Top traded counters in October 2023 November 16, 2023

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The market at a glance:

• The start of the conflict between Israel and Hamas led to higher oil prices
• The Federal Reserve (FED) committed to its 2% inflation mandate, holding rates within the range of 5.25% to 5.5%
• 10-year U.S. Treasury yields reached a 16-year high of 5% before retracing downwards
• NFLX’s move to curb password sharing has boosted subscriber growth

The 3 major indices were headed for 3 straight months of losses in October.

The last quarter of 2023 commenced amidst the conflict between & Hamas conflict¹. In contrast to the Russian-Ukraine war in March 2022, which caused a significant one-day drop of nearly 3% in the S&P 500 index², the Israel-Hamas conflict did not trigger a widespread market sell-off. This is notable given that the S&P 500 index only fell by 2.12% in October 2023. The market’s relative composure suggests that investors may view the latest conflict as a continuation of long-standing regional tensions, with limited impact on global markets. However, the situation remains dynamic and could evolve as events unfold… As for Russia and Ukraine, they are significant commodity producers and exporters. Hence, their conflict has far-reaching price effects across various resources.

The Israel-Hamas conflict did, however, lead to higher oil prices due to concerns about oil³. With the situation still developing, market implications are being closely monitored.

Federal Reserve Chairman Jerome Powell addressed signs of cooling inflation in a recent speech to the Economic Club of New York. While he expressed the central bank’s commitment to its 2% inflation mandate, he did not outline a specific policy direction or indicate a leaning towards hiking interest rates. This led market traders to subsequently scale back expectations for rate hikes in the remaining months of the year.

In line with traders’ expectations, the Federal Reserve(FED) has decided to maintain its benchmark interest rates of between 5.25% and 5.5%, holding them steady for the second consecutive meeting⁴. This decision comes as the economy and labour market continues to grow, and inflation rates persisting above the central bank’s target. The Federal Open Market Committee unanimously agreed on this move, following a series of 11 rate hikes in 2023. Despite the rate hikes, the economy continues to perform well, with GDP expanding at a 4.9% annualised rate in the third quarter. The labour market remains resilient, with more job openings than available workers in September. Core inflation is at 3.7%, above the Fed’s 2% target. The Fed’s decision to maintain interest rates suggests that the economy has yet to fully show the full effect of the rate hikes due to the policy lag effect.

The 10-year US Treasury yield briefly exceeded 5%⁵, a level not seen in 16 years, before receding. This surge signalled significant fluctuations in the global bond markets, which were driven by expectations that the US Federal Reserve would maintain high-interest rates for an extended period. Additionally, concerns about the US government’s large budget deficit and a credit rating downgrade by Fitch Ratings contributed to the pressure on yields. Yields on longer-term US Treasury bonds have risen due to the Fed’s indication of a slower pace of interest rate cuts in 2024 and 2025. Strong US economic data and apprehensions about the government’s borrowing plans have further fuelled the increase in yields.

In the current context of sustained high-interest rates, investing in telecommunications services might be advantageous due to its stability and consistent cash flows. The telecommunications industry is well established, with a low need for loans and with the current high interest rate environment, the industry will be able to minimise any increase in cost due to financing. Additionally, telecommunication services are now considered an essential, providing the sector with a recurring revenue due to the steady demand.

Vanguard Communication Services ETF (NYSE-ARCA: VOX.US)

VOX is an ETF that aims to track the performance of the MSCI US Investable Market Communication Services 25/50 Index⁶, which emcompasses US companies within the communications services sector. These companies provide communication services primarily through fixed-line, cellular, wireless, high-bandwidth, and/or fiber-optic cable networks. 71% of the ETF holdings are in large capital stocks with the top 3 stocks being Alphabet Inc (GOOG.US), Meta Platforms Inc (META.US), and Comcast Corp (CMCSA.US). VOX was launched on 23 Sep 2004 with an expense ratio of 0.10%. As of 30 September 2023, VOX’s 5-year performance stands at 4.87%.

VOX opened at US$105.35 and dropped by 1.93% to close at US$103.32 in October 2023.

Technical Analysis

Status: Slightly bearish

Support: US$99.50 to US$100.85

Resistance: US$104.85 to US$105.35

The price broke from the previous range area with price rejecting the immediate support zone. The price will have to sustain above US$105.00 for further upside movement, otherwise we should see the price targeting immediate support again.

