Market Recap (S&P -1.08%)

By: Kevin Hanson

For the Week of (4/1-4/5), 2024

Who Can Solve the Market-Mystery

This week the market displayed clear bull nature as Powell’s speech revealed that he is still unsure about how many cuts will be plausible this year. On top of this, similar to March, Core PCE, Job, and unemployment data all went opposite directions like a murder covering up his crime perfectly. As these data points continue to confuse both economists and investors, cuts remain on hold until Powell is able to reach a solution as to where the markets are going.?

As all the S&P’s sectors took a hit this week many are worried about the markets starting from its strong performance in March, its best since 2019. In general, while many are fixated on rate cuts the deeper story lies in the direction of the market and its dynamics as it has defied normalcy so far this year. Next week eyes should be on the economic indicators and the market direction, if it continues to fall changes could actually be made or at least some type of road could be clearer as to where the market lies in the business cycle and its future predictability.?

Market Activity

Mag 7 Now the Fab 4?

Since the start of 2024, the market dynamics have changed severely as the damage made to Apple, Tesla, and Google bled into the year and has continued. In general, all of these companies have a similar story being either late or slow to the market trends or in a struggling industry. As the year continues Tesla continues to be at odds with BYD while Apple and Google continue to receive strong antitrust action with a make-or-break AI tech conference shortly. While Tesla’s story differs from Apple and Google I believe the company has a bright future and has become the American scapegoat as the company has lost its advantage in the struggling EV industry. On the other hand, with an AI conference on their horizons, I believe that Apple and Google's future will be made at the conference, desperately hoping to regain customer and investors' confidence.

On another note, many have discussed the future of the Mag 7 but have missed the strong gains that have been found in a broader basket of stocks that have contributed to the market's performance. In the small-cap world, two stocks SuperMicro (up 257%) and MicroStrategy (up 154%) have both outperformed the market significantly adding to the list of broader companies that continue to alter market dynamics and open a new chapter to the markets.?

Tesla’s Struggles & the Broader EV Market?

This week was huge for the struggling EV markets as the news announced several changes made by companies to adapt to the market dynamics as well as orders for new models. The biggest headline that continues to add to the US-China tension in the EV market was Tesla & BYD’s new model pre-orders and orders. Tesla announced it delivered 386,810 vehicles globally in the first three months of 2024, marking its lowest quarterly performance since the third quarter of 2022. In comparison, BYD announced a surprising surge in sales as well as numerous new models expected to launch globally this year. Overall, these two giants in the EV market both diverged in direction as the lackluster news sent Tesla’s stock even lower and BYD’s pushed higher on the back of the news.?

Beyond the major market news, numerous companies in the EV industry announced expected changes based on the struggling market environment. Companies included Ford Motor who announced a delay in the production of a new all-electric three-row SUV. Similarly, Fisker announced the halt of all financial and operational guidance as it evaluates strategic alternatives. The only company going against the grain was Xiaomi which announced a new EV, priced $4,000 less than Tesla's Model 3, which garnered over 50,000 orders within 27 minutes of sales opening, indicating strong demand and intensifying competition in the market. Overall, the market will continue to struggle as the infrastructure hasn’t been able to keep up with the market dynamics.?

China Dependency Deflected By Mexico Experiment?

As the AI and EV industry continues to be fueled and concentrated in China many companies and the government in general have invested heavily into deflecting their dependency on their foreign supplier. This week in an attempt to shift the market's supplier dynamics Major U.S. companies including Amazon, Google, Microsoft, and Nvidia asked Taiwanese manufacturing partners to increase production of AI-related hardware in Mexico. Foxconn, a key player in electronics manufacturing, had invested around $27 million to acquire land in Mexico's Jalisco state, potentially for expanding its AI server production. This marks a strong move by US companies to change the market's saturation into news areas closer to the US to gain an edge on the Chinese suppliers.?

AI Liabilities & The Broader Market

Recently, as the AI markets have rapidly progressed, legislation limiting the potential liabilities of AI actions has had a hard time keeping up. Realistically, the legislation taken against AI in a legitimate law has been the DMA created by the EU aimed more at antitrust action against tech giants. Beyond this AI companies may have another liability added to the table as news announced companies that use AI for content production, decision-making, or influencing people's lives may face legal liabilities for the actions of their AI systems. In the past there was a law protecting tech companies from these liabilities but, Congress has shown a recent inclination to amend existing legal protections, such as Section 230, which shields tech companies from certain liabilities. There's a push to impose conditions for companies to enjoy Section 230 protections, particularly concerning AI-related activities. Overall, this could be a major liability for AI companies that thrive on user activity.?

