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Economic Calendar (26 Feb 2024)

Notable Highlights

• PCE. Core PCE Index. This is the main inflation reference used by the Federal Reserve. An elevated PCE can turn the market bearish as the Fed may have to push back the rate cuts because of this. However, a falling PCE can bring relief to the market as the Fed inches closer to a Fed pivot.

• GDP Q4. This will finalize the GDP from Q4.

• New Home Sales. This provides a good insight into the real estate market.

• CB Consumer Confidence. This is an indicator of the consumer and their coming consumption. The more confidence they have, it is likely that they can maintain or increase their consumption.

• PMI. Chicago's PMI and China’s Manufacturing PMI will be released in the coming week. This is together with S&P Global US Manufacturing PMI, ISM Manufacturing PMI and ISM Manufacturing Prices (which can be read as inflation affecting manufacturing). This reveals the production forecast for both the US and China. Should the PMI continues its drop, this imply a drop in manufacturing activities.

• Initial Jobless Claims - This reflects the impact of unemployment, a data point for the Fed’s interest rate decision. The unemployment rate will also reveal the job and jobless situation in the USA.

• 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 (26 Feb 2024)

This week has several earnings of interest that include Baidu, Zoom, Dell, Salesforce and HP.

Let us look at the recent performance of Salesforce

Observations:

• Revenue grew from $4B (2014) to $31.3B (TTM 2023) - almost 8x.

• Gross Profit grew from $3.1B (2014) to $22.9B (TTM 2023) - almost 7x.

• Operating profits grew from a loss of $286M (2014) to $1,858M (TTM 2023).

Salesforce has laid off about 700 workers recently. Will this translate to improved profits in the coming months?

For the coming earnings, the forecast of its EPS and Revenue are $2.27 and $9.22B respectively. Can Salesforce reach a new high following its earnings?

Market Outlook - 26 Feb 2024

Technical observations of the S&P500 1D chart:

• The MACD indicator is showing an uptrend having completed another top crossover.

• Chaikin Money Flow advises an uptrend.

• 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 are moving in a fanned-out pattern, thus implying an uptrend.

• I have replaced Stochastic with CMF as I wish to incorporate consideration of volume. Stochastic and MACD are similar with Stochastic being “more active” and more capable for “false” signals.

From the 1D technical indicators above, there are a total of 22 (Buy), 0 (Sell) and 0 (Neutral). Investing recommends the “STRONG BUY” recommendation based on the technical indicators above (1D chart for S&P500).

From the data above, the market should see an uptrend in the coming days. Let us keep an eye out for various macro data, earnings, and various Black Swan events.

News and my thoughts from the last week (26 Feb 2024) - BYD, CRE, Bond,

• BYD reportedly to launch lower-priced NEVs on Feb 20 to further offensive against ICE models

• Trump-loving truckers refusing to drive to NYC after his $355 million fraud ruling

• New York governor seeks to quell business owners’ fears after Trump ruling - The Guardian

• Wall Street giants like JPMorgan, State Street, and Pimco recently exited Climate Action 100+ - Business Insider

• Timing the market and time in the market. If we are waiting for a certain price before taking action, is it not considered timing the market?

• Bad commercial real estate loans have overtaken loss reserves at the biggest US banks after a sharp increase in late payments linked to offices, shopping centres and other properties. - FT

• The US corporate-bond market is expected to see more than $50 billion of new debt sales this week from investment-grade companies, spurred by the continued pickup in mergers and acquisitions. - Yahoo Finance

• About 40% of small business owners think 2024 will be a “make or break” year for their business. After several years of dealing with the pandemic, rising inflation & a tight job market, some small businesses — 32% of respondents — aren't sure they'll make it through 2024. - Yahoo Finance

• I’ve heard from multiple CEOs with large transaction portfolios connected to the trucking spot market about how abysmal February has been. One described it as the beginning of the end of the “great flush out” for small carriers. “January was a headfake” said another. - Craig Fuller (Freight Alley)

• Washington has warned Beijing that the US and its allies will take action if China tries to ease its industrial overcapacity problem by dumping goods on international markets, according to American officials - FT

• The United States is out of money for Ukraine, unable to send the ammunition and missiles that the government in Kyiv needs to fend off Russia’s invasion. - AP News

• Shenzhen-based automaker stated that “79,800 yuan (11,000 USD) for BYD makes fuel cars panicking”, referring to the launch of the 2024 annual updates of two models: BYD Qin Plus Honor Edition and Destroyer 05 Honor Edition - Car News China

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NVIDIA Q4 FY24. “Accelerated computing and generative AI have hit the tipping point.” ~ Jensen Huang. • Revenue +22% Q/Q to $22.1B ($1.6B beat). • Gross margin 76% (+2pp Q/Q). • Operating margin 62% (+4pp Q/Q). • Non-GAAP EPS $5.16 ($0.52 beat). Q1 FY25 guidance: • Revenue ~$24.0B ($2.0B beat). - Economy App

$277b increase in market cap in one day is bigger than the entire 2023 GDP of New Zealand over one year. Yes. It is crazy. Yes. There is much money in the world.

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This "helps" the shipping industry indirectly.

• Outage reported by AT&T, T-Mobile and Verizon. what happened? Is this coordinated? - CNBC

• Is there a lack of demand for US Treasury auction?

