Top traded counters in April 2023 May 22, 2023

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At a glance:

• Softening US Labour Market
• Lower GDP growth than expected
• Central banks globally are holding less US$
• First Republic Bank taken over by JPMorgan
• JPMorgan beat earnings expectations

The three US major indices – Dow Jones, S&P 500 and NASDAQ had modest gains in April.

The US labour market is finally starting to soften after the numerous rate hikes. The jobless claim of 239,000 for the week ending 8 April 2023 was the highest ever since January 2022¹. The increase in claims for unemployment benefits was a reflection of the huge layoffs in the US. In the week that ended 1 April 2023, 1.81 million people were receiving unemployment benefits, down 13,000 from the previous week.

US GDP was also showing that the economy was slowing. For the first quarter of 2023, the US economy expanded at an annualised rate of only 1.1%, which was lower than the estimated 2% growth². Despite the slowing GDP, the core Personal Consumption Expenditures (PCE) price index increased by 0.3% from the prior month and 4.6% from the previous year³. March’s core PCE results of 4.6% was higher than the market estimate of 4.5%. The outcome highlighted how resilient US inflation was to the Federal Reserve’s aggressive tightening, reinforcing the Fed’s indications of borrowing costs remaining high through the rest of the year.

Globally, more countries are moving away from the greenback. According to an IMF survey, the share of US dollar reserves held by central banks in the fourth quarter of 2020 fell to the lowest level in 25 years at 59%⁴. China is one of the countries calling for a shift away from the US dollar, mainly because of the geopolitical tensions with US⁵. China’s holding of US Treasuries have fallen to the lowest point since May 2009⁶ which is a huge cause of concern as China is the second largest major holder foreign of US Treasuries⁷. However, ending the reliance on the US dollar is difficult as most commodities are priced in US dollars, especially oil. With the US dollar forming the bulk of the central bank’s foreign reserves, dethroning it in the near term will be an uphill battle.

Zooming in on the banking situation, the US regional banks are having a relatively hard time. First Republic Bank(FRC) especially, is suffering from a huge decline in market capitalisation. Although it reported a great quarter performance and had funds injected by the big banks, investors were not satisfied with the amount of deposits they lost⁸. Due to the uncertainty that FRC posed to the banking sector (it was at risk of being seized by US regulators⁹), the regulators have requested banks for bids on the takeover of FRC; a takeover by a financially stable bank would put FRC depositors at ease based on the new owner’s ability to handle deposit outflows. Furthermore, on Labour Day, FRC was taken over by JPMorgan¹⁰, making FRC the third American bank to fail since March 2023.

Given the current market data, interest rates and inflation are likely to remain high for some time. As a result, picking market-outperforming stocks under current market conditions may be difficult for some. Therefore, Phillip Securities Research did a stock picking webinar for the second quarter of 2023, watch here.

Here are some ETFs to consider:

iShares MSCI China ETF (NYSE-ARCA: MCHI)

MCHI is an ETF that seeks to track the investment results of an index composed of Chinese equities that are available to international investors¹¹. The top three sectors of the ETF are consumer discretionary, communication and financials. MCHI commenced on 29 March 2011, with an expense ratio of 0.58%. MCHI’s 10-year performance as of 31 March 2023 is 2.81%.

With China recovering from the pandemic lockdown and its real estate market stabilising, investors can gain exposure to the China market with this ETF.

MCHI opened at US$49.92 and dropped 4.41% to close at US$47.72 in April 2023.

Technical analysis

Status: Neutral

Support: 46.50 – 47.00

Resistance: 50.00

Range-bound

iShares MSCI Japan ETF (NYSE-ARCA: EWJ)

EWJ is an ETF that tracks the investment results of an index composed of Japanese equities¹². The top three sectors of the ETF are industrials, consumer discretionary and information technology. EWJ commenced on 12 March 1996, with an expense ratio of 0.50%. EWJ’s 10-year performance as of 31 March 2023 is 4.76%. Recently, Warren Buffet added more Japanese companies into his portfolio¹³. This suggests that there might be value in Japanese stocks and investors can consider investing in this ETF.

URTH opened at US$58.69 and gained 0.26% to close at US$58.84 in April 2023.

Technical analysis

Status: Neutral

Support: 56.70

Resistance: 61.55

Range-bound and price has to stay above 58.50 for more bullishness.

iShares MSCI World ETF (NYSE-ARCA: URTH)

URTH is an ETF that tracks the investment results of an index composed of developed market equities¹⁴. The top three sectors of the ETF are information technology, financials and healthcare. URTH commenced on 10 October 2012, with an expense ratio of 0.24%. URTH’s 10- year performance as of 31 March 2023 is 9.06%.

URTH opened at US$117.73 and gained 1.75% to close at US$119.79 in April 2023.

Technical analysis

Status: Neutral

Support: 111.60

Resistance: 121.00

Bullishness slowing down, range-bound at the moment.

Here are some of the more popular US stocks – not ranked in any order – traded by POEMS customers in April 2023.

J P Morgan Chase & Co (NYSE: JPM)

JPM reported stellar earnings in April 2023. EPS and revenue of US$4.32 and US$39.34 billion both beat estimates of US$3.41 and US$36.19 billion respectively. Stellar earnings might have resulted because of a 49% rise in net interest income to US$20.8 billion, thanks to the Federal Reserve’s aggressive rate hike.

The bank also boosted a key piece of guidance that bodes well for the near future: net interest income will be about US$81 billion this year, about US$7 billion more than their previous forecast of US$74 billion. The change was mostly driven by expectations from JPMorgan having to pay less to depositors later this year if the Fed cuts rates. ¹⁵In April, JPM opened at US$129.91 and gained 6.41% to close at US$138.24.

