One Stock To Rule Them All

MARKETS

This Too Shall Pass

Actually the sailing has been relatively smooth.

It’s been a little choppy here in the early days of summer, as we near the halfway mark of 2024.
But it’s all relative: The S&P 500 hasn’t had a daily loss of more than 0.75 percent in 37 consecutive sessions, which is pretty smooth.
And history suggests it can still be smooth from here, like the 135 days in 1965-66 where the S&P 500 didn’t see a decline greater than 0.75 percent.
More recently, in 2017-18, there was a 100-trading-day streak, and in 2022 we saw this kind of smooth sailing for 77 sessions.
The recent chop is really a major-index-level phenomenon, maybe even just a one-big-stock thing.
As we put it in a headline in Monday’s issue, Nvidia $NVDA is not “the market.”
But its price action over the last four days has certainly defined movement for the S&P 500 and the Nasdaq Composite vis-à-vis the Dow Jones Industrial Average.
The 30-stock Dow, which doesn’t include NVDA, was the only one of the three in the green on Monday, when the AI chip maker shed another couple hundred billion of market cap.
Of course, it took a 300-point dive Tuesday, as NVDA was climbing 6.76 percent and back into the $3 trillion club. The S&P added 0.39 percent, the Nasdaq 1.26 percent.
But Home Depot $HD was down 3.58 percent to close at $338.32 and weigh heavily on the price-weighted index.
Dow $DOW, Nike $NKE, Boeing $BA, and Walmart $WMT also posted losses of greater than 2 percent.
So NVDA is not “the market.” But it does have extraordinary gravity right now.

Historically low volatility is supported by easing inflation, rate-cut expectations, AI enthusiasm, and earnings growth.

The CBOE Volatility Index $VIX – which they call the “fear gauge” – is and has been in a historically low range for months now.
We’ve seen a smattering of small spikes. But, again, it’s been relatively smooth, even amid NVDA’s recent big moves.
It’s a status quo supported by easing inflation, rate-cut expectations, AI enthusiasm, and earnings growth.
If there will be cracks, we’ll see it in the labor market first. And the most recent incoming data suggest there’s still ample hope on that front.
Though the Conference Board's consumer confidence index declined to 100.4 in June from a revised 101.3 in May, respondents are still generally positive about jobs.
The Conference Board’s survey found that 38.1 percent of respondents said jobs were “plentiful,” up from 37.0 percent in May, while 14.1 percent said jobs were “hard to get,” down from 14.3 percent.
That suggests stability in the labor market, and it supports the case presented on Tuesday by Federal Reserve Governor Michelle Bowman in favor of holding steady at a restrictive federal funds target range.
Governor Lisa Cook seems more aligned with Federal Reserve Bank of Chicago President Austan Goolsbee, noting in her own remarks yesterday significant progress on inflation and that the labor market is cooling.
Like Goolsbee, Cook didn’t get specific. “At some point,” her prepared remarks did read, “it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy.”
Sounds to me like we need to keep paying attention to incoming initial jobless claims data.
We’ll get the next set on Thursday at 8:30 a.m. ET.

DEEP DIVE

It’s Prime Day for Many Reasons

Amazon.com is still the king of internet retail.

Amazon.com $AMZN is not a member of the $3 trillion club.
Yet.
And, as JC Parets of All Star Charts hinted on X shortly after the opening bell on Tuesday, based on its long-term chart and the price histories of its peers it is only a matter of time:

When Apple got here, it broke out to new all-time highs. When Microsoft got here, it broke out to new all-time highs. When Nvidia got here... new all-time highs. When Meta got here... new all-time highs. When Google got here... new all-time highs. Are you betting Amazon won’t?

On May 9, the stock hit an all-time intraday high of $191.70 and an all-time closing high of $189.50.
It traded as high as $191.00 on Monday. It closed up 0.41 percent at $186.34 on Tuesday.
AMZN is up 22.64 percent year to date and 44.08 percent over the last 12 months.
Those numbers pale only when compared with Nvidia $NVDA.
With a market capitalization of $1.939 trillion as of Tuesday’s closing bell, perhaps Amazon’s July 16-17 Prime Day extravaganza will provide the catalyst for that next leg higher.

Amazon.com $AMZN hit a new all-time high on May 9, 2024.

Prime Day – an annual event since 2015 – is a big revenue driver for the No. 1 internet retailer.
Amazon posted sales of $12.7 billion during Prime Day 2023, up 6.7 percent from $11.9 billion in 2022.
Competitors are catching on to what Amazon has created with these events, and they’re angling to capture the broad acquisitiveness.
Walmart $WMT – No. 2 in the internet retailer rankings in 2023 with 6.4 percent market share versus Amazon’s 37.6 percent – will offer “Walmart Deals” from July 8 to July 11.
And Target $TGT – No. 5 in Statista’s rankings at 1.9 percent – will hold a week-long sale from July 7 through July 13.

Amazon.com $AMZN was the No. 1 internet retailer by market share in 2023 with 37.6 percent.

I can only speak for myself, a relatively old man and a creature of habit, but I’ll be selectively all over Amazon.com July 16 and July 17.
Nothing specifically against Walmart or Target; our Prime membership is also about the video content as well as the year-round shipping discounts.
For this event, I have no specific needs or even any clear wants. But if there’s a cool gadget or an interesting tool or portable charger on sale, I’m down for at least one.
We haven’t done the math – perhaps we should – but the cost and convenience factors weigh heavily for us in favor of Amazon.
And, I mean, come on: It’s a mega-sale with millions of deals and discounts increasing “as often as every five minutes during select periods throughout the event.”
It’s like the Super Bowl. The other internet retailers can arrange their events, and they’ll be nice. But Prime Day is sui generis.
We’ll get a fresh look in July at how consumers in the US – and 23 other countries – are getting their internet retail fix.

FROM THE RESEARCH DESK

Beyond NVDA

One analyst likes LSEA and IFF.

One analyst likes LSEA and IFF.So, if NVDA is not the market, where else can we look for opportunity right now?
From the Research Desk, we hear Oppenheimer & Co. is optimistic about equity markets and the durability of this rally, despite recent price action.
There will be no recession in the US, according to analyst Tyler Batory, and there’s more upside for stocks from here.
Batory identifies Landsea Homes $LSEA and International Flavors & Fragrances $IFF as stocks to buy for the second-half rally.

Oppenheimer & Co. analyst Tyler Batory rates Landsea Homes $LSEA a “buy” with a 12-month price target of $14.

Landsea builds up-market houses in desirable locations in the US and also offers mortgage finance and home insurance services.
It posted $1.2 billion in revenue last year, and first-quarter new orders were up 23 percent year over year. But management missed analyst expectations for earnings per share, and LSEA took a dive.
Batory says the weakness is a short-term thing: “We see substantial growth potential in the next few years driven by organic expansion and integration of several acquisitions.”
Batory rates LSEA a “buy” with a 12-month price target of $14, 51.35 percent upside from Tuesday’s $9.25 closing price.

Oppenheimer & Co. analyst Tyler Batory rates International Flavors & Fragrances $IFF a “buy” with a 12-month price target of $116.

International Flavors & Fragrances makes additives for food and beverage as well as wellness and pharmaceuticals companies.
IFF is up more than 18 percent year to date and more than 27 percent over the trailing 12 months, a rally driven by the announcement of the sale of its pharma division for $2.8 billion as well as solid on-the-ground results.
Management said it expects to hit the high end of its full-year guidance for sales and earnings.
Batory rates IFF a “buy” with a 12-month price target of $116, suggesting upside of nearly 21 percent from Tuesday’s closing price.