Top traded counters in February 2023 March 10, 2023

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Events to note – At a glance:

• Benchmark interest rates raised by 25 BP
• Strong non-farm payroll figures
• Core PCE price index went up 4.7% YoY
• Worsening US-China relations

The three US major indices – Dow Jones, S&P 500 and NASDAQ had a downtrend in February 2023. Of the three indices, Dow Jones lost the gains it made in January 2023.

At the beginning of the month (February), the Federal Reserve raised the benchmark interest rate by 25 basis points to a target range of 4.5-4.75%, according to market’s expectations¹. The latest increase marked the eighth time the Fed announced an increase, continuing the cycle that began in March 2022. The outcome of the FOMC meeting did not give any indication of whether the hike cycle was nearing the end. Fed Chair, Powell, also mentioned that more evidence would be required before the committee is sufficiently confident that inflation was on a sustained downward path. He also added that the disinflationary process has started, but it would be “very premature to declare victory or to think we have really got this”. Through this meeting, the Fed officials showed that they were determined to combat inflation, even amidst evidence of disinflationary pressure.

The concerns shared by the Fed officials proved to be valid after the release of a few data points. First, non-farm payrolls increased by 517,000, way higher than the estimated 187,000². Such strong numbers showed that the labour market was really tight and could be “out of balance”, as what Powel had mentioned³. Such a strong job market may suggest that the economy is still growing and leading to an increase in consumer spending. Having such tenacious job data may imply that the journey to calming inflation down by the Fed is still relatively far away.

The second data point was the rise in core Personal Consumption Expenditures (PCE) price index. Wall Street expected the PCE price index, excluding food and energy, to increase by 0.5% in January 2023 and 4.4% for the year. However, the respective amounts reported by the Commerce Department were 0.6% and 4.7% respectively. The reported figures sent the market downwards as the Fed may be pushed into a position where they will likely continue raising rates. With the release of this data, the probability of a 50 basis point hike is now 33%.⁴ Hence, the battle with inflation still does not seem to be nearing the end.

Besides rising interest rates, we should also be concerned about the worsening US-China relations.

The United States has so far shot down 4 flying objects that were spotted in the airspace of US and Canada⁵ claiming that the balloons were used by China to spy as they flew over sensitive sites. In China’s defence, they claimed that they were using the balloon for weather research⁶. This incident caused the worsening of tensions between the two nations.

Worsening trade relations can negatively affect the stock market in several ways:

1. Increased uncertainty and reduced investor confidence, which may lead to selling pressure and lower stock prices.

2. Higher costs of imported goods, which can reduce profits for companies that rely on imports and potentially lead to higher prices for consumers.

3. Result in retaliatory measures, such as tariffs, which can hurt the earnings of companies with business in affected countries.

Overall, worsening trade relations can create a more challenging environment for companies and investors, and result in increased volatility and potentially lower stock prices.

There are several ways for investors to hedge against a volatile market.

One of them is through diversification. Apart from diversifying across multiple stocks, investors can invest across different markets. By doing so, investors avoid home bias.

The other way to hedge is through investing in defensive stocks. Defensive stocks are less sensitive to changes in the economy and tend to perform better than the broader market due to lower beta during periods of economic uncertainty. These stocks may include companies that provide essential goods and services, such as utilities and healthcare.

Here are some utilities and healthcare ETFs for your consideration:

Health Care Select Sector SPDR Fund (NYSE-ARCA: XLV.US)

XLV is an ETF that seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Health Care Select Sector Index⁷. The index consists primarily of companies in the pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services and health-care technology industries. XLV commenced on 16 December 1998 with an expense ratio of 0.10%. XLV’s year-to-date performance, as of 31 December 2022, is -2.05%.

XLV opened at US$133.36 and dropped 4.64% to close at US$127.17 in February 2023.

Technical analysis

Status: Neutral

Support: 126.50 – 127.40

Resistance: 132.80

XLV is slowing down in bearish momentum. However, it is still early to tell if the price will reject the immediate zone as of current.

Utilities Select Sector SPDR Fund (NYSE-ARCA: XLU.US)

XLU is an ETF that seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Utilities Select Sector Index⁸. The index consists primarily of companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers, and gas utility industries. XLU commenced on 16 December 1998 with an expense ratio of 0.10%. XLU’s year-to-date performance, as of 31 December 2022, is 1.44%.

XLU opened at US$68.76 and dropped 5.47% to close at US$65 in February 2023.

Technical analysis

Status: Neutral

Support: US$64.70 – US$65.15

Resistance: US$69.50

XLU is slowing down in bearish momentum, but it is still early to tell if the price will reject the immediate zone as of current.

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

Meta Platforms Inc (NASDAQ: META)

In February 2023, META reported mixed earning reports for Q4. EPS of US$1.76 missed estimates of US$2.22. Its revenue of US$32.17 billion, along with Average Revenue per User (APRU) of US$10.86, beat estimates of US$31.53 and US$10.63, respectively. The firm announced a US$40 billion stock buyback and expects the next quarter revenue to be US$26 billion-US$28.5 billion, as compared with the estimates of US$27.1 billion.⁹

Later in the month, the firm announced a plan to allow users to verify their accounts for up to US$14.99 a month¹⁰, as well as another round of layoffs that will most likely happen in March 2023, despite the previous layoff of 11,000 employees (13% of the entire firm) in November 2022.¹¹ META opened at US$148.03 and gained 18.18% to close at US$174.94 in February 2023.