Beyond legislative Major U.S. companies including Amazon, Google, Microsoft, and Nvidia asked Taiwanese manufacturing partners to increase production of AI-related hardware in Mexico to shift their dependency on the region. On top of this Nvidia moving ahead of the pack announced plans to establish a $200 million AI center in Indonesia as part of its expansion in Southeast Asia. This move aims to enhance local telecom infrastructure and develop digital talent, reflecting the company's commitment to AI innovation globally. Finally, many AI companies have found the internet's limits for its products working on ways to implement new information into its products beyond the internet.?

M&A Report

Spotify & UMG Partnership

Before the Tik Tok ban surfaced in the news many users were disappointed by UMG’s decision to ban its artist from using their music on the app, cutting off monetization revenues for numerous artists and sounds for creators to use. In newer news the company announced an expansion of their partnership with Spotify This expansion involved offering new promotional features for UMG artists on Spotify. Universal Music Group is one of the largest music companies globally, and Spotify is one of the leading music streaming platforms. Therefore, this partnership likely aimed to enhance the visibility and promotion of UMG's artists on Spotify's platform, potentially leading to increased streams and exposure for UMG's music catalog.

Paramount & Skydance Merger?

News from last week has continued to expand as Apollo’s merger of Paramount enters exclusive talks With Skydance, Spurning a $26 Billion Offer From Apollo: The news indicates that Paramount has opted to engage in exclusive merger discussions with Skydance, rejecting a substantial $26 billion offer from Apollo Global Management. This decision suggests Paramount's strategic direction and preference for a merger with Skydance over Apollo's proposal.?

Costco & Sesame Partnership

As many wholesalers have continued to provide a broad diversification of products to its customers new legislation and drugs have been approved for sale. Fostered from these changes Costco has partnered with Sesame to offer its members discounted weight-loss programs. This partnership includes providing access to prescription drugs like Ozempic and Wegovy. Costco's move to offer weight-loss programs aligns with its commitment to providing value-added services to its members beyond traditional retail offerings.

Economics/Global

Core PCE?

Following the drop from last month inflation and rates continue to hold sticky as the inflation gauge rose to 2.5% in February slightly up from the previous month. As this change continues to stay small inflationary pressures may persist longer than previously forecasted, posing challenges for central bankers and investors. On top of this, the inflation mystery continues to prevail as economic indicators continue to diverge without much effect on the actual inflation statistic. Following the story of last month and sending the markets into turmoil, these confusing metrics and sticky inflation prompted Powell to fall back to their original theme that the three cuts it expects this year won't be imminent until more information is found. Overall, changes will not be made until inflation and its indicators follow the same directions.?

Job Report & The Deeper Story?

This week the job report blew forecasters out of the water displaying that in March, employers added 303,000 jobs, marking the 39th consecutive month of job growth. The unemployment rate fell to 3.8%, down from 3.9%. However, following the theme of the rest of the indicators, this huge spike in job additions diverges with the unemployment rate's small change. In general many attributed this disconnect to the large immigration number that continues to impact the jobs being added and the unemployment rate.?

Baltimore Bridge Rebuild

After the devastating news of the casualties of the Baltimore Bridge collapse cutting off a vital port for the US economy the debris has slowly been taken away. While this cleanup continues many are still arguing and speculating who will pay off the bridge's debt as well as who will be responsible for the incident. However, on the positive side of things, this week marked the first boat to pass through the once-cleared waterway displaying the cleanup crews' resilience in reopening the port passage.?

Powell’s Still Needs More Info

Following record-breaking gains in the previous quarter the S&P took a nose dive to start of April on the back of Powell’s “broken promises” to most investors. This was due to the most recent conference Powell had explaining that despite his remarks about 3 potential cuts on the year he will still need more information to make decisions regarding rates. However, the timing of these cuts still seems harder than it is because of the unpredictability of the markets and their indicators in recent weeks as everything has a mind of its own.?

Tik Tok Ban Rework

Some of the biggest news in March related to the TikTok ban as it slowly pushes its way toward President Biden's desk. In short, the company's fate looms like it has already been chosen as a forced buyout is not possible and the US plans on banning it in their markets. This week the news continues as early clues emerged on the Senate's plans for TikTok. The Senate was reportedly considering reworking the recently passed House proposal concerning TikTok, with ideas circulating on Capitol Hill. However, some lawmakers expressed concerns that overly broad changes could delay or derail the effort. Overall, as the story unfolds many still are concerned about the app's future and the growing US-China tensions.

