Happy Labor Day
In August 2023, US private nonfarm payrolls reported an average hourly earnings increase of 8 cents to $33.82, a 0.2% rise. This growth is less than the previous month's 0.4% and below the expected 0.3% market forecast. It's the smallest growth since February 2022.
The earnings for private-sector roles also saw a 0.2% rise. Over the past year, there has been a 4.3% increase in average hourly earnings, just below the anticipated 4.4%. In terms of employment, the US added 187,000 jobs in August, exceeding the expected 170,000 but marking the third month in a row with numbers under 200,000.
This trend suggests a softening labor market, influenced by the Federal Reserve's interest rate hikes. Employment saw growth in sectors like health care, leisure and hospitality, social assistance, and construction. However, the transportation and warehousing sector lost 34,000 jobs. The entertainment industry also witnessed a decline, attributed to striking Hollywood actors.
There's No Place Like the U.S.
China was recently labeled uninvestable by the U.S. Commerce Secretary given its inability to allow businesses to flourish without harmful government intervention. Germany is in recession. And most of Europe is being crushed by 5% inflation, leaving little room for companies to profit. So where do investors put their money?
“US stocks are the place to be,” said Max Kettner, chief multi-asset strategist at HSBC Holdings Plc, who recommends using any S&P 500 pullback to buy.
“It’s the economic resilience, the tailwinds from the weaker dollar, still fairly downbeat expectations on earnings. All of that plays in favor of the US,” Kettner added.
Last Week's Recap
Over the week, the Dow increased by 0.6%, the S&P 500 by 1.9%, and the Nasdaq by 2.6%.
The US saw an addition of 187K jobs, surpassing the anticipated 170K, but this comes after a 110K downward adjustment of the previous two months' figures.
The unemployment rate increased to 3.8%, the highest since February 2022, and more than the 3.5% prediction.
WTI crude futures surpassed $85 per barrel on Friday, marking the highest level since November 2022. The rise, amounting to a 6.5% weekly gain, is attributed to dwindling supplies and speculation that OPEC+ will maintain output cuts for the year. A fire at a Marathon Oil Refinery is also shrinking supply.
Market predictions suggest Saudi Arabia will prolong its 1 million barrels per day production cut into October, while Russia might reduce exports next month. Recent US data highlighted a significant 10.6 million barrel drop in crude inventories last week, outdoing the anticipated 3.3 million barrel reduction. Additionally, production in Iran escalated to 3.1 million bpd in August, a record since 2018. Saudi Arabia's oil exports to the US have dwindled to a six-year low.
- Americans are hitting the casinos at an all time record level, per BI.
- Wynn Resorts ($WYNN): 5.58% (1W)
Last Week's Top Events
Lululemon stock rose by +6% on Friday after the company announced better-than-expected earnings from the fiscal second quarter. Earnings per share were $2.68, surpassing the analysts' projection of $2.54. The stock was lifted by higher than expected growth (67%) in China - suggesting there's a good fit in an enormous market.
Chips and Dips
Broadcom's shares declined by -5.5% Friday due to its fiscal fourth-quarter revenue projection falling short of Wall Street predictions, largely because of growing competition in the networking chip sector. Nonetheless, the company did report earnings and revenue for the recent quarter that exceeded expectations.
Dell Gets AI Boost
Dell Technologies saw a +21.3% stock increase on Friday after surpassing analysts' predictions for the second quarter. The company announced adjusted earnings per share of $1.74 with revenue of $22.93 billion, citing higher than expected demand from AI. Dell has a partnership with Nvidia to make servers using Nvidia chips for data centers.
Level 2 members were notified of the event at two hours before market open on Sept 1st with a price target of $70, which it reached the same day.
CRWD Strikes Again
CRWD rose by +9.3% Thursday after outperforming analysts' second-quarter forecasts. Moreover, the company provided optimistic earnings and revenue projections for both the third quarter and the entire year. The company grew revenue by 36% year over year. The company finally has positive cash flow and the 56% share price gains for the year are reflecting that.
Dollar General Plunges
Dollar General's stock fell by 12.2% on Thursday after its second-quarter earnings per share of $2.13 came in below consensus estimate of $2.47. Both the quarterly and annual guidance figures were also below expectations, citing that lower income shoppers were feeling the economic pinch.
Palantir Technologies' stock fell by -8.3% Thursday after Morgan Stanley downgraded it, citing challenges in monetizing artificial intelligence that could further decrease its share price by over 40%. Morgan Stanley assigned Palantir an underweight rating.
Level 2 members received alerts that PLTR was a buy in February and a sell June 1st this year. Options traders saw a 3-month return of +89%.
ABNB and Blackstone Added to S&P 500
AirBNB ($ABNB) and Blackstone ($BX) will be added to the S&P500 index ($SPY). Shares rose on the event.
CASE STUDY: Hershey's -28%
Macroeconomic events matter and can affect even the bluest of blue chip stocks. Take Hershey's for example, the chocolate provider that until April was up +24% in 2023 and is now down -4% for the year.
In a word: disease. Seventy percent of the world's cocoa supply comes from West Africa where a plant disease called black pod disease has been spreading rapidly due to extremely wet weather. The butterfly effect has raised the price of cocoa which will likely decrease profits of chocolate makers like Hershey's.
Following April, the price of HSY declined -28% as the price of HSY's most important ingredient, cocoa, has risen by 48% this year.
Why are we talking about plants and sugar?
Because it's important to recognize that events impact the trajectory of stocks, and the trajectory of even the most bullish of company events. Share price movements are not mysterious and they don't only go up - they are impacted by events and if you're not tracking the events, it's hard to capitalize on the massive price swings.
- Market Closed for Labor Day
- America's Car-Mart (CRMT)
- Dave & Busters (PLAY)
- C3.ai (AI)
- GameStop (GME)
- Phototronics (PLAB)
- DocuSign (DOCU)
- Zumiez (ZUMZ)
- Smith & Wesson Brands (SWBI)
- Kroger (KR)
This is not financial advice. All information represent opinions only for informational purposes.
The LevelFields Team