Market Recap (S&P +1.39%)

Market Recap (S&P +1.39%)

By: Kevin Hanson

For the Week of (5/13-5/17), 2024

Has Powell Seen Enough?

Following a strong month of earnings from almost the entire market, investors had their eyes fixed on inflation metrics to see if the slowdown would continue, giving the Fed enough information to make a cut over the summer before presidential debates. Lucky for a majority of investors, the chance of a cut is still alive as inflation came cooler than expected, with the rest of the metrics falling into place. 

Aside from inflation, AI had another big week with OpenAI expanding its partnerships to larger companies and showcasing ChatGPT’s new capabilities reminiscent of Iron Man's technological companion Jarvis. Finally, in more lighthearted news Investors favorite meme stocks GameStop and AMC saw a larger push due to the leader of their meme crazed investor “Roaring Kitty” making a post suggesting he was serious about hurting shorters yet again. 

Market Activity

Open AI’s New Demo & Potential Apple Partnership & the Broader Market

This week, social media followers and a majority of the world were in awe of the exponential growth of Open AI’s poster child ChatGPT software showcased in a demo earlier this week. Throughout this demonstration, the AI software displayed features that reminded numerous viewers of the movie HER, as well as Iron Man’s technological assistant Jarvis. In addition to the comparison of Open AI’s new model GPT-4o, an enhanced version of its GPT-4 model showed faster speeds and expanded capabilities across text, vision, and audio, enhancing user experience and functionality. 

Beyond showing off their new fancy AI, the company also made ambitious partnership plans for the future. On the official side of the partnerships announced, OpenAI and Reddit, one of the market's most recent well-known IPOs, struck a partnership providing ChatGPT real-time access to Reddit posts via its data API. This partnership allows OpenAI to develop new AI features and applications, while also serving as an advertising partner for Reddit. ALso, on the rumored side of the news, Open AI could have a  potential collaboration with Apple by integrating OpenAI’s advanced language models into Apple's ecosystem, enhancing features such as Siri and other AI-driven services on Apple devices. Overall, Open AI continues to do an amazing job, putting themselves on the front of every headline, reinforcing their market dominance. 

Aside from Open AI’s exciting news, Google also showcased their new AI capabilities, unveiling Gemini 1.5 Pro. This new model brings significant enhancements to widely used Google services such as Gmail and Photos. This update includes new AI-driven features that are designed to improve user interaction and productivity. Aside from this model, Google announced Project Astra, signaling a strategic shift towards AI-driven products across its ecosystem. Ultimately, while Open AI stole the headlines from Google this week, both companies continue to enhance and integrate their AI capabilities in unique creative ways. 

Roaring Kitty Sticks it to Hedge Funds 

This week, Gamestop and AMC stocks dated back to earlier years when a whistleblower on social media named Roaring Kitty posted on social media sent his followers to quickly inflate the stocks exponentially. On Tuesday, GameStop shares skyrocketed 74% on Monday and continued their ascent with an additional 60% gain on Tuesday, while AMC, another meme stock favorite, also saw substantial gains, rising over 135% for the week by Tuesday’s close. Once again, as many know, history will repeat itself and many investors or specifically hedge funds who continued to short this stock were severely hurt in the process. In addition, many brokerages passed the buying of meme stocks in response to their gains. Many researchers have begun to question whether this is market manipulation, which is still under review. 

Apollo & Intels Chips Making Deal 

Aside from most eyes being fixed on Google and Open AI’s showcases, Intel continues to add its chip-making abilities, intensifying the highly competitive semiconductor industry. To bolster its capabilities, it was announced this week that Intel is in advanced discussions with Apollo Global Management to secure over $11 billion in funding for a new chip manufacturing plant in Ireland, expanding Intel's global production capacity.

Temu Turnaround 

This week, Temu announced that it would follow the trend of a majority of companies working hard to avoid the growing tariff war between the US and China, making imports and exports even harder for many businesses. To address this issue, Temu announced that it would establish a warehouse in Mexico to fulfill U.S. orders, rather than building new fulfillment centers within the U.S. In addition, the company also stated that it would be looking to expand into a broader international market to shift its concentration away from the US. 

BYDs Expansion & Flying Cars?

Following the last week, as the EV market continued to become more competitive, Tesla’s main competitor, BYD, announced its plans to move around the high US tariffs pushing into new international markets. With a rapid turnaround, the company debuted its first car in Mexico. Aside from the EV market, everything seems new and unique, especially in the car market, as a new Chinese car company announced a new type of vehicle. Xpeng AeroHT, an affiliate of the Chinese EV manufacturer Xpeng, announced plans to deliver its first flying car to customers by 2026. The  two-seater passenger electric drone is designed to combine the capabilities of a car and helicopter, aiming to revolutionize urban transportation. Xpeng AeroHT's flying car will be available for pre-order this year, signaling a significant step forward in the commercialization of flying vehicles. Overall, it is interesting to see how the market continues to reinvent and grow, and I look forward to the future of transportation.

M&A Report

Kraft Heinz Exploring the Sale of Oscar Meyer 

This week, Kraft Heinz announced its potential sale of Oscar Meyer to rebalance its portfolio of assets towards growing markets. The potential sale is estimated to fetch between $3 billion and $5 billion, streamlining its portfolio, and focusing on its core brands. Despite this news, there is yet to be a bid for the company with this news to hopefully progress to the next week. 

