May 13-17, 2024

Tactical Signal 9

As volatility tempers following a week of gains, our technical indicators have stabilized the support levels to maintain a fully invested position (100%).

Indications of a cooling economy lifted major averages last week as the S&P and Nasdaq Composite gained +1.89% and +1.17%, respectively. Amidst ongoing geopolitical tensions and inflationary concerns, the labor market continued to exhibit signs of softness, with jobless claims for unemployment benefits rising to 231k, well above expectations. Consumer 1-year inflation expectations also rose to 3.5% from 3.2%, stoking expectations that the economy is beginning to cool. Yet, amidst these indicators of a potential economic slowdown, inflationary pressures persisted, manifesting notably in the performance of gold stocks, which gained over 3%. Such developments stirred apprehensions about the Federal Reserve's monetary policy stance and its implications for future market dynamics.

Key highlights of the week included Amazon.com Inc. (AMZN) reaffirming its dominance in e-commerce and cloud computing, with the stock soaring to a record high of $191.70 and boasting year-to-date returns of 23.4%. Similarly, Berkshire Hathaway Inc. (BRK.B) surged +2.79% on solid quarterly results, outshining six of the seven Magnificent stocks for the week. Market breadth improved as Utilities, Financial Services, and Basic Materials stocks outperformed the broader markets on economic expectations, signaling a cautious optimism among investors.

Looking ahead, investors will closely scrutinize the Federal Reserve's messaging on interest rates and inflation management, particularly with the release of key CPI data in the week ahead. Market focus will hone in on pivotal economic indicators such as PPI, Business Inventories, and Industrial Production. Additionally, Chair Powell's upcoming speech at the Foreign Bankers Association is anticipated to provide further insights into the central bank's policy direction, shaping market sentiment and guiding investment strategies in the days to come.

"Monetary policy is not passing through to housing as quickly as it otherwise would because people are not feeling the bite of higher mortgage rates yet. If that is true and I think, there's some truth to that then it may take longer for monetary policy to be fully felt by the housing market and by the economy more broadly.  So that may guide us to be more patient and seeing the effects of our policy actions."

— Minneapolis Fed President Neel Kashkari, 2024 Milken Institute Global Conference, May 7, 2024

The Real Cost of Cybercrime – UnitedHealth Spotlight

CybercrimeIn February of this year, UnitedHealth (UNH) encountered a severe cyberattack that disrupted more than 100 systems, significantly impacting the healthcare industry's revenue flow. Two hacking groups, BlackCat and RansomHub, claimed to have stolen terabytes of sensitive data from the company's infrastructure. Threats of information leaks and ransom demands ensued, with UnitedHealth facing the daunting task of mitigating the fallout.

By April, the financial implications of the cyberattacks became apparent, with the company projecting a cost exceeding $1.6 billion for the fiscal year 2024. This unsettling forecast contributed to a downward trend in UNH's stock performance, experiencing a notable 15% drop from late February through April. According to news from the Wall Street Journal, the cybersecurity repercussions were not limited to UnitedHealth alone but rippled across the entire U.S. healthcare industry, causing financial strain for many companies. Some struggled to maintain cash flow, resorting to loans to meet payroll obligations, while others faced the dire prospect of shutting down operations.

Amid this challenging landscape, UnitedHealth has swiftly implemented measures to address the cyber threats. Immediate actions were taken to rebuild compromised systems and shore up cash flows to mitigate the impact on operations. Surprisingly, though the adversity brought a net loss of $1.53 per share in Q1 and affected the cash flow, the company managed to surpass market expectations and showed robust growth trends in its earnings report. The report revealed a $99.8 billion revenue, which means an impressive 8.6% YoY revenue growth, and adjusted EPS stood at $ 6.91, surpassing the estimated $6.62, signaling resilience and adaptability in the face of adversity. Besides, the company reported a notable influx of 2 million new domestic consumers in the quarter, showcasing its continued relevance and market penetration. By May 1, Chief Executive Andrew Witty provided reassurance during congressional testimony that the company's core systems had been fully restored, alleviating concerns about further disruptions to claims management. (Link)

The market responded positively to these developments, with UNH stock rebounding by over 16% from mid-April onwards. This resurgence underscored investor confidence in the company's recovery efforts and reflected a broader sentiment of optimism regarding the healthcare sector's ability to navigate and overcome challenges. Despite the initial setbacks caused by the cyberattack and subsequent financial projections, UNH's proactive response and robust performance in the first quarter have instilled confidence in its ability to navigate adversity. Cybersecurity threats are expected to persist and evolve, becoming more sophisticated over time. Some estimates forecast the total cost of cybercrime to reach $10.5 trillion by 2025. As technology advances, so do the capabilities of malicious actors seeking to exploit vulnerabilities for financial gain or other malicious purposes. This underscores the importance of continuous vigilance and robust cybersecurity measures for companies like UnitedHealth and across all sectors. Organizations must proactively identify and mitigate potential threats to safeguard sensitive data and maintain operational integrity. As long as it continues to effectively manage cyber threats, sustain its revenue growth, and adapt to evolving market dynamics, it is well-positioned to recover from past challenges and thrive in the future. This resilience and adaptability are key strengths driving their success in the coming months and beyond.

Economic Reports 5/13/17

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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