Top traded counters in July 2023 August 17, 2023

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The market at a glance:

• June annual CPI of 3% is the lowest in 2 years
• Fed raised the interest rate by 0.25%
• GM raised 2023 guidance for the second time
• Federal Trade Commission’s request to pause Microsoft deal for Activision was refused

Bullish trend continues in the markets with the NASDAQ and S&P 500 up for five months straight, while the Dow Jones is on a 2-month bullish streak.

In June, inflation reached its lowest annual rate in over two years, attributed to a slowdown in costs and favorable comparisons with a period of exceptionally high price increases¹. The Consumer Price Index (CPI), which measures inflation, rose 3% from the previous year, the lowest level since March 2021, with a monthly increase of 0.2%. Excluding volatile food and energy prices, core inflation rose 4.8% annually and 0.2% monthly, the lowest rate since October 2021. The reported 3% CPI figure is lower than the estimate of 3.1%. These numbers might bring some relief to The Fed in its effort to address inflation that was around 9% a year ago.

Despite the cooling CPI figure, the Fed has approved an interest rate hike, raising benchmark borrowing costs to their highest level in over 22 years².
The Federal Open Market Committee increased its funds rate by a quarter percentage point to a target range of 5.25%-5.5%, the highest level since 2001.

Despite a possible break in rate increases to assess economic conditions, Chairman Jerome Powell suggested at the likelihood of another rate hike in September based on incoming data. This marks the 11th increase in the Fed’s rate since March 2022, amid efforts to combat inflation, setting the stage for continued data dependent decision-making by the central bank. Despite the rate hikes, economic growth remains robust, and though inflation has moderated somewhat, it remains above the Fed’s 2% target. Additionally, the Fed will also continue cutting its bond holdings on its balance sheet as they ramp up their efforts to combat inflation.

Yet, in the face of rising interest rates and concerns about an impending recession, the US economy has demonstrated remarkable resilience. In the second quarter, the Gross Domestic Product (GDP) achieved a robust annualised growth rate of 2.4%, surpassing the estimated 2%³. This growth occurred amidst a series of Fed interest rate increases that had previously sparked fears of a contraction. Key drivers of this strong quarter included consumer spending, non-residential fixed investment, government spending, and inventory growth. Despite these positive indicators, inflation remained in check, with the personal consumption expenditures price index rising at a moderate rate of 2.6%, down from 4.1% in the first quarter. The economic growth was further bolstered by strong consumer spending and employment gains. Even with an uptick in new unemployment claims, private payrolls surged and laid off workers were experiencing shorter periods of unemployment⁴. With the GDP figure exceeding expectations and the job-market’s resilience, investors have become more optimistic about the possibility of a soft landing for the economy.

With inflation decreasing, the traditional negative correlation between stocks and bonds may start to revert. In the event that the stocks were to tank, having fixed income in your portfolio can offer protection against a decline in equity prices.

With that in mind, here are some fixed income ETFs for your consideration:

iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE-ARCA: LQD.US)

LQD is an ETF that seeks to track the investment results of an index composed of US dollar denominated, investment grade corporate bonds⁵.

A majority of the ETF holdings are A and BBB with maturity spread out across 3 to 20+ years. The ETF has a MSCI ESG fund rating of A, which signifies a high level of environmental, social governance in the fund’s investment strategy. This fund, commenced on 22 Jul 2002 with an expense ratio of 0.14%, has a return of 2.77% as of 30 June 2023.

LQD opened at US$107.87 and closed 0.02% lower at US$107.85 in July 2023.

Status: Neutral

Support: US$105.21 – 105.53

Resistance: US$110.30- 110.90

Range-bound

SPDR Bloomberg High Yield Bond ETF (NYSE-ARCA: JNK.US)

JNK is an ETF that seeks to deliver investment results that correspond, before fees and expenses, to the price and yield performance of the Bloomberg High Yield Very Liquid Index⁶. It is designed to provide a diversified exposure to US dollar denominated high yield corporate bonds with above average liquidity. JNK commenced on 28 Nov 2007 with an expense ratio of 0.40%. JNK’s 10 year performance as of 30 June 2023 is 3.14%.