• Just talked to a customer from Israel, the whole supply chain is in very big trouble. The lead time and costs from Asia to Israel have doubled. The alternative route UAE-RSA-Jordan-Israel is a complete fake story, there is no existing infrastructure and still too slow and too costly. The real game changer in the region, the one that is really hurting Israel and the collective West is Ansar'Allah and US/Israel have no answer to it. - Angelo Guiliano

• If data is key in AI, isn't this the moat too? Wouldn't Alphabet $GOOG (Alphabet) be positioned to benefit strongly?

• Huawei competes in supplying chips designed for artificial intelligence such as graphics processing units (GPUs), central processing units (CPUs) and networking chips. Huawei is designing its own hardware and software to improve AI computing. - Reuters

• The commercial real estate meltdown in San Francisco continues The former Twitter HQ located in SoMa is hitting the market at huge 'discount' The 187k sq ft building is expected to be offered at ~$50M, or $275 per sq ft What did the seller pay for the building in 2013? $110M, or $586 a sq ft, in 2013 and spent tens of millions in repairs/renovations The building reportedly has a vacancy of 67% - Triple Net Investor

• Ukraine is running out of soldiers and ammunition to resist their Russian invaders. People form the country. Without people, there is no country. - Reuters

• Do you realize that Tesla is one of the biggest innovators of AI hardware and real-life AI applications? Tesla is more than EV maker.

• Huawei accounted for 30.8 percent of the country’s tablet shipments in the three months ended Dec. 31, up 9.6 percentage points from a year ago, while Apple’s share tumbled 6.7 percentage points to 30.5 percent

• Total bankruptcy filings - encompassing commercial and personal insolvencies - rose to 445,186 last year from 378,390 in 2022, according to data from bankruptcy data provider Epiq AACER. - Reuters

• There is a gap between innovation and monetization. The ROI remains a key consideration. Same for AI and other new developments.

My investing muse - Government, Layoffs & Recession

Layoff news continues into the week

• Google has initiated significant layoffs across its various teams as part of Google’s broader effort to streamline operations and align resources with its most significant product priorities. The total number is in the thousands. - Yahoo Finance

• Social media giant TikTok has announced it will be laying off Irish staff as part of global restructuring plans. A few hundred Irish-based roles will be impacted but TikTok has not confirmed how many jobs will be lost. - Irish Examiner

• Rivian is laying off 10% of its salaried workforce in a bid to cut costs in an increasingly tough market for electric vehicles. - Techcrunch

• Vice plans to lay off hundreds of employees next week and stop publishing on Vice.com, according to a memo sent to staffers by Bruce Dixon, the Vice Media chief.

The US is struggling in various functions like education, police, healthcare, firefighters, and infrastructure (including strategic chip production in USA). Here are some of the recent news:

• Nearly 9 in 10 public school districts struggled to hire teachers heading into the school year, and many potential hires were deterred by low salaries. - USA Today

• Economic Policy Institute (EPI) - the teacher shortage could reach 200,000 by 2025, up from 110,000 in 2018. This shortage of workers is due to pay, working conditions, lack of support, lack of autonomy, and the changing curriculum. - FEE Org

• Agencies around the U.S. have experienced police shortages in recent years that many in law enforcement blame on a morale hit stemming from the coronavirus pandemic and criticism of police.

• Volunteer firefighters do the work that paid, professional – "career" – firefighters do. They are essential to their US communities. Yet many of these volunteer departments, especially across rural and suburban areas, are struggling. - BBC

• Our 617,000 bridges include not just those spanning mighty rivers but also every highway overpass and minor link across a stream—and close to one-tenth of them are significantly compromised. - National Geographic

• Many of the country's roads, bridges, airports, dams, levees & water systems are aging and in poor condition. They're in need of a major federal investment to keep from getting worse and to withstand the harsh effects of a changing climate. - NPR

• The report concludes that the CHIPS Act isn't enough to improve fab construction regarding cost and time, and suggests reform at all levels of government is necessary to get the U.S. on par with China, Europe, and Taiwan. - Toms Hardware

• Loans outstanding as of Jan. 17 stood at $161.5 billion, according to Fed data, and the average weekly increase over the last six weeks of nearly $5.6 billion is the highest since early May. - Reuters

• 18 healthcare companies had assets of $7bn against liabilities of $8.3bn. Healthcare was not the only sector with a high number of bankruptcies in 2023 — others included computer software, chemicals and agriculture. - FT

CBO signals a potential reversal from a US recession. However, recession threatens several countries.

• The US LEI did not signal recession in January as 6 out of 10 components contributed positively - CBO. The Conference Board on Tuesday abandoned a long-running call for the U.S. economy to fall into recession, although its Leading Economic Index still sees economic output flatlining in the months ahead.

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UK, Japan only tip of iceberg, 18 other countries at risk of recession - India Today

Conclusion

With the S&P500 hitting an all-time high, it does not escape our eyes the news of layoffs, bankruptcy, and staff shortages. We are in a K-shaped economy where some sectors (like the Magnificent except for Tesla) are leading the charge while many other sectors are not doing as well.

This means that as the S&P500 looks bound to break 5100 and go higher, there are also sectors of weaknesses in the S&P500. In the previous articles, we have also established the fact that S&P500 no longer represents the US economy but a group of top USA MNCs who have much international exposure.

The PCE data could bring volatility and this should be something we should look out for. I recommend caution and hedging.

@TigerStars

$Salesforce.com(CRM)$

$S&P 500(.SPX)$