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Economic Calendar (18 Mar 2024)
Notable Highlights
FOMC interest rate decision should be the most watched economic data this coming week. We are not expecting the interest rate cut to begin. With the recent inflation data, we should also cater for potential interest rate hikes in the coming months should inflation worsen.
Fed Chair Powell is speaking at the end of the week. His speech can move the market as they await updates of a hopeful fed pivot.
Manufacturing data. Philadelphia Fed Manufacturing Index and S&P Global US Manufacturing PMI provide an outlook of the manufacturing and we are expecting the sector to expand as per the forecast given.
S&P Global Services PMI provides an outlook on the demand for US services. From the forecast, we are expecting an expansion in the demand for services.
Existing Home Sales data will shed some light on the demand of local housing.
Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, demand erosion can lead to reduced production & weakening consumer spending.
Earnings Calendar (18 Mar 2024)
In the coming week, we have some earnings of interest that include Micron, FedEx and Factset.
Let us look at the recent performance of Micron.
For Micron, the EPS TTM is -6.28 (that implies making a loss) in the 12 months trailing.
The stock price has surged 64.58% from one year ago. The rating of the stock (from investing) is “NEUTRAL”.
From the annual income statement, we have the following observations:
Total revenue TTM has fallen to $16.18B compared to the recent peak of $30.75B (30 Aug 2022).
The operating income has fallen from $9.7B (30 Aug 2022) to -$6.63B (TTM).
The TTM operating income is expected to be worse.
The Free Cash flow was negative for the last 2 years. Though TTM has a worse Operating income, the Free Cash Flow is improving compared to $6.11B (30 Aug 2023).
For the coming earnings, the forecast is -0.2586 and $5.33B for its EPS and Revenue respectively.
From the forecast, the company is expecting another quarter of loss but at a lesser magnitude. Can Micron turn things around following the earnings?
Market Outlook of S&P500 - 18Mar24
Technical observations of the S&P500 1D chart:
The MACD indicator is showing a downtrend having completed another top crossover.
Chaikin Money Flow (CMF) advises that the bullish run is fading away though the line remains above zero (typically bullish).
Interpretation of CMF from the CFI website:
When there is a continuous buying period (when the CMF value is sustained above zero), the trend is considered bullish and indicates that price will continue to rise with the trend. When there is continuous selling pressure (CMF value below zero), this points to a bearish trend, indicating price will continue downward.Higher readings, either positive or negative, indicate a stronger trend. Increasing readings indicate gaining momentum.Crosses may be bullish or bearish. Bullish crosses occur when the CMF crosses the zero line from below, and stock prices continue on an upward trend. Bearish crosses occur when the CMF crosses the zero line from above, and prices continue to fall.
Moving Averages (MA). Both the MA50 line and the MA200 line are on an uptrend. The last candle is above both the MA 50 line and the MA 200 line. Thus, it could be read as bullish for the long-term and mid-term.
Exponential Moving Averages (EMA). The 3 EMA lines have yet to converge but the top 2 lines should converge in the coming days (if the current trend continues). Thus, the current uptrend may continue but a reversal could be on the cards.
I have replaced Stochastic with CMF to incorporate consideration of volume. Stochastic and MACD are similar with Stochastic being “more active” and more capable for “false” signals.
From investing, it recommends a “Strong Buy” for S&P500 (based on 1D chart).
From the 22 technical indicators and moving averages, a “Strong Buy” rating was suggested. This comprised of indicators showing 14 (Buy), 3 (Neutral) and 5 (Sell).
With MACD in a downtrend, we can expect the downtrend to continue. The coming interest rate decision and announcement can bring volatility to the market.
Personally, the market should expect some downtrend with profit taking and the Fed’s interest rate decision at work.
News and my thoughts from the last week (18 Mar 2024)
"American election will determine the new world order. It's a safe bet that we are heading for a new era of isolationism and protectionism." - Former French PM Villepin. This is de-globalization and is typically inflationary. We need more bridges.