Fidelity MSCI Communication Services Index ETF (NYSE-ARCA: FCOM.US)

Fidelity MSCI Communication Services Index ETF (NYSE-ARCA: FCOM.US)

FCOM is an ETF that aims to track the performance of the MSCI USA IMI Communication Services 25/50 Index. All securities in the index are classified within the Communication Services sector. The top three holdings are Meta Platforms Inc (META.US), Alphabet Inc CL A (GOOGL.US), and Alphabet Inc CL C (GOOG.US). The ETF is almost entirely invested in US equities, at 99.99%, with the remainder held in cash and other net assets such as fund receivables and fund payables. FCOM was launched on 21 October 2013, featuring an expense ratio of 0.084%. As of 30 September 2023, FCOM’s five-year performance is recorded at 5.64%.

FCOM opened at US$39.79 and declined by 1.73% to close at US$39.10 in October.

Technical Analysis

Status: Slight bearish

Support: US$37.70 to US$38.20

Resistance: US$39.50 to US$39.90

The price broke from the previous range area with the price rejecting the immediate support zone. The price will have to sustain above US$40.00 for further upside movement, otherwise we should see price targeting immediate support again.

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

Tesla Inc (NASDAQ: TSLA)

In October, TSLA reported its Q3 2023 earnings. Earnings per share fell short at US$0.66 compared with the forecasted US$0.73. Revenue totalled US$23.35 billion, slightly below the projected US$24.1 billion.

Elon Musk has announced that the company is endeavouring to reduce the prices of its vehicles. He expressed concerns about high interest rates and acknowledged the impact these have on buyers’ monthly payments. Regarding the Cybertruck, Musk underlined the significant challenges of scaling up production and achieving positive cash flow, projecting a timeline of 12-18 months for these goals. Further details on pricing and specifications are yet to be announced. With initiatives to decrease car prices, alongside concerns about reduced cash flow and the postponed production of the Cybertruck, the forthcoming quarterly performance of TSLA might not be very promising.

In October, TSLA opened at US$244.81 and fell by 17.96% to close at US$200.84.

According to a Phillip Securities Research report dated 23 October 2023, the recommendation for TSLA is to ‘Accumulate’.

Technical analysis

Status: Slightly Bearish

Support: US$180.50 to US$186.80

Resistance: US$210.10 to US$219.00

The price broke from the previous range area with the price rejecting the immediate support zone. The price will have to sustain above US$220.00 for further upside movement, otherwise we should see price targeting immediate support again.

Netflix Inc (NASDAQ: NFLX)

In Q3 2023, NFLX saw substantial subscriber growth, attributed to its anti-password-sharing initiatives and the introduction of a new ad-supported tier. The company added 8.76 million global subscribers, significantly exceeding the forecast of 5.49 million, marking the largest increase since the pandemic in 2020. Earnings per share reached US$3.73, surpassing the anticipated US$3.49, while revenue hit the mark at US$8.54 billion. Total membership soared to 247.15 million, outstripping the projection of 243.88 million.

Looking ahead to the full year of 2023, NFLX now anticipates a 20% operating margin, which is at the upper end of the previously estimated range of 18-20%. For 2024, NFLX is projecting operating margins between 22-23%. These projections signal the company’s growing confidence in its profitability over the coming years, a favourable indicator for investors, as higher operating margins are typically reflective of more robust financial health⁷.

In October, NFLX opened at US$377.48 and gained 9.06% to close at US$411.69.

According to a Phillip Securities Research report dated 20 October 2023, the recommendation for NFLX is to ‘Accumulate’.

Technical analysis

Status: Neutral

Support: US$400.70 to US$409.00

Resistance: US$445.10 to US$452.30

The share price experienced a strong gap up following the earnings release, resulting in a significant price imbalance between US$350.00 and US$400.00. For further upside momentum, the price must remain above US$400.00. Conversely, a bearish candlestick closing below US$400.00 could indicate a potential retracement towards the US$350.00 to US$370.00 range.

Spotify Technology S.A. (NYSE: SPOT)

In October, SPOT shares surged by 10% following the company’s unexpected third-quarter profit announcement, marking its first profitable quarter in 18 months and outperforming Wall Street’s forecasts. SPOT’s earnings per share were reported at US$0.35, significantly better than the anticipated loss of US$0.23. Revenue reached US$3.56 billion, marginally above the expected US$3.53 billion. The number of premium subscribers also exceeded expectations, totalling 239.6 million against an estimate of 238.4 million.

SPOT’s recent venture into audiobooks marks its latest foray beyond music and podcasts. CFO Paul Vogel has voiced confidence in the positive impact this expansion will have on both authors and consumers. Looking forward, the company anticipates continued profitability into the fourth quarter and through 2024, signalling a pivotal shift. Vogel has underscored his optimism for maintaining consistent quarterly profits.

