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🔢 The Numbers Don’t Lie

🔢 The Numbers Don’t Lie

Plus, is it time to buy the dip on real estate stocks?

May 19, 2024

Happy Sunday to everyone on The Street.

As the saying goes, “Live by the meme, die by the meme.” Well… maybe it’s a modern twist on an age-old saying, but it certainly holds true from what we’ve seen this week:

GameStop (GME) surged to a high of $64.7 per share on Monday and ended the week at $22.21.
AMC Entertainment (AMC) shares hit $11.82 on Monday and now sit at $4.40.
Shares of BlackBerry (BB) climbed to a high of $3.83 for the week and fell back to $2.94

What caused all this meme stock volatility? A singular tweet from Keith Gill, better known by his pseudonym “Roaring Kitty” on the subreddit r/wallstreet bets.

This meme stock surge came as a surprise to much of Wall Street, which has seen a cooling job market, rising credit card delinquencies, and declining pandemic-era savings. While all that is true, the meme stock surge showed that a sizable portion of retail investors still have enough disposable income to essentially gamble in the stock market.

Are Meme Stock Rallies Done for 2024?

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One Recent A.I. Development You NEED to Hear About

There's been a lot of buzz surrounding A.I. over the past year…

Most of it is just hype and speculation.

But there's one recent A.I. development you NEED to hear about...

Because it's going to have a very real impact on the lives of everyday Americans...

Billion-dollar fund manager Louis Navellier recently recorded an urgent message going over all the details.

Click here to see Louis' new video for yourself.

Review

This week in U.S. markets, all three major stock indexes pushed to record highs after positive inflation and economic data lifted investor spirits and pulled forward rate cut expectations. Earlier in the week, Fed Chair Jerome Powell delivered a speech wherein he reiterated that inflation is falling more slowly than expected and the central bank will need to keep rates at their current level until more progress is made. That same day, consumer inflation expectations for 2024 rose to 3.3%, the highest level since November. The following day, the producer price index, which measures wholesale inflation, rose more than expected in April at 0.5%, sparking some concern around a continuation of the ongoing sticky inflation.

However, April’s CPI report on Wednesday showed overall prices eased from March, increasing 3.4% annually and 0.3% month-over-month, the latter of which was less than expected. Core inflation also increased 0.3% from March but fell to 3.6% annually, its lowest reading since April 2021. Meanwhile, April retail sales released that same day were unchanged compared to the 0.4% increase expected. Overall, the CPI and retail sales data were good news for markets as signs of a potentially cooling economy that could encourage the Federal Reserve to start cutting rates sooner rather than later. Markets are now pricing a roughly 65% chance of at least one rate cut by September, according to the CME FedWatch Tool.

In company news for the week, U.S. EV makers including Tesla, Rivian, and Lucid all traded higher after the news that the White House was preparing to raise tariffs on Chinese EVs by as much as 100%, giving the American car makers a competitive edge. In AI news, Apple reportedly closed a deal with chatGPT-maker OpenAI to integrate its technology into the next iPhone operating system. Meanwhile, Reddit announced a partnership with OpenAI to use its data to train AI models. Oracle executives shared they are currently discussing a potential $10 billion deal to rent cloud servers to Elon Musk’s AI startup xAI. Chipmaker Arm announced plans to launch its first AI chip sometime next year. And finally, Microsoft offered its cloud computing customers AMD’s AI chips to compete with NVIDIA’s.

Elsewhere, Walmart jumped to a record high after beating profit and sales estimates, mostly driven by high-income shoppers and 22% growth in e-commerce sales. Uber announced a new service called Uber Shuttle for larger groups headed to various destinations like airports or concerts. Warren Buffett’s Berkshire Hathaway reported it bought a $6.7 billion stake in the insurer Chubb. And the Justice Department said Boeing broke a 2021 agreement that protected it from criminal charges related to past 737 Max crashes. Lastly, so-called meme stocks including GameStop and AMC saw massive rallies early in the week after “Roaring Kitty” – the trader many consider to have sparked the 2021 short squeeze – posted online for the first time in three years. Both stocks gave back those gains in the days to follow and to end the week, GameStop reported a decline in first-quarter sales and filed to sell up to 45 million common shares.

Preview

Economic Data

Monday: Fed Vice Chair Philip Jefferson speaks
Tuesday: Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, and Boston Fed President Susan Collins speak together on a panel
Wednesday: Existing home sales, Minutes of Fed’s May FOMC meeting
Thursday: Initial jobless claims, S&P flash US services PMI, New home sales, Atlanta Fed President Bostic speaks
Friday: Durable-goods orders, Consumer sentiment

Earnings

Monday: Novartis, ASML, Amgen, Deutsche Post
Tuesday: AT&T, AstraZeneca, Coca-Cola, Bank of America
Wednesday: Deutsche Telekom, American Tower, Roche Holding, Aalberts, Align Technology
Thursday: Adidas, Autodesk, Assurant
Friday: Southern Copper, Six Flags, Acer, ASE Technology

Getting Real

A Buying Opportunity in REITs

Real estate stocks have struggled in 2024, and one banking giant argues that now is the time to scoop up the dip.