Many high-profile investors, billionaires, & economists anticipated a painful economic storm in the US, but the economy has so far defied expectations amid strong jobs reports, cooling inflation, & high consumer spending. - Business Insider
Remote work in the United States has emptied office buildings as their value falls and owners risk losses on property loans – in turn putting pressure on smaller banks. “There will be bank failures, but this is not the big banks,” - Powell. - Business Times
If USA can borrow money, is there a need for citizens to pay taxes? Is American politics a way to siphon money from the public? Is the love of money the root of all evil? Does Moral Bankruptcy precede financial bankruptcy?
Emergency Fed bank effort has officially ended lending, per Reuters. The Bank Term Funding Program has ceased making new loans as scheduled on March 11, 2024. It was launched in haste a year ago amid the heavy stress triggered by Silicon Valley Bank's collapse.
Private exporters exited purchases of 264,000 tonnes of US soft red winter wheat to China. It was the third straight session with such an announcement, bringing the cancellation total to 504,000 tonnes. - Business Times
Chinese buyers cancel or postpone one million tonnes of Australian wheat. - Business Times
The broadening US curbs on Chinese technology, especially for chipmaking, are a key reason for neutral Malaysia’s appeal - FT
America exports so much natural gas that Americans are paying more for it - QZ
More Chinese trade bound for the U.S. is already coming into Mexico ports to avoid tariffs implemented under Trump and Biden, with 15% of Chinese goods arriving into Mexico in 2023. - CNBC
"AI will probably be smarter than any single human next year," Musk posted on X. "By 2029, AI is probably smarter than all humans combined." - Fox Business
What are the governments, academics, corporations, users and criminals doing about it?
THERE WILL BE BANK FAILURES. THIS IS NOT THE BIG BANKS. IF YOU LOOK AT THE VERY BIG BANKS, NOT A FIRST-ORDER ISSUE FOR ANY OF THE LARGE BANKS. IT'S MORE SMALLER AND MEDIUM-SIZED BANKS THAT HAVE THESE ISSUES. - Fed Chair Powell
YTD performance of S&P500. Notable laggers are $TSLA, $AAPL and $BA. Does this mean that these companies are doing badly? Does the stock price represent the value created?
February PPI inflation RISES to 1.6%, above expectations of 1.1%. Core PPI inflation was 2.0%, above expectations of 1.9%.
Both CPI and PPI inflation are now officially back on the rise. PPI is the inflation experienced by producers. These is usually passed on to consumers. PPI is the prelude of CPI. Let's monitor.
Eighteen per cent of those surveyed for February by Maru Public Opinion said it was likely they would default on a mortgage payment or loan payment over the next two months, up two percentage points from January. - Financial Post
HSBC is “very positive” about the mid to long-term outlook for the Chinese economy despite current headwinds, the British bank’s chief financial officer told CNBC. - CNBC
Samsung, LG and SK are concerned about their investments in the United States amid a spike in construction costs and lingering subsidy uncertainties ahead of the upcoming presidential election - Korea Times
The self-sufficiency rate of Chinese chips has significantly increased from 5% in 2018 to over 25% in 2023. The trend is anticipated to continue, with an increasing Chinese chip self-sufficiency rate. - Global Times
Climate risk is a $22 trillion problem for the housing market—and growing. Almost 44.8% of homes across the country, worth nearly $22 trillion, are staring down “at least one type of severe or extreme climate risk. - Yahoo Finance
Maersk last month warned that container shipping overcapacity would hit profits this year, in contrast to the record earnings achieved in the wake of the pandemic. - Yahoo Finance
Some McDonald's stores were back online after a global technology outage on Friday disrupted operations for a few hours at many of the restaurant chain's outlets in markets including Japan, Australia and the UK. - Reuters
More companies have defaulted on their debt in 2024 than in any start to the year since the global financial crisis as inflationary pressures and high-interest rates continue to weigh on the world’s riskiest borrowers - FT
There is no need for us to know the reasons for every rise and fall in a stock price. But there is a need for us to know the fundamentals, financials, moat and more. Let's choose our knowledge. Sentiments are fleeting but value remains.
Happiness = reality - expectations
Quote by Elon Musk
there will be a point where the price no longer commands the demand. then, the market will be forced to change the price.
My Investing Muse ( 18Mar24)
More Layoff news from last week:
During the company’s fourth-quarter earnings call in January, IBM announced that it planned to lay off 1.5% of its global workforce. CFO James Kavanaugh then told Bloomberg that figure represented about 3,900 jobs. - QZ
PwC has slashed more than 300 jobs in an effort to "simplify" its business, a year after its tax scandal first came to light.