JNK opened at US$ 91.61 and increased by 1.24% to close at US$ 92.75 in July.

Technical analysis

Status: Neutral

Support: US$91.85 – 92.00

Resistance: US$92.95 – 93.10

Range-bound

Here are some of the more popular US stocks – not ranked in any particular order – traded by POEMS customers in the month of July 2023:

Morgan Stanley (NYSE: MS)

MS reported second-quarter earnings and revenue that surpassed analysts’ expectations. EPS of US$1.24 was higher than estimates of US$1.15 and revenue of US$13.46 billion also surpassed estimates of US$13.08 billion. The strong performance was driven by the wealth management division, which saw a 16% rise in revenue to US$6.66 billion, exceeding estimates, and attracted US$90 billion in net new client assets. However, the institutional securities business also faced an 8% drop in revenue to US$5.65 billion, primarily due to declines in trading.

The firm’s CEO, James Gorman, revealed that the board is evaluating internal candidates for his successor, as he prepares to step down within a year. Looking ahead, Gorman expressed confidence that the interest rate increases affecting the industry are nearing completion. Despite market challenges, the bank delivered solid results, and Gorman remains optimistic about the future outlook⁷

Earlier this month, the firm announced that it will raise its quarterly common stock dividend to US$0.85 per share, up from US$0.775 per share, starting in Q3 2023. Additionally, the company’s Board of Directors authorised a multi-year share repurchase programme amounting to US$20 billion, with no specific end date, also set to commence in Q3 2023. These actions demonstrate MS’s confidence in its financial strength and commitment to enhancing shareholder value⁸

In the month of July, MS opened at US$86.34 and gained 6.05% to close at US$91.56.

Technical analysis

Status: Slightly bullish

Support: US$90.50 – 90.77

Resistance: US$95.35 – 96.50

Bullish as long as US$90.77 support holds, otherwise range-bound

Tesla Inc (NASDAQ: TSLA)

TSLA reported a record quarterly revenue of US$24.93 billion, exceeding expectations of US$24.47 billion. Earnings per share were US$0.91, beating the projection of US$0.82 but operating margin declined to 9.6% due to vehicle price reductions and incentives. While net income (GAAP) increased by 20% from last year to US$2.70 billion, operating income slightly decreased to US$2.40 billion compared to the same quarter in the previous year.

The core automotive business revenue experienced a 46% year-over-year increase to US$21.27 billion. However, during the earnings call, CEO Elon Musk’s failure to provide specific details regarding the Cybertruck’s start date of delivery despite previous guidance to deliver by Q3 2023, along with an announcement of a Q3 production slowdown, led to a 5% drop in the stock price after hours. With a target of 1.8 million vehicle deliveries this year, Tesla remains focused on AI development and self-driving technology, emphasising the potential of autonomy in transforming the company’s future.⁹

In the month of July, TSLA opened at US$276.49 and dropped 3.28% to close at US$267.43.

Technical analysis

Status: Neutral

Support: US$250.00 – 254.83

Resistance: US$300.00 – 310.25

Minor range-bound

Netflix Inc (NASDAQ: NFLX)

In the month of July, NFLX revealed that its second-quarter revenue reached US$8.19 billion, slightly below the expected US$8.30 billion. Despite this, the revenue still showed a 3% increase from the previous year. The earnings per share has surpassed expectations, coming in at US$3.29 instead of the projected US$2.86.

During the quarter, the company added 5.9 million customers, placing emphasis on curbing password sharing in the US. Despite the slight decline in revenue, Netflix maintains a positive outlook for the future. It anticipates a boost in revenue in the second half of the year as its ad-supported streaming tier gains momentum and paid sharing initiatives start to take effect.

The company foresees continued growth in paid memberships and intends to reinvest the additional funds back into the platform. Despite facing challenges like the possible effects of industry-wide strikes, Netflix is confident in its ability to generate increased revenue and further enhance its content library through expansion¹⁰

In the month of July, NFLX opened at US$439.76 and dropped 0.18% to close at US$438.97.