Taiwan Earthquake Tests Semiconductor Creation

This week featured two earthquakes, one hitting the Metropolitan area and another hitting a key semiconductor manufacturer in Taiwan. Taiwan Semiconductor Manufacturing Company, one of the world's largest semiconductor manufacturers, temporarily evacuated some of its locations and suspended work at certain plants following the earthquake. This disruption raised concerns about the readiness of Taiwan's semiconductor manufacturing hub, which plays a crucial role in global technology supply chains and could be a supply shock for the industry?

EPA Puts Pressure on Emission Creators

This week the struggling EV market received a strong tailwind as The EPA implemented its toughest standards yet for greenhouse gas emissions from heavy-duty vehicles. This move aims to significantly reduce emissions and improve air quality. Heavy-duty vehicles, such as trucks and buses, are significant contributors to greenhouse gas emissions and air pollution. These new standards mark continued efforts by the EPA to shut out emission creators and transfer the world to electric power.?

Start-ups & IPO’s

?Xiaomi EV Preorders?

As many companies within the EV industry have decided to pause their operation as the market continues to struggle, Xiaomi has decided to go against the grain entering the EV industry amidst the market dynamics. Before this week it was announced that buyers of Xiaomi's newly launched EV face a 6-month delivery wait. The company received 88,898 preorders for the car just one day after opening orders. However, this week Xiaomi's shares surged 16% after the company launched its first EV, priced $4,000 less than Tesla's Model 3. The EV received over 50,000 orders within 27 minutes of sales opening, intensifying competition in China's electric car market as numerous companies fight over market share.?

Outlook

Could April be a Turning Point??

Beginning my market recap reports in March the markets seemed to be moving in a questionable bullish nature. I used the phrase “dice-rolling market” to nickname this type of market behavior as all the indicators pushed towards inflation yet the markets stood strong. However, this week the opposite has occurred, rather than indicators following the same path they all move in different directions suggesting the market could see a bullish or bearish future. Yet, the market took a hit at the beginning of April following Powell’s false hope speech falling back to his original theme of needing more information to make decisions.?

In my opinion and overall outlook for equities this fall could be temporary and the market may take a jump next week. However, if indicators and the markets begin to agree for April there's a possibility that we will see cuts or a new period of the business cycle very soon. In closing, I plan to keep my eyes fixed on the sectors and the market's behavior and their connection to the economic indicators that continue to confuse investors and economists.?

Other News?

• Amazon: Amazon made cuts across its AWS (Amazon Web Services) and physical stores technology team, impacting hundreds of employees. Despite AWS contributing 14% of Amazon's revenue, the company aims to optimize resources for continued growth in core business areas, including AI.
• Apple: Apple is laying off 614 workers in California. These job cuts, effective May 27, affect various offices in Santa Clara. This announcement marks Apple's first significant post-pandemic job cuts. Job cuts in major companies like Apple can have implications for the local economy and reflect changes in the company's strategy or financial performance.

Works Cited

Stock Analysis: Market Bullets Email Newsletter

Wall Street Journal: Various Email Newsletters

Pictures:?

Shopplaywood. “Detective Wall With Pins and Evidence, Crime Investigation....” iStock, 2 Sept. 2019, www.istockphoto.com/vector/detective-board-with-pins-and-evidence-crime-investigation-gm1171577912-324630506.

Bodegon-Hikino, Kara. “Universal Music Group and Spotify Announce Collaboration to Amplify Music Discovery and Social Interactions for Artists and Fans.” Universal Music Group and Spotify Announce Collaboration to Amplify Music Discovery and Social Interactions for Artists and Fans | Bandwagon | Music Media Championing and Spotlighting Music in Asia., 2 Apr. 2024, www.bandwagon.asia/articles/universal-music-group-umg-spotify-announce-collaboration-to-amplify-music-discovery-social-interactions-for-artists-fans.

Merano, Maria. “Xiaomi SU7 Faces Its Next Biggest Hurdles After Record Pre-orders.” TESLARATI, 2 Apr. 2024, www.teslarati.com/xiaomi-su7-production-delivery-delay.

Swedroe, Larry. “Momentum Turning Points Can Be Costly. Here’s How Investors Can Prepare.” Morningstar, Inc., 18 Dec. 2023, www.morningstar.com/markets/achilles-heel-momentum-strategies.