It will make 329 roles redundant and accelerate the retirement of up to 37 partners in the next nine months. - Canberra Times
Oil major Shell (SHEL.L), opens new tab is planning to cut at least 20% of jobs in its deals team, in an effort to reduce costs, Bloomberg News reported on Wednesday - Reuters
The (META) cuts, which affected fewer than 50 employees, were part of a reorganization of Messenger & its operations. The cuts at Messenger followed a similar layoff that affected some employees working at Instagram. - Business Insider
IBM layoffs: Tech giant announces job cuts in marketing and communications division - Live Mint
UBS Starts Job Cuts at Asia Wealth Unit After Profit Slump. Swiss bank to cut about 70 people mainly in HK, Singapore - Bloomberg
PwC Australia said it would cut an additional 329 jobs, part of a major restructuring that follows a national scandal in which a former partner leaked government tax plans - Reuters
It seems that layoff news continues to hit the headlines. This can be an important data point as layoffs could lead to a recession.
US Store Closures
News of US store closures:
Walmart will close three more US locations, bringing the total to six in 2024 so far. The company cited financial underperformance as the reason for the decisions. The company closed at least 22 locations across 14 states last year. - Business Insider
Allbirds began in direct-to-consumer (D2C) and expanded into wholesale. In the last quarter, the company experienced a 14.5% drop in net revenue YoY. In 2024, it aims to close 10-15 retail stores in the United States. - PYMNTS
Dollar Tree to Close About 1,000 Stores. Dollar-store operator reports a loss of $1.71 billion for latest quarter. - WSJ
Salesforce has shrunk its footprint by 45 percent to 900,000 square feet of offices in January, from 1.6 million square feet a year earlier - The Real Deal. This is not a store closure but a clear (45%) reduction in office space required by Salesforce.
A Look into the Auto Industry
Some recent news about the auto industry:
Rivian announced that it’s halting plans to build a $5 billion factory in Georgia. Instead, it will manufacture its upcoming R2 and R3 models at its existing plant in Illinois, allowing it to save more than $2.25 billion in capital expenditures. - Fortune
BYD sent a delegation to the Mexican state of Jalisco to consider building an electric vehicle (EV) plant there, Bloomberg said in a March 9 report. - CNEVPost
BYD is set to launch its fifth-generation DM system, with the DM-i branch enabling the vehicle to consume as little as 2.9 L of fuel per 100 kilometers, and drive close to 2,000 kilometers on a full tank of fuel and full charge. - CNEVPost
Tesla cars lose their value even faster than a Maserati, study says. Recent price cuts by Elon Musk's EV maker have sent Tesla resale values dropping at enormous rates - QZ
“Artificially low-priced Chinese EVs flooding the U.S. would cost thousands of American jobs and endanger the survival of the U.S. automotive industry as a whole,” wrote the senators who hail from automotive manufacturing states. Is USA a free market?
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While everyone is focused on AI, China has taken electric vehicles (EVs) to a whole new level. China currently has 2.5 MILLION EV chargers compared to just 130,000 in the US. China has an EV charger for every 7 cars while the US has an EV charger for every 18 cars. Meanwhile, China's EV chargers provide 4 kilowatt per hour compared to 1 kilowatt per hours in the US. To put this into perspective, the energy difference is like powering 17 standard light bulbs in the US versus 67 bulbs in China. Is China the new leader of EV technology? by X user Kobeissi Letter.
China seems to be tipping the scale in terms of market shares and infrastructural support. This is a sector of interest where Chinese players like BYD are gaining more global market presence in recent times.
When to sell a stock
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This was shared by a friend who shared some of the reasons to sell. If some of our shortlisted companies lose their edge, let us consider taking some profits or stopping losses.
Conclusion
The market may see some more correction in the coming days. We have passed mid-March 2024 and a new earnings season should commence in a few weeks.
Some estimates have been released where Factset’s data point to a less boisterous Q1/2024.
There are some concerns and let us not forget to hedge our positions accordingly.
Let us research to invest in great companies at good prices (with a margin of safety).
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