Happy FOMC Day!

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Happy FOMC Day!

🏦 Interest Rate: Up, Down or Stay?

Today is the long-awaited FOMC day! This is where the Federal Reserve will announce their monetary policy and most importantly, their decision on INTEREST RATE! (yes the dreaded two words to all loan bearer but music to the ears of fixed depositors 😆 )

And the answer is……………….. STAY!

Key points:

⚡Market is still expecting 1-3 rate cuts this year. 

⚡Fed will reduce quantitative tightening with lesser bond sale. (This could be bullish for markets)

⚡ Powell said it is uncertain when rate cut will happen but ruled out any rate hike for now.

For more indepth analysis catch it here:

Fed Chair Powell said they are not confident that the inflation data is trending toward their target 2% yet. However, he also gives the market some confidence by mentioning that a rate hike is not be considered right now. (phew!)

That gave the stock market a boost! SP500 and Nasdaq were up by more than 1% after the announcement. But the markets ended in the negative when Powell added that they are not looking at cut rates anytime soon 👎️ 

Now I wonder will we even see a single rate cut in 2024?

😃 Notable News

☕️ Starbucks Fell 15%

Starbucks share price crashed 15% after their earnings result. Revenue shrank 2%; Earnings dropped 7%, and perhaps most importantly the same store sales fell 4% (this is the first negative same store sales since 2022)

Are there less coffee drinkers these days or is this transitory for Starbucks?

I have no idea but I know that at 21x PE, it is not cheap either. But the quality of the business is something I admired. Return of Invested Capital (ROIC) of at least 20% for the last 3 years is no easy feat.

💻️ AMD Punished for Being Good

AMD had a very different story. It surpassed all expectations on sales and earnings and they even upped their sales forecast in 2024. However it was punished as investors were expecting even better results. Shares fell 7%.

📦️ Amazon is Amazing

Amazon beats on all fronts, with profits more than 3x due to cost cutting and 24% growth in advertising. Shares were up 3%! After a challenging 2021 and 2022, Amazon shares are finally emerging. It has increased 19% YTD.

✂️ Tesla Fires Everyone

Tesla fires the whole division of the Supercharger business of ~500 people in an internal memo. Tesla Supercharger network was going to be a recurring revenue as they roll it out to other EV cars for shared usage. This year, Tesla has faced the exodus of several of Musk long-standing executives. Will Tesla emerge stronger from this? Or this is a sign of things to come?

🚨However

With this 3% loss in April, it marks the end of S&P500’s 5 month winning streak since October. The strong inflation data continues to weigh on investor’s fear of Fed possibly not cutting interest rate and maybe might even raise it.

We are halfway through this earnings season. The overall results are improving but earnings growth is only 3.4% (for now). That’s nothing to cheer about.

The prominent impact is in crypto with BTC falling below $60k after a meteoric rise to over $73k. (But I am still a long term bull on BTC 🐮 )

However, there is one shiny industry that stood out - the Banks! The regional banks ETF (KRE) was up more than 2.5% as the market digest the Fed news and move towards safer harbours such as banks.

I discussed this in my Quarterly Investors’ Letter back in early April. While it is still early, my view is Banks are likely to perform in 2024 during this times of uncertainty.

This was not a well-received view and I got some pushback from my investors too 😭 ! But I’m happy that we are starting to see results when the market is a sea of red.

Hope you enjoyed this week’s market summary! I am trying out a new format to summarise the week’s news for everyone on my mailing list. Let me know if you like it!

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