BMO pointed out that the sector is in a position “for a turnaround in the coming months.”

The S&P 500 real estate sector has dropped around 5% this year, compared to a roughly 10% bounce in the overall index.

An Impressive Pattern

Strategists at BMO observed that when the real estate sector was in similar positions in the past, a turnaround was on the horizon.

The bank highlighted four other instances when the real estate sector was underperforming the S&P 500 by similar margins. Over the next year, the sector beat the index by about 17% on average, according to BMO’s data.

Brian Belski, the bank’s chief strategist, says the sector is now at an “inflection point.” He also made the case that real estate is being overly scrutinized in a higher interest-rate environment.

BMO’s Picks

The bank has compiled a bevy of REITs with an outperformance rating and dividends.

The list includes Boston Properties (BXP), down around 11% this year. Belski is bullish on the stock as workers return to the office after the pandemic. The stock offers a dividend of around 6%, and BMO has a price target giving a 25% upside.

Host Hotels & Resorts (HST) has the outperformance tag as well. The REIT owns upscale hotels, and BMO gives it a price target of around 25% above current levels.

According to BMO, these stocks could be just the thing if investors are looking for passive income and a chance to ride a turnaround.

Which REIT do you think has the most upside?

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One Recent A.I. Development You NEED to Hear About

There's been a lot of buzz surrounding A.I. over the past year…

Most of it is just hype and speculation.

But there's one recent A.I. development you NEED to hear about...

Because it's going to have a very real impact on the lives of everyday Americans...

Billion-dollar fund manager Louis Navellier recently recorded an urgent message going over all the details.

Click here to see Louis' new video for yourself.

Another AI Consideration

Arm-Based PCs

According to Morgan Stanley (MS), the semiconductor industry is about to get shaken up thanks to the British company Arm (ARM).

As generative AI advances, more powerful computers are needed to run the programs, and Arm’s processing technology fits the bill. Its CPUs are known for energy conservation and thermal management, resulting in PCs with longer battery lives and slimmer designs.

Morgan Stanley believes these AI computers will hit a penetration rate of 95% by 2027, a number that currently sits at 8%.

TSMC

There’s a slew of factors making Morgan Stanley bullish on TSMC (TSM). Intel (INTC) is increasingly outsourcing CPU production to TSMC. TSMC’s major foundry partner AMD (AMD) is also gaining market share. The investment bank also expects TSMC’s (TSM) market share in the x86 space to expand. X86 is a common type of CPU architecture.

According to Morgan Stanley, TSMC’s foundry market share for Arm-based CPUs is even greater than that for x86. So the bank observes Arm’s share gain in the x86 space as a net positive for TSMC.

Morgan Stanley recently raised its price target on the stock, giving the microchip company a 12% upside from Tuesday’s close.

MediaTek

The bank is also bullish on the partnership between Nvidia (NVDA) and Taiwanese semiconductor company MediaTek (TPE: 2454). The two companies are collaborating to produce their first WOA PC CPU chips. WOA (Windows on Arm) is an alternative CPU architecture with Microsoft operating systems and Arm processors.

Morgan Stanley also raised MediaTek’s price target, giving the stock a potential upside of around 20% from Tuesday’s close.

As AI continues to advance, the world’s technology is adapting to accommodate it. If Morgan Stanley is correct, these stocks could be poised to take advantage.

Which stock do you think will outperform over the next 12 months?

The Numbers Don’t Lie

A Deeper Look

Chinese stocks have been surging and the MSCI China Index is outperforming emerging markets and the S&P 500. However, experts are pointing out that the fundamentals don’t support the rally.

According to Citi’s (C) emerging markets team, the numbers just aren’t there to justify the jump in stocks.

China Asset Management’s Ding Wenjie summed it up by saying that, despite having the appearance of a huge rally, “it’s not broad.”

According to Wenjie, capital has not increased at the level expected. The analyst also pointed out that hedge funds, not long-only funds, were primary buyers in the rally.

Earnings Indicators

On Tuesday Tencent (TCEHY) and Alibaba (BABA) reported earnings, with Tencent exceeding expectations and Alibaba stock slumping after an earnings miss.

As earnings season continues, analysts will be keying in on free cash flow levels as stock buybacks ramp up, bolstered by recent government policy to encourage this strategy.

AlphaHill Capital is looking for high free cash flow growth in the consumer space. Siliang Jiang, the firm’s portfolio manager, predicts that Chinese consumers will bounce back later this year or next.

BofA Stock Picks

Bank of America (BAC) has identified several Chinese stocks it's bullish on, including Beijing-Shanghai High Speed Railway (SSE: 601816), New Oriental Education & Technology (EDU), and Li Auto (LI).

According to the bank, state-owned transportation and utility companies can boost their profit margins simply by raising prices due to monopolies.

Whatever the future of the Chinese stock rally, analysts are looking deeper to find stocks with broader value.