WEEKLY | Overwhelming Shareholder Demand

Your weekly summary with the most important news for your investments.
Alvaro Pereyra - CEO of Northbound
Weekly

Your weekly summary with the most important news for your investments, in this edition:

  • Indices at record highs

  • Employment data 

  • Super Tuesday on the political front

For several weeks now, the gradual rotation from fixed income to equities has been propagating in various sector segments of the stock market, allowing last Friday's Dow index to close very close to its all-time high (39,087 points) with the S&P 500 and Nasdaq both closing at their all-time highs last Friday at 5,137 points and 16,274 points, respectively. In doing so, the three U.S. equity indices accumulated extraordinary returns of +3.7%, +7.7% and +8.4%, respectively. However, the rally has spread to other markets including Germany, Chile, India and Japan whose stock indexes have also reached all-time highs, thus ratifying the unstoppable demand for global equities. It is evident that the lower inflation projected as the world economy slows down makes it likely that interest rates in developed countries will start to fall in the second half of the year, unless the price of oil continues to rise, having reached US$80 a barrel for WTI in the last few hours. For now, in this environment, the 10-year sovereign rate continues to hover around 4.20% while short-term rates from 1 to 6 months continue to hover between 5.5% and 5.3%, respectively, with no clear signs yet that the Federal Reserve (FED) will choose to lower its monetary policy rate.

Having noted that, this first week of March will have a number of transversally relevant events as on the macroeconomic front, Fed Chairman Jerome Powell will be in front of the Congressional committees giving his biannual speech about the economy on Wednesday and Thursday. On Wednesday, the Beige Book will also be released, which will give us a glimpse of the dynamism of the economy during the first quarter of the year ahead of the Fed's monetary policy meeting on March 19-20, which will include the release of the Fed's economic projections. On Friday, February's employment data will be released, where the economy is expected to have generated 200,000 new jobs, the unemployment rate remains at 3.7% and wage inflation marginally eases to 4.4%. On Tuesday, the President of the Central Bank of Japan will be giving a speech setting the course of interest rates while on Thursday the European Central Bank will be dictating monetary policy where no change in the rate, currently at 4.5%, is expected. At the same time, the Chinese government of Xi Jiping, in its annual governmental plenary, which will begin tomorrow, Tuesday, will be setting growth and inflation targets for the current year in view of a macroeconomic slowdown that the country has been registering in recent months.

On the corporate side, this week the focus of the first quarter results will be on the retail sector where companies including Costco, Footlocker, JD.com, Nordstrom, Ross Stores, Target, and TJX will be added to the final list of companies, including technology companies such as Crowdstrike, Docusign and Mongo DB. On the M&A front, yesterday the investment funds pursuing department store Macy's increased their bid to take it private in the face of an impending closure of more than 150 locations announced the week before. On the banking front, the week was very difficult for New York Community Bank (NYCB) whose share price plummeted below US$4 per share, showing that a year after the regional banks' crisis, it continues to progress gradually. The losses in the institution's loan portfolio are related to the deterioration of commercial real estate loans. For now there are no signs of a wider spread, however, it may be the beginning of another crisis that the FED will have to manage if the fear of a deterioration across the industry spreads.

On the political front, tomorrow (Tuesday) we will have a "Super Tuesday" where several states will be voting in favor of their presidential candidates where the race seems to be predetermined between President Biden and former President Trump at the polls in November. Meanwhile on Thursday night President Biden will be in front of Congress giving his annual State of the Union address where he will have to directly address issues such as inflation, illegal immigration and national security. This last topic in a context where Russian President Putin brought to light the possibility of the use of nuclear weapons if for some reason NATO troops join the Ukrainian front. In addition, with 150 days of war between Israel and Hamas, there is still no end in sight to this war, which is spreading throughout the region after a British-flagged merchant ship was sunk by Houthi terrorists, generating an environmental crisis in the Red Sea because it was carrying fertilizers.

Finally, we will only digress briefly as PCE inflation in the US eased to 2.4% (from 2.6%) while the core reading, which excludes food and energy prices, eased marginally to 2.8% (from 2.9%), both in the direction desired by the Fed. In addition, in recent weeks we have seen a gradual slowdown in labor demand and a deterioration in manufacturing activity indices confirming that the economy is gradually decelerating. However, until there are lower wage inflationary pressures, it will be difficult to see inflation easing towards the 2% target, something that Powell will surely reiterate in front of Congress in the coming days.

In conclusion, the unstoppable demand for stocks is largely due to the rotation from liquidity and fixed income to equities, with the understanding that interest rates will be lowered in the not too distant future.

THIS WEEK 

Monday (March 04)

Quarterly Reports

  • SEMrush Holdings, Inc.

  • Sea Limited

  • Cosan S.A.

  • Sea Limited

  • AeroVironment, Inc.

Economic Reports

  • Speech by FED President, Philadelphia, Patrick Harker

Tuesday (March 05)

Quarterly Reports

  • Target Corporation

  • CrowdStrike Holdings, 

  • Nuvei Corporation

  • Franco-Nevada Corporation

Economic Reports

  • Red Book Annual Change Report

  • Services Sector Purchasing Managers' Index Report, ISM

Wednesday (March 06)

Quarterly Reports

  • JD.com, Inc

  • Brown Forman Corporation

  • Campbell Soup Company

  • Woori Bank

  • Abercrombie & Fitch Company

Economic Reports

  • Speech by Fed Board Chairman Jerome Powell

  • New Job Openings Report

  • Wholesale Sector Inventories Report

Thursday (March 07)

Quarterly Reports

  • Broadcom Inc.

  • Costco Wholesale Corporation

  • Petroleo Brasileiro S.A.- Petrobras

  • The Kroger Company

  • Marvell Technology, Inc

  • Kroger Company

Economic Reports

  • Speech by Fed Board Chairman Jerome Powell

  • Trade Balance Report

  • Imports Report

  • Export Report

Friday (March 08)

Quarterly Reports

  • Algonquin Power & Utilities Corp.

  • RLX Technology Inc.

  • Target Hospitality Corp.

  • The Buckle, Inc

  • NextDecade Corporation

Economic Reports

  • Speech by New York Fed President John Williams

  • Nonfarm Payrolls Report

  • Unemployment Rate Report

Now you have more information about your investments. See you next week with more news.

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V.02 11/17/2023