Uber Planning to expand to Taiwan 

Moving against the grain of a majority of companies, Uber announced this week that it is looking to expand into the Chinese market despite the growing trade war between the US and China. To form this arm of its business, Uber announced its plan to acquire Foodpanda's Taiwan operations from Delivery Hero for $950 million. This move could potentially create a monopoly on Taiwan's food delivery market. The deal is expected to close in the first half of 2025, with pending regulatory approval. Overall, I believe this would help the company, but the US will not approve of the deal because of the current trade war. 

Economics/Global

Aprils Inflation Falls in line with Investors Hopes 

This week, investors shined a light of hope for a potential soft landing as the economy continued its cooling trend. The consumer price index rose by 3.4% in April compared with the previous year, marking a slight decrease from March's 3.5%. This aligns with economists' expectations and represents a positive sign that inflationary pressure is easing. In addition, Core Inflation, which excludes  volatile food and energy prices, has increased by 3.6% year-over-year, the smallest rise since April 2021. This suggests that the underlying inflation is moderating, offering some relief to consumers and policymakers. 

Going against investors gains PPI and Core PPI came in hotter than expectations, which could cause problems later down the road. Overall, many have continued to ask whether this information is sufficient for the Fed to make a decision to cut rates. 

China-US Trade War Intensifies 

This week, the majority of companies continued to pivot away from the US and Chinese markets because of the increasing tariffs on both sides of the battle. To add another log to the fire this week, the Biden administration implemented new tariffs on Chinese clean-energy goods and increased the scrutiny of textile imports tied to forced labor. In addition, the Biden administration levied taxes for the future, adding tension to the conflict. Both political and economic strategies are being employed to reduce dependency on China and protect U.S. industries. This ongoing tension causes significant shifts in global supply chains and impacts economic conditions both domestically and internationally.

EU’s Antitrust Trend Continues 

This week the EU has initiated investigations into Meta, the parent company of social media platforms Facebook and Instagram, over concerns about exploitative practices and the creation of addictive behaviors among users. These investigations underscore ongoing regulatory scrutiny of tech giants' market dominance and their impact on competition and consumer welfare. The EU's antitrust efforts aim to ensure fair competition in the digital marketplace and protect users' data privacy. Any findings of anti-competitive conduct could result in significant fines and regulatory actions against Meta cutting into the company's revenues. 

Start-ups & IPO’s

EV Startups Rivian, Lucid, and Nikola all aim Towards Profits 

This week it was announced that EV startups Rivian, Lucid, and Nikola are intensifying efforts to reach profitability amid financial challenges. Rivian has outlined cost-cutting strategies and operational expansions, aiming to translate its innovative designs into sustainable profits. Lucid Motors, another key player, is strategically aligning its operations to reduce costs and optimize production, essential for navigating the competitive automotive landscape. Meanwhile, Nikola Corporation is undergoing significant restructuring to streamline its business model and achieve financial viability. These developments underscore the determination of EV startups to succeed in the dynamic electric vehicle market.

Sheins London IPO

Discount retail giant Shein faces hurdles in its path to a potential IPO, as its attempts to join the National Retail Federation were rejected amidst scrutiny over its supply chain and market practices involved with child labor. The company is shifting its expansion focus away from the U.S., opting to establish a single warehouse in Mexico to fulfill American orders, signaling potential challenges in the U.S. market. Despite this, Shein has enjoyed significant popularity among American consumers, highlighting its international appeal. While its IPO plans are not explicitly confirmed, these recent developments shed light on the company's strategies and potential obstacles as it considers going public.

Outlook

Are we Close to a Turning Point?

Reflecting on the news for this week, I believe the market could be at a turning point in its trajectory in the summer. Simply put, if the theme of the economy slowing down continues, I believe we are on our way towards a rate cut over the summer, which is in line with my original outlook for the year. However, I believe the market still needs to slow across the board, as numerous companies, especially in big tech, continue to expand without any signs of slowing down from the recent earning season. However, my hope remains high in line with investors for a potential rate cut before the presidential election. 

Works Cited

Stock Analysis: Market Bullets Email Newsletter

Wall Street Journal: Various Email Newsletters

Pictures: 

Henney, Megan. “Fed’s Powell Warns of Inflation ‘head Fakes,’ Signals More Rate Hikes Are Possible.” Fox Business, 9 Nov. 2023, www.foxbusiness.com/economy/feds-powell-warns-inflation-head-fakes-signals-more-rate-hikes-are-possible.

OpenAI Releases New AI Model, GPT-4o, With Live Demo. 14 May 2024, www.usatoday.com/videos/tech/2024/05/14/openai-releases-new-ai-model-gpt-4o-with-live-demo/73686056007.

Spence, Michael. “Future Trajectory of US Inflation, Interest Rates.” Asset Publishing and Research Ltd.  2017 ISSN 1561-4050, www.theasset.com/article/50875/future-trajectory-of-us-inflation-interest-rates.

Spence, Michael. “Future Trajectory of US Inflation, Interest Rates.” Asset Publishing and Research Ltd.  2017 ISSN 1561-4050, www.theasset.com/article/50875/future-trajectory-of-us-inflation-interest-rates.

Bradsher, Keith. “As Cars Go Electric, China Builds a Big Lead in Factories.” The Japan Times, 15 May 2021, www.japantimes.co.jp/news/2021/05/05/business/china-electric-car-leader.

Venema, Karee. “Stock Market Today: Stocks Rally on Encouraging Jobs Data.” Kiplinger.com, 8 Dec. 2022, www.kiplinger.com/investing/stocks/stock-market-today-120822-stocks-rally-on-encouraging-jobs-data.