut in June, despite recent data showing a 2.8% year-on-year increase in the Fed's inflation gauge, which suggested a temporary hold on rates. However, the Fed, maintaining rates after its March meeting, reiterated its forecast for three rate cuts this year.


The upsurge in gold prices was not solely driven by domestic factors but also by international demand. In the same article Lee Ying Shan quotes Caesar Bryan, a portfolio manager at Gabelli Funds, saying, “In China, private investors have been attracted to gold because the real estate sector has done poorly,” Caesar emphasized increased interest from private investors in China, drawn to gold amid a slow real estate sector and dull performance in the country's stock market and currency. Furthermore, central banks globally have been strengthening their gold reserves, fueled by concerns over geopolitical risks, domestic inflation, and the weakening U.S. dollar. Cavatoni highlighted China's pivotal role in driving both consumer demand and central bank purchases of gold, suggesting a sustained trend in gold acquisitions. However, the sustainability of these purchases remains uncertain, contingent upon various factors influencing global economic dynamics.


Source: CNBC


Tesla Rallied on News of Robotaxi


The story about Tesla's performance in the first quarter of 2024 reveals a complex web of problems and obstacles, causing ripples in the financial world and leading to discussions among industry experts. At the center of the conversation is a crucial moment as Tesla announced a drop in vehicle deliveries, the first yearly decrease since the pandemic started in 2020. This decline, despite the company's strong production efforts, shows a detailed view of changing market conditions.


Examining the numbers, Tesla delivered a total of 386,810 vehicles in the first quarter of 2024, producing 433,371 units. It's worth noting that although vehicle production slightly decreased by 1.7% compared to the previous year, deliveries dropped more significantly, down by 8.5% annually. Looking at the delivery breakdown, the focus was on Model 3/Y cars, with 369,783 units delivered out of 412,376 produced, while other models had lower numbers.


In the CNBC article “Tesla shares fall after deliveries drop 8.5% from a year ago” Lora Kolodny Says, “According to a mean of 11 estimates compiled by FactSet, analysts were expecting deliveries of around 457,000 for the period ended March 31. Estimates ranged from a high of 511,000 deliveries to a low of 414,000 for the first quarter, with estimates updated in March ranging from 414,000 to 469,000 deliveries.” Amid the different analysts' predictions, the market is filled with uncertainty. Disruptive events, like attacks by the Houthi militia on shippers affecting supplies and environmental activism causing production issues in Germany, add to the difficulties. Local markets also pose challenges, with increased competition in China and a mixed response to Tesla's newest product, the Cybertruck, in the United States. Despite challenges, Tesla's CEO Elon Musk's moves, such as requiring the display of the company's top-notch driver assistance system and dealing with how people see him, make the story more complicated. The drop in Tesla's stock, falling 29% in the first three months, shows investors are worried and highlights the crucial moment for the electric car maker. As Tesla prepares for its earnings call in April, stakeholders are keen for details on the company's plans and how well it can handle tough market conditions.


Tesla's recent announcement to get rid of its highly anticipated affordable car has sent shockwaves through both investor circles and the automotive industry, marking a significant departure from its initial vision under Elon Musk's leadership. Originally, Musk had envisioned Tesla focusing on luxury vehicle production to pave the way for affordable electric cars to reach a wider audience. However, the decision to abandon the Model 2 project signals a strategic shift towards prioritizing the development of self-driving Robot Axis over entry-level electric vehicles. This tactical pivot reflects Tesla's response to mounting competition in the global electric vehicle market, particularly from Chinese manufacturers offering more affordable alternatives priced as low as $10,000.


The cancellation of the Model 2 not only deviates from Tesla's founding principles but also poses challenges to Musk's determined sales growth targets. Musk has set ambitious goals for Tesla, aiming to sell 20 million vehicles by 2030, a goal heavily dependent on the production and sale of an affordable electric car. With the Model 2 project scrapped, achieving such ambitious targets becomes increasingly uncertain, raising questions about the company's future course. Moreover, Tesla's delay in pursuing entry-level vehicles has resulted in it falling behind competitors in a segment already filled with attractive options, adding more complexity to its journey towards achieving mass-market dominance.


Tesla's strategic shift highlights the evolving dynamics of the electric vehicle landscape and the dreadful challenges facing the company in its quest for widespread adoption. With competitors ramping up their efforts and market conditions evolving, Tesla must make crucial decisions to steer its future course and accomplish its long-term goals in an automotive landscape that's rapidly transforming.


Recently, Tesla recovered from the losses it experienced, following the announcement of a strategic shift in the company's direction. Kimberley Koeing, Investors Business Daily author, wrote, “Tesla (TSLA) climbed 4.9% after Chief Executive Elon Musk said the company will unveil its "robotaxi" on Aug. 8. There was a buzz on Friday after Reuters said that Tesla was going to scrap plans for a low-price electric car and pursue the robotaxi.”


The new direction provided a confidence boost for many investors, yet it's crucial to note that shares are still 45% below their 52-week high. While the introduction of the new robotaxi promises revenue improvement and growth, some harbor doubts about its near-future feasibility. Ed Carson, Investors Business Daily author, stated, “The robotaxi may be more aspirational for now, given the limitations of Tesla's Full Self-Driving system, which is not full self-driving.” Tesla's Full Self-Driving system still exhibits significant limitations that must be addressed before it can effectively operate as a robotaxi.


Source: CNBC, Investor’s Business Daily


10 Year Treasury Yield Heading Toward Five Percent?


With the recent surge in the 10-year Treasury yield, the question arises: will the yield maintain its upward trajectory, and what implications does this hold for equities? Mike Contopoulos, the Director of Fixed Income at Richard Bernstein Advisors, shared his insights on this matter with Bloomberg. He said, “Anywhere you look in the economy, things are generally heating up… I would expect closer to 5% before we get to 3% in 10 years.”


Bernstein anticipates that the increase won't follow a linear path, but rather foresees potential bumps along the road. He describes that “there's a tug of war going on among investors at the moment… You're going to get some down days followed by up days and over the course of the next several months as rate cut expectations continue to get priced out, you're going to get higher rates as a consequence.” He even suggested that the market is likely to factor in the probability of a rate hike in the coming months. What are the implications of this possibility for the broader market? Bernstein believes that if the path to 5% is steady, the market will absorb it well, potentially avoiding a significant downturn. However, if rate volatility is high and the yield quickly jumps to 5%, this could negatively affect the broader market's stability.


Despite the potential for 5% treasury yields, analysts still find certain areas within equities attractive for investments. Bernstein highlights that "a strong economy with higher rates tends to be pretty good for cyclicality," emphasizing that it currently "makes a lot of sense" to own "industrials, energy, materials, and small caps." Echoing this sentiment, Jason Pride, Chief Investment Officer at Glenmede Private Wealth, suggests that "small cap equities and some international equities like Japan look really good right now." Furthermore, Pride advises investors to allocate funds to fixed income to take advantage of relatively high yields.


Source: Bloomberg


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