Technical analysis

Status: Neutral

Support: 128.00 – 132.55

Resistance: 145.20

Bullishness slowing down, range-bound at the moment.

Citigroup Inc (NYSE: C)

C reported earnings that beat estimates in April 2023. EPS of US$1.86 exceeded estimates of US$1.70. Revenue was reported at US$21.4 billion, higher than estimates of US$20.05 billion.¹⁶

The better-than-expected results were partly due to rising personal banking revenue of 18% year-over-year, reflecting higher interest rates. Fixed income markets revenue rose 4% year-over-year, although it is worthy to note that it was offset by declines in investment banking and equity market revenue.¹⁷

The bank guidance for 2023 remains unchanged. The bank expects revenues of US$78-79 billion, representing a growth of 3.6-4.9% over 2022 and expenses of US$54 billion, a growth of 5.33% over 2022. ¹⁸In April, C opened at US$ 7.14 and lost 0.15% to close at US$47.07.

Technical analysis

Status: Neutral

Support: 42.55 – 44.00

Resistance: 50.10

Range-bound

Netflix Inc (NASDAQ:NFLX)

NFLX fell 10% after reporting mixed earnings in April 2023. EPS was reported at US$2.88, beating estimate of US$2.86 while a revenue of US$8.16 billion was lower than the estimate of US$8.18 billion. The firm also reported that 1.75 million subscribers were added in the first quarter of 2023.

NFLX initially intended to launch their paid password sharing in Q1 but delayed to Q2 instead. They shared that the company has more than 100 million households sharing accounts and is looking to improve its revenue through improving their services and adding the paid password sharing function. NFLX also shared that it expects to spend in the range of US$17 billion in 2024 on content.¹⁹

In April 2023, NFLX opened at US$341.83 and dropped 3.48% to close at US$329.93.

Referring to this Phillip Research report dated 20 April 2023, the recommendation for NFLX is to Accumulate.

Technical analysis

Status: Neutral

Support: 305.00 – 310.75

Resistance: 340.50 – 347.60

Bullishness slowing down, range-bound at the moment

First Republic Bank (NYSE: FRC)

FRC reported earnings in April 2023: EPS of US$1.23 beat estimates of US$0.85. Revenue of US$1.21 billion was also higher than estimates of US$1.15 billion. Although earnings reported were better than expected, it failed to help FRC recover from the 88% drop in March earlier this year, which was started by a bank run.

The continuous fall in share price was largely due to a 40.8% drop in deposits from Q4 last year to US$104.5 billion, which was lower than estimates of US$145 billion. The US$104.5 billion included the US$30 billion in time deposits from 11 large banks (drop in deposits would have exceeded 50% if this was not considered.²⁰)

The company will also be expanding its share buyback program to US$20 billion after announcing its first repurchasing commitment last year.²⁰ In March 2023, CRM opened at US$197.49 and gained 1.16% to close at US$199.78.

In exchange for US$10.6 billion, JPMorgan took over FRC. In the takeover, JPMorgan will get about US$92 billion in deposits, which includes the $30 billion that it and other large banks have put into FRC last month. Also, most of the losses on mortgages and commercial loans from FRC will be absorbed by the Federal Deposit Insurance Corporation.

As of 3 May 2023, FRC is trading on the OTC market with a new ticker, FRCB.

Technical analysis

Status: Extremely bearish

Support: 0

Resistance: 11.25

Bearishness unless catalyst comes in

Alphabet Inc (NASDAQ: GOOGL)

GOOGL topped estimates in April 2023: EPS and revenue of US$1.17 and US$69.79 billion both beating estimates of US$1.07 and US$68.9 billion, respectively. The reported revenue represented a 3% growth from a year ago of US$68 billion.²¹

During the earnings reporting, GOOGL shared that its cloud business turned profitable for the first time after showing continual losses for more than three years. The segment generated US$191 million in operating income, as compared to the US$706 million losses from a year ago.²²

GOOGL also shared that its board of directors had authorised US$70 billion in share repurchases that was announced in April 2022. ²³In April, GOOGL opened at US$102.39 and gained 4.83% and closed at US$107.34.

Referring to a Phillip Research report dated 26 April 2023, the recommendation for GOOGL is a Buy.

Technical analysis

Status: Neutral

Support: 103.00 – 105.00

Resistance: 115.10

Range-bound and price has to stay above 105.00 for more bullishness.

CONCLUSION

With JPM’s takeover of FRC, the uncertainty in the banking sector is largely dissipated. Market participants’ attention is now back on inflation and the possibility of a recession due to an overly hawkish Federal Reserve. One of the data points investors can use to gauge is the labour market, and as maximum employability is one of the Federal Reserve’s mandates, the Fed is looking at labour market data too. The labour market has been laying employees off, especially the technology industry, with others such as the financial industry following suit. The layoffs may further suggest that the growth in inflation may continue slowing down in the future.

With inflation better controlled, the question now lies in the probability of having a soft landing and having the burden rest on the shoulders of the Federal Reserve.

Bloomberg analysts’ recommendations

The table below shows the consensus ratings and average ratings of all analysts updated on Bloomberg in the last 12 months. Consensus ratings have been computed by standardising analysts’ ratings from a scale of 1 (Strong Sell) to 5 (Strong Buy). The table also shows a number of analysts’ recommendations to buy, hold or sell the stocks, as well as their average target prices.

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