February 25-March 1, 2024

Tactical Signal 9

The equity markets’ earnings strength, breadth, and weight continued to push momentum signals forward. Our strategic indicators remain firmly positioned in a favorable stance (100%).

Amidst the absence of an FOMC meeting until March 19th, the driving force behind the positive momentum largely stems from robust earnings beats and optimistic forward guidance. Witnessing the S&P 500 and Nasdaq Composite soar to record highs, posting gains of +1.68% and +1.41% respectively, showcases a cumulative year-to-date surge of +6.91% and +6.67%—quite the impressive feat. While it's true that a handful of the Magnificent-7 stocks contributed to these highs, our insistence on the market's breadth remains steadfast.

In a week where Hyatt (+13.05%) spearheaded lodging and hospitality, Walmart (+3.05%) invigorated the retail sector, and Home Depot (+2.65%) fortified home improvement retail and housing, including the spotlight on NVIDIA, boasting a substantial gain of +8.94%. This propelled NVIDIA's year-to-date increase to another staggering +59.16%, inching closer to a remarkable $2 trillion market capitalization.

While the limelight has predominantly been on the Magnificent-7 and the marvels of artificial intelligence, investors may find themselves taken aback by a new contender among the S&P 500 Top 10 holdings. Eli Lilly, riding high on the fervor surrounding weight-loss drugs from GLP-1, has stealthily ascended to the upper echelons, boasting a market capitalization exceeding $700 billion after a stellar +134% surge over the past 12 months. The next quarterly S&P 500 Index reconstitution awaits.

With much ado about Fed rate cut expectations—deemed somewhat premature by us—bond returns remained volatile for the week, managing a modest gain of +0.25%, yet suffering a cumulative year-to-date loss of 1.77%. It's crucial to remember that while the Fed's interest rate policy primarily influences short-term rates, bond returns can “slither” across the yield curve, from the middle (intermediate) to the tail-end (long-term)—a warm welcome to the Year of the Dragon.

Looking ahead, the spotlight will continue to shine on the remaining 10% of S&P 500 companies reporting earnings, featuring notable names such as Salesforce (software), Berkshire Hathaway (diversified financial), Lowe’s (home improvement retail), American Tower (REIT communications), Dell (computer hardware), and Zoom (communication software). Additionally, on the macroeconomic front, investors will eagerly await key indicators such as GDP, Durable Goods Orders, Wholesale Inventories, and ISM Manufacturing data, seeking insights into the economy's strength and the trajectory of inflation.

Lastly, as Super Tuesday on March 5th looms large, heightened interest will be directed towards the potential implications of a Biden-Trump election and the broader geopolitical climate—a narrative sure to captivate investors in the weeks to come.

"We know that Americans are experiencing discomfort because some important prices are higher than they were pre-pandemic but what I think is really important is that wages have gone up along with prices." 

– Treasury Secretary Janet Yellen, CBS Mornings, February 15, 2024.

"Apple-verse" – Vision Pro

Apple Vison Pro

The release of Apple's revolutionary AR product, Vision Pro, in February 2024 marks a significant leap forward in augmented reality – relative to Meta's Metaverse. This cutting-edge AR headset is designed to provide users with a seamless and immersive experience that transcends the boundaries of traditional technology. Vision Pro opens up a new dimension of interaction with the digital world, promising to redefine how individuals engage with information, entertainment, and communication.

The impact of Vision Pro on various industries is expected to be profound. In the business world, the device has the potential to revolutionize communication and collaboration, allowing professionals to engage in virtual meetings and presentations with unprecedented realism. Vision Pro could transform the learning experience in education by bringing subjects to life through interactive simulations and 3D models. Moreover, in the realm of entertainment, users can immerse themselves in a world of augmented-reality gaming and interactive storytelling.

Storytelling has huge benefits for marketing, and you can imagine the enormous advantage that could be gained with experience within Vision Pro—benefits in information retention, lead generation, brand awareness, customer retention, and finally, SEO benefits.

However, due to its higher price, many potential buyers are holding off on the Vision Pro, waiting for more reviews. It turned out that the first generation of Vision faced criticism for being heavy and challenging to control and interact with. As a result, some investors may not find it appealing and may question its potential market demand. Investors expressed concerns primarily about the $3500 price tag, fearing its potential impact on consumers' enthusiasm for the product. Nevertheless, this pricing strategy could be such an approach for Apple's marketing of this product. By initiating with a premium price point to capture enthusiasts, they can focus on refining the product and enhancing the margin profile while enhancing its visibility without paying for advertisement. It looks successful, as the very first generation of Vision Pro attracted many bloggers. Their purchases and subsequent reviews on social media have generated significant buzz, effectively promoted the product, and attracted public attention. As technology advances and production costs decrease, there is potential for the price of later generations of Vision Pro to decline gradually, making it more accessible for ordinary individuals and opening up potential markets. As per analysts' assessments, the consensus for pre-sale orders stands at approximately 200,000 units, and the entire sales volume of the product throughout 2024 is expected to be around 350,000, with a high forecasted growth rate and reach over 12,500 million after five years of 67%.

From an investor's perspective, the release of the Vision Pro signals a new era of innovation and market potential for Apple. One of the key features of the Vision Pro is its ability to seamlessly integrate with other Apple products, creating a cohesive ecosystem that enhances user experience. Users can expect a seamless transition between their Vision Pro and existing Apple devices, such as iPhones, iPads, and MacBooks. This interoperability simplifies tasks and offers a unified and intuitive interface for users to access their favorite applications and services. The device is likely to drive increased sales of the Vision Pro and complementary Apple products, strengthening the company's ecosystem. Besides, introducing this new product contributes to diversifying Apple's product portfolio, thereby expanding the range of offerings contributing to its revenue stream. As of the end of 2023, sales from iPhone transactions constituted approximately 50% of Apple's total revenue. While iPhone sales remain a dominant force, constituting a significant portion of Apple's earnings, achieving growth in the competitive handset market has become progressively challenging. Adding innovative products like the Vision Pro allows Apple to explore new avenues for revenue and reduce dependence on a single product category. As the adoption of augmented reality becomes more widespread, Apple's leadership positions it favorably for sustained growth and market dominance.

Economic Reports Feb 26-mar 1
Select Indices as of 2/23/24

Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.


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