Referring to this Phillip Research report dated 6 February 2023, the recommendation for META stays Neutral.

Technical analysis

Status: Bullish

Support: 94.00

Resistance: 85.00

As long as price can sustain itself above the current zone, you can expect prices to continue this bullish run.

Apple Inc (NASDAQ: AAPL)

AAPL reported disappointing earnings in February 2023. EPS and revenue of US$1.88 and US$117.15 billion both missed estimates of US$1.94 and US$121.10 billion, respectively. Tim Cook, Apple’s CEO mentioned that the disappointing results were due to three factors; the strong dollar, production issues in China that affected iPhone 14 Pro and iPhone 14 Pro Max and the challenging overall macroeconomic environment.

Although AAPL did not provide any guidance for the next quarter, Cook mentioned that the next quarter revenue would have a similar declining trend. While services are expected to grow, the Mac and iPad sales are both expected to decline double digits from the earlier-year period. iPhone sales will decline less in the March quarter versus the December quarter.¹² AAPL opened at US$143.97 and gained 2.39% to close at US$147.41 in February 2023.

Referring to this Phillip Research report dated 6 Feb 2023, the recommendation for AAPL stays as Buy.

Technical analysis

Status: Neutral

Support: US$142.90

Resistance: US$156.00

AAPL was range bound after a strong bullish price action. The price is sustaining itself well above US$143.00.

Walt Disney Co. (NYSE: DIS)

DIS reported earnings that beat estimates in February 2023. EPS and revenue of US$0.99 and US$23.51 billion both beat estimates of US$0.78 and US$23.37 billion respectively. Despite a drop of 2.4 million Disney+ subscribers due to price hike for Disney services, total subscriptions of 161.8 million beat estimates of 161.1 million.

The firm also announced that it will be slashing 7,000 jobs from its workforce and cutting US$5.5 billion in costs. Additionally, the firm will ask its board to approve the reinstatement of its dividend by the end of the calendar year, made possible by the cost-cutting initiatives.¹³

DIS opened at US$108.50 and dropped 8.19% to close at US$99.61 in February 2023.

Technical analysis

Status: Neutral

Support: US$98.00

Resistance: US$108.90

DIS: Range-bound

Coca-Cola Co. (NYSE: KO)

KO reported quarterly revenue that topped Wall Street’s estimates, while its EPS was in line. Revenue was reported at US$10.13 billion against estimates of US$10.02 billion while EPS was reported at US$0.45, same as estimates of US$0.45.

The firm said that consumer demand in Europe is clearly softening while business in the US is still performing. With the re-opening of China, sales will likely grow this year. For 2023, KO projects comparable revenue growth of 3% to 5% and comparable earnings per share growth of 4% to 5%. Wall Street forecasted a revenue growth of 3.9% and earnings per share growth of 3% for the year.¹⁴

KO opened at US$61.14 and dropped 2.67% to close at US$59.51 in February 2023.

Technical analysis

Status: Neutral

Support: US$58.50

Resistance: US$61.45

KO: Range-bound

NVIDIA Corporation (NASDAQ: NVDA)

NVDA reported slightly higher revenue and EPS numbers than what Wall Street had expected. A revenue of US$6.05 billion and EPS of US$0.88 beats estimates of US$6 billion and US$0.81 respectively. Most of the revenue came from the Data Centre (including AI chips), rose 11% on an annual basis to US$3.62 billion. The company said the growth was because US cloud service providers bought more products.

For the next quarter, the company expects sales to rise to US$6.5 billion, which is higher than the US$6.33 billion expected by Wall Street.¹⁵ NVDA opened at US$196.91 and gained 17.9% to close at US$232.16 in February.

Technical analysis

Status: Neutral

Support: US$220.00

Resistance: US$253.35

NVDA: Range bound but the price has to stay above US$220.00 for more bullishness.

CONCLUSION

More rounds of layoffs and cost-cutting measures were still visible in February 2023, in an attempt for major firms to counter the effects of the current challenging macroeconomic environment.

Hot topics that remain on the minds of most investors: were interest rate hikes and inflation.

The financial market has seen uncertainty and fear with the recent economic data releases in February 2023. Data such as the increase in non-farm payroll and Core PCE price index might point towards a slightly hawkish Fed fund rate in the near future. The probability of a 50 basis point hike is now 33%. There were also other negative factors, such as the worsening of US-China relations and the ongoing Russia-Ukraine conflict that contribute to an increase in bearish sentiment among investors.

2023 saw a strong start in January with bulls in the driving seat. However, in February, we observed a fall in all major indices, ; mostly attributed to the fears around the rate hike decisions. The fight against inflation is not about to end; increased volatility and lower stock prices will follow inevitably.

With the abundance of opportunities from increased volatility, investors can navigate the markets by hedging through diversification across various industries and/or with defensive stocks that tend to perform relatively better in periods of uncertainty. Investors can also consider the age-old investing technique of Dollar-cost averaging, which has shown positive results in the long term.

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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