In October, SPOT opened trading at US$155.29 and climbed by 6.10% to close at US$164.76.

According to a Phillip Securities Research report dated 26 October 2023, the recommendation for SPOT is to ‘Accumulate’.

Technical analysis

Status: Neutral (Range-bound)

Support: US$148.90 to US$159.10

Resistance: US$173.00 to US$180.50

Microsoft Corporation (NASDAQ: MSFT)

Microsoft saw a substantial rise of 6% in after-hours trading following the announcement of its fiscal Q1 results, which exceeded Wall Street’s forecasts. The profit surge was largely due to controlled growth in operational expenses. Standout figures included earnings per share of US$2.99, surpassing the anticipated US$2.65, and revenue of US$56.52 billion, which outperformed the expected US$54.50 billion. Notably, revenue from Microsoft’s key growth driver, Azure, leapt by 29%, exceeding projections.

The company’s strategic cost management was highlighted by an increase of only 1.3% increase in operating expenses, the slowest since 2016. Looking ahead, Microsoft projects around 5% revenue growth in the fiscal second quarter.

Additionally, the company has been expanding its offerings, introducing new cybersecurity services and preparing for the launch of the Microsoft 365 Copilot AI add-on. The recent acquisition of video game publisher Activision Blizzard for US$68.7 billion is expected to influence future financial performance, a point that will likely feature in forthcoming guidance.

In October, MSFT shares opened at US$316.28 and climbed by 6.90% to conclude at US$338.11.

According to a Phillip Securities Research report dated 27 October 2023, the recommendation for MSFT is to ‘Accumulate’.

Technical analysis

Status: Neutral (Range-bound)

Support: US$328.50 to US$332.00

Resistance: US$346.50 to US$352.20

Alphabet Inc (NASDAQ: GOOGL)

GOOGL released key figures from the earnings report in October. The figures revealed earnings per share of US$1.55, which exceeded expectations of US$1.45. The company’s revenue reached US$76.69 billion, surpassing the forecasted US$75.97 billion. YouTube’s advertising revenue performed robustly at US$7.95 billion, outdoing the anticipated US$7.81 billion. However, Google Cloud’s revenue was slightly below expectations at US$8.41 billion, against a projected US$8.64 billion. Traffic acquisition costs were marginally higher than expected, totalling US$12.64 billion, as opposed to the predicted US$12.63 billion. These factors may have contributed to the stock’s nearly 10% decline following the earnings announcement.

The return to double-digit revenue growth marks a significant turnaround after four consecutive quarters of single-digit increases. Google’s core advertising business faced challenges due to economic softening and heightened competition from rival platforms such as TikTok.⁸

In October, GOOGL shares opened at US$131.21 but saw a decline of 5.43% to close at US$124.08.

According to a Phillip Securities Research report dated 27 October 2023, the recommendation for GOOGL is to ‘Buy’.

Technical analysis

Status: Bearish

Support: US$119.90 to US$120.00

Resistance: US$126.50

The price has broken out of the previous range, with a notable rejection at the immediate support zone. To maintain upward momentum, the price must hold above US$129.00. Should it fail to do so, we could see it revisiting the immediate support level once again.

CONCLUSION

The final quarter of 2023 was marked by the Israel-Hamas conflict, which, unlike the Russia-Ukraine conflict in March 2022, did not lead to a significant market downturn, possibly due to the perception that such conflicts tend to be regionally contained. Nevertheless, the situation contributed to an escalation in oil prices amid concerns about potential supply disruptions. Under the stewardship of Jerome Powell, the Federal Reserve opted to hold interest rates steady, reflecting a belief in the economy’s ability to withstand earlier rate increases even amidst signs of cooling inflation and robust economic growth. The sharp rise in the 10-year US Treasury yield to a level unseen in 16 years highlights the volatility in global bond markets, influenced by expectations of enduring elevated interest rates and the US government’s fiscal deficit concerns. In this environment of higher interest rates, the telecommunications sector emerges as a potentially attractive option for investors, offering stability and predictable cash flow.

Bloomberg analysts’ recommendations

The following table consolidates the consensus ratings and average ratings provided by all analysts on Bloomberg over the past 12 months. These consensus ratings have been derived by standardising analysts’ ratings on a scale from 1 (Strong Sell) to 5 (Strong Buy). Additionally, the table includes the number of analysts recommending ‘buy’, ‘hold’, or ‘sell’ for each stock, along with their average target prices.

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