Daily Synopsis of New York Market Close

Date Issued – 20th February 2024

Courtesy of the Research Department at Balfour Capital Group

On Tuesday, Walmart shares reached a record high following the announcement of its annual results. As analyzed by Jinjoo Lee, Walmart's profit margins have seen a steady decline as consumer preferences shift towards essential items over discretionary ones, despite this, the retailer witnessed a 5.3% increase in earnings per share for the fiscal fourth quarter, surpassing the anticipated 4.1% decrease.

Megha Mandavia highlights India's strategic approach to navigating fluctuating energy prices, capitalizing on market disruptions and sanctions to procure oil, natural gas, and coal.

The investment landscape saw a downturn on Tuesday, with notable movements in the stock market. Lithium mining companies, including Albemarle, experienced a dip despite the growing demand for EV batteries. Nvidia, a favorite among retail investors, saw a 4.35% decline in its stock value, shedding about $75 billion in market value ahead of its earnings report.

Overall, major indexes like the Nasdaq Composite and the Dow Jones Industrial Average faced declines, with the Nasdaq dropping by 0.92% and the Dow by a slight 0.17%. The Russell 2000 Index, known for its volatility, fell by 1.53%, marking a turbulent day in the stock market.

Have Lithium Stocks Reached Their Nadir?

Lithium stocks offer a potential investment opportunity as prices return to mid-2021 levels. With the absence of a lithium futures market, investors often turn to companies like Albemarle or Australian miners. Despite Albemarle's stock decline, the low lithium prices challenge the viability of current mining operations and future investments, suggesting a future market shortage and potential price rally.

The lithium market's cyclic nature has seen previous booms followed by corrections, with the current downturn exacerbated by slow EV demand and a complex supply chain. However, EV sales, especially in China, continue to grow, maintaining long-term lithium demand.

For investors, focusing on established lithium suppliers with strong financials and low operational costs, like Pilbara Minerals, offers a more secure investment avenue. Pilbara stands out with minimal debt and significant cash reserves, despite the overall market volatility. In contrast, Albemarle faces debt challenges but has avoided greater risks by not pursuing costly acquisitions. As the lithium market's future remains uncertain, investing in companies with solid foundations may provide a safer route to leveraging the expected increase in lithium demand.

The $2 Trillion Enigma: Nvidia's Enduring Market Valor

Nvidia, now approaching a $1.8 trillion valuation, has swiftly ascended the ranks to become the third most valuable U.S. company, overtaking tech giants like Amazon and Alphabet. This surge is partly fueled by its critical role in powering AI advancements, with expected fiscal year revenues nearing $59 billion—a record growth pace not seen among its peers, positioning it as the world's second-largest chipmaker by revenue.

Despite challenges, including the volatile tech market and competition in the AI chip sector, Nvidia's forward momentum is underpinned by robust demand for its products and strategic product launches like the anticipated B100 system. As it prepares for its upcoming earnings report and the GTC conference, the industry watches closely, with analysts predicting significant earnings growth and a market value potentially surpassing $2 trillion, underscoring Nvidia's pivotal role in the tech landscape and AI development.

SoftBank's $118 Billion Conundrum with Arm Holdings

SoftBank's 90% stake in Arm positions it to benefit from the AI surge, but liquidating this asset poses challenges due to Arm's limited public float and high market volatility. Arm's stock has risen 67%, enhancing SoftBank's valuation, yet selling a significant portion could depress Arm's stock price.?

With SoftBank's stake in Arm now exceeding its own market value, it mirrors past dilemmas with Alibaba. Options for monetization include leveraging Arm shares for loans or using derivatives to manage sales discreetly. SoftBank navigates a delicate balance between capitalizing on Arm's AI-driven growth and strategizing an exit without triggering a market downturn, all while the AI rally's longevity is uncertain.

Barclays

A challenging environment for European investment banking, saw its shares rise by 6% despite a 6% drop in pretax earnings for 2023, buoyed by its commitment to return up to ￡10 billion to shareholders through dividends and buybacks between 2024-2026. This strategic move comes as Barclays aims to leverage its significant investment banking division, which contributed 44% of its revenue, positioning it uniquely among European banks.

Despite the sector's general unpopularity and regulatory challenges in Europe, CEO C. S. Venkatakrishnan remains committed to maintaining a robust investment bank to compete with U.S. firms. Barclays's strategy includes reducing its investment bank's risk-weighted assets and enhancing its wealth management sector to diversify income sources. However, overcoming the bank's recent missteps and regulatory hurdles will be crucial for Barclays to capitalize on its ambitious plans and reassure investors of its underlying profitability.

[Disclaimer: This newsletter provides financial insights & developments for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.]

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