Bookends: Monday 02/19/24
Looking Ahead at the Week of Feb. 19th thru Feb. 23rd
Start your trading week here with Ledger Island Bookend Monday where we look at the stories likely to drive the markets, give you our opinions, and preview what to expect from us in the coming days.
“Be Americans. Let there be no sectionalism, no North, South, East or West. You are all dependent on one another and should be one in union. In one word, be a nation. Be Americans, and be true to yourselves.” -George Washington
Phil’s Outlook:
Happy Monday Everyone!
The S&P 500 finished the week down for the second time in the last sixteen, managing barely to protect the precious 5000 mark. That record will be under much pressure this week as the belle of the ball, Nvida NVDA 0.00%↑ , reports earnings on Wednesday. The company’s astronomical rise over the last year has been driven, in part, by the massive AI craze. How the market responds to the earnings report will tell me how much of NVDA’s price is speculative optimism about the future of AI. Other prominent names like Microsoft MSFT 0.00%↑ and Alphabet GOOG 0.00%↑ joined the rest of the tech sector by ending the week in the red, but the sector is still keeping pace with the S&P 500, up 5% for the year.
We have plenty of Fed presidents lined up to speak this week, so presumptively hawkish news about inflation and the seemingly inevitable delay in rate cuts will continue to test the market’s resolve. After a week in which several European and Asian markets dealt with technical recessions and strong economic headwinds, the story of this week will again be what it has been all year for me: the duel between optimism about the state of the US economy and pessimism about the timing of rate cuts.
My eyes and my research this week will be on foreign markets. I’m naturally more cautious about investing in foreign markets, but significant economic nations lag while the US economy surges. That, to me, is a perfect indicator to start exploring investment opportunities. Buy the dip, as the adage says. The Chinese, Japanese, German, and British economies will all bounce back; identifying the companies that will fuel that bounce back could provide the opportunity to make some long-term gains.
Finally, I would encourage everyone to pick some major companies they like and look up that company’s 13F filing from last week. A 13F tells us when a company is investing in another company. Take NVDA 0.00%↑ , which has investments in the shares of five other companies. It’s not a perfect research tool, but if a company you like invests in a stock, it might be worth a closer look.
Clint’s Outlook:
On this Presidents Day pause in the action Monday, I am gearing up for what I feel will be a very telling week in the market. There has been a lot of talk of layoffs, particularly in the Tech sector, and with an Initial Jobless Claim report due out Thursday, we may get a better insight into the heat of the economy. So far, those who have lost their job recently haven't trickled down to initial claims, meaning the demand for employment is still greater than or equal to the supply. If we start to see higher-than-expected claims (while unlikely), this might be the beginning of a trend that could pave the way for the ever-elusive rate cuts so many investors and companies are waiting on. Simply put, if "Column A" (layoffs) starts to impact "Column B" (initial claims), then we might have a clearer indication of a slowdown.
Another report I am going to be closely watching is Existing Home Sales, also due Thursday. The previous report from December showed a -1.0% decrease year over year. With many homeowners locked into excellent mortgage rates during the Fed's COVID-19 easing cycle, selling would then leave the homeowners in a situation to have to buy now in a higher interest rate market. However, those same owners who have been in their home for 18 years or more may be inclined to use their home's equity ($190K in 2006 to approx. $340K now on a single dwelling home) for a foothold in a comparable interest rate (2006 avg. mortgage 6.41% versus today's 6.66%). Add in a perspective seller's changed financial situation (i.e., grown children, increased salary), a better credit rating, and the hope of potential refinancing in 2025-26 (something most of us who bought in 2020-21 will probably never do) we may see another indicator of inflation not being as sticky on the housing front in the coming months. Another indicator may be the Home Depot HD 0.00%↑ and Lowe's LOW 0.00%↑ earning reports we get in the coming weeks (HD 02/20/24 and LOW 02/27/24) of whether people are "kicking" or "sticking."
That leads me to the retail stretch of earnings starting this week, among others. On Tuesday, Walmart WMT 0.00%↑ will be reporting, and as a typical inflation fighter, we will get a more in-practice view on margins and sales. There has also been talk of WMT buying Vizio VZIO 0.00%↑ , its top TV brand customers seem to prefer. We will be looking at VZIO this week to see if it is a worthwhile investment or if the news has already been bought out of it, as well as how it relates to Roku ROKU 0.00%↑ going forward.
Finally, I am on the edge of my seat for Nvidia NVDA 0.00%↑ earnings report out Wednesday, post-market. Being the monster sled dog for the S&P, the call will be a fulcrum for the rest of the market and AI enthusiasm. As Phil alluded to above, recent SEC 13Fs have shown NVDA has had some interest in other lesser-known AI companies (BigBear.ai BBAI 0.00%↑ , SoundHound AI SOUN 0.00%↑ , and GuradForce AI GFAI 0.00%↑ , to mention just a few) that have intrigued me. In the coming weeks, I plan to take a closer look at each of them and put an investment strategy together before the Nvidia GTC conference on March 18-21, 2024, which in the past has provided a boost for many AI companies.
Reports of Note:
Tuesday
U.S. Leading Economic Indicators
Wednesday
Minutes of Fed's January FOMC meeting
Thursday
Initial jobless claims
S&P Flash U.S. services PMI
S&P Flash U.S. Manufacturing PMI
Existing Home Sales
Coming this week…
We will be looking at TV maker Vizio VZIO 0.00%↑ as the talk on the street is it is being bought by Walmart WMT 0.00%↑ .
We will also be posting updates of our Ledger Island Watchlist stocks: Aurora Innovation Inc. AUR 0.00%↑ , Genius Sports Ltd GENI 0.00%↑ , SoFi Technologies Inc. SOFI 0.00%↑ , Ensysce Biosciences Inc. ENSC 0.00%↑ , Archer Aviation ACHR 0.00%↑ , Akebia Therapeutics Inc. AKBA 0.00%↑ , Joby Aviation Inc. JOBY 0.00%↑ , Nio Inc. $NIO, and Warner Bros Discovery Inc. WBD 0.00%↑ .
Thanks for reading! We'd love to hear from you with any questions or comments you have to share in the discussion below or on whatever platform you found us on. We tend to “chat around.”
You can get all our new posts and updates by subscribing for FREE today and check out the Ledger Island Watchlist for the complete list and latest looks on all the companies we are tracking.