Referring to this Phillip Research report dated 24 July 2023, the recommendation for NFLX is Neutral.

Technical analysis

Status: Neutral

Support: US$400.00 – 409.60

Resistance: US$452.20 – 455.00

Minor range-bound

General Motors (NYSE: GM)

GM’s second-quarter results demonstrated strong performance, with adjusted earnings per share at US$1.91 and revenue totaling US$44.75 billion, both surpassing respective estimates of US$1.85 and US$42.64. Despite an unforeseen charge of US$792 million for the recall of Chevrolet Bolt EV models, the company achieved an impressive adjusted earnings before interest and taxes of US$3.23 billion. Furthermore, GM’s net income attributable to stockholders surged by nearly 52% year-over-year to US$2.57 billion, equivalent to US$1.83 per share, compared to US$1.69 billion, or US$1.14 per share, in the previous year.

Capitalising on its solid performance, GM raised its 2023 guidance for the second time this year. The company now anticipates adjusted earnings within the range of US$12 billion to US$14 billion, up from the previous projection of US$11 billion to US$13 billion. Likewise the adjusted automotive free cash flow is expected to fall between US$7 billion to US$ 9 billion, an increase from the previous forecast of US$5.5 billion to US$7.5 billion. GM also revised its net income guidance to US$9.3 billion to US$10.7 billion, as opposed to the prior range of US$8.4 billion to US$9.9 billion.

Nevertheless, the future outlook is contingent on the successful labour union negotiations, given that any potential work stoppage or strike could disrupt production and hinder the ramp-up of GM’s new electric vehicles. These vehicles have already faced challenges due to supplier issues¹¹.

In the month of July, GM opened at US$38.74 and dropped 0.96% to close at US$38.37.

Technical analysis

Status: Neutral

Support: US$35.80 – 36.50

Resistance: US$41.00 – 42.10

Range-bound

Microsoft Corporation (NASDAQ: MSFT)

MSFT stock recently hit an all-time high of US$366.78. The rally was triggered by Microsoft’s announcement regarding the pricing structure of its Microsoft 365 AI subscription offering, Copilot. Copilot seamlessly integrates artificial intelligence into popular Office applications like Word, Excel, and Teams. This new offering, priced at US$30 per month, has the potential to raise monthly prices for enterprise customers by a substantial 83%, leading to a significant boost in recurring subscription-based revenues.

Additionally, the tech giant also reported earnings of US$2.69 per share, beating the estimated US$2.55 per share, along with revenue of US$56.19 billion, slightly surpassing the anticipated US$ 55.47 billion. Notably, the Intelligent Cloud segment, which includes Azure, growing 26% and contributing US$23.99 billion in revenue. Even with hurdles faced by the More Personal Computing division, Microsoft managed to lower its research and development costs, and the company is channeling investments into AI services to meet rising demand.

Despite the forecast for future growth, its guidance for the upcoming quarter was less optimistic. The company’s projected fiscal first-quarter indicated a revenue of US$53.8 billion to US$54.8 billion, which fell short of analysts’ consensus estimate of US$54.94 billion. The cautious projection is a reflection of the challenges in the More Personal Computing segment, which is experiencing a 4% decline in year-over-year revenue.¹²

In the month of July, MSFT opened at US$339.19 and dropped 0.96% to close at US$335.92.

Technical analysis

Status: Neutral

Support: US$314.00 – 319.80

Resistance: US$346.30 – 350.00

Range-bound

CONCLUSION

In June, inflation recorded its lowest annual rate in over two years, with the consumer price index rising by 3% from the previous year. Nevertheless, the Fed approved an interest rate hike, marking the 11th increase since March 2022. Despite the tightening monetary policy, the US economy demonstrated resilience in the second quarter, surpassing expectations for GDP growth, thereby fueling investor optimism for a smooth economic transition. While markets are betting that this recent hike will be the last of the ongoing tightening cycle, the future trajectory of policy remains uncertain, with the Fed emphasising their dependence on incoming data.

Bloomberg analysts’ recommendations

The table below shows both the consensus 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 the number of analysts’ recommendations to buy, hold or sell the stocks, as well as their average target prices.

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