May 6-10, 2024

Tactical Signal 9

After another week of solid gains, albeit volatile, our technical moving averages have remained above the support level to maintain a fully invested position (100%).

With the suspense of a Hitchcock thriller, markets tiptoed toward last week's much-anticipated FOMC rendezvous on interest rates. But fear not, for Federal Reserve Chair Powell emerged from the shadows with a soothing declaration: the current interest rate range remains untouched, a move aimed at quelling the inflationary storm clouds. As investors exhaled a collective sigh of relief, aided by the Fed's silence on hiking rates and a surprisingly tepid job report, the S&P 500 and Nasdaq staged a climb, buoyed further by Apple's stellar earnings report. When the dust settled, the numbers spoke for themselves: a commendable uptick of +0.56% for the S&P 500 and a robust +1.44% for the Nasdaq composite. Cue the applause for a week that began with apprehension but ended with applause.

 For the second week in a row, followed by Google's $70 billion stock buyback program, Apple announced last week it would top that with the largest stock buyback in history with a massive $110 billion stock buyback program and an increase in its quarterly dividend to 25 cents per share helping Apply stock to gain +8.32%.  Share buybacks reduce the number of shares in the market, and with less liquidity, the intent is to increase the value of the share price.  Even with the remarkable gain, Apple could not supplant Microsoft as the most valuable company as of last Friday, with a market cap of over $3 trillion.

 Long-term bond yields fell by 10+ bps in reaction to the Fed holding rates, followed by the US economy's addition of fewer jobs.  A closer look at the jobs report indicated a rise in the services sector led by healthcare, transportation, and retail.  However, jobs in information and business services had losses for the second consecutive month, indicative of a broader economic slowdown.  As a result, the Bloomberg US Aggregate gained +1.17% for the week, albeit still negative YTD.

 With the Fed keeping rates status quo for longer and anxiety cooled, expectations for forthcoming interest rates will be on June 11-12 when the FOMC holds its next meeting.  The week ahead will continue to focus on corporate earnings with notable players like Walt Disney, Tyson, Uber, and Airbnb. Any hint of inflation and economic landscape will come from the upcoming Treasury auctions, wholesale inventories, and state of consumer credit.

"We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected."

— Chair Powell's FOMC Press Conference, May 1, 2024

How do you like them "Apples" - Android, AI and Qualcomm

While Apple often steals the spotlight, it's worth noting that Android quietly reigns supreme, commanding a staggering 70% of the global smartphone market. Qualcomm (QCOM) reported surprisingly strong fundamentals this week, with second-quarter earnings and revenue beats to the upside. QCOM had 2Q24 revenues of $9.4 billion and earnings of $2.44, a beat on the earnings of 6,09% over the estimated forecast of $2.30.

It seems that Chinese smartphone makers have increased demand for QCOM smart chips as Android devices powered by QCOM's Snapdragon 8 Gen 3 chip see their initial launches. Revenues from these Chinese OEMS increased by over 40% year over year, representing the strong recovery of phone demand in China. Add to that record earnings in chip sales in the automotive sector, which bodes well for the future pipeline for this segment. 


Significant in the automotive segment is how QCOM's Snapdragon powers car-to-cloud, cockpit, ride, and auto connectivity platforms. The company could profit from this market opportunity for as much as $45 billion.

QCOM also leads in bringing the Generative AI revolution to devices and developers. In February, they offered developers the Qualcomm AI Hub. This Hub offers 75+ optimized AI models for Snapdragon and all Qualcomm platforms.This library allows developers to seamlessly deploy generative AI models optimized for superior performance, leading to reduced time to market and enhanced capabilities.

In the chip space, QCOM has been the "value" play as recently as 2023, with a Forward P/E in the 12-13x range. Compare this to NVDA's current Forward P/E of 34x. QCOM ranks well on both valuation and earnings momentum, and with these most recent earnings beats, it could be the driver of AI on Android phones.


Economic Reports 5/8-12
Select Indices as of 5/3/24

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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