2024 Progress Report for Global Stocks
May 21, 2024
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EDITION #1,046
“2024 Progress Report for Global Stocks”
The “risk on” trade appears to be back in vogue after equity investors hid for the better part of two years. Ever since the Federal Reserve in the US announced that interest rate hikes had likely come to an end in the fourth quarter of 2023, stocks have rallied, led by the technology sector in the US. And the result almost 5 months into 2024 is 14 of the world’s 20 largest stock indexes are at or near all-time highs.
A number of factors can be pointed at for the sudden change in sentiment but look no further than the end of the rapid rise in interest rates. This was scary time for anyone with margin in the stock market or any amount of borrowing whether it be a mortgage or line of credit. Investors waited on the sidelines to ensure their cost of lending didn’t continue to rise. Now, you add the prospect of lower rates (soon), a soft landing for the economy, extremely robust corporate earnings, and the impact from AI and you have what appears to be a very healthy stock market. Initially the “magnificent 7” tech names drove index performance, but 2024 has seen many other sectors catch fire and now resources appear to be poised for a breakout, with uranium, gold and copper looking extremely strong.
Europe is benefitting from a few very poor years that have made earnings comps a slam dunk, while Canadian and Australian markets are beginning to benefit from strong commodity performance. The price of metals have been soaring of late but the stocks were slow to respond and that seems to be changing, with a recent spike in metals-related stocks. What hasn’t moved yet is the TSX Venture market, which remains near multi-decade lows. While the small-cap Russell Index in the US has bounced nicely, small caps in Canada remain unloved.
Chinese stocks have been slow to respond to better action in other countries, but May was the best month in a few years with some of the frightening bankruptcy chatter surrounding some of the country’s largest real estate entities, now being met by rescue efforts and restructuring. This seems to have calmed investors and brought renewed optimism.
Japan’s Nikkei index is sitting in record territory with strong earnings, a weak yen and an abundance of government reform, while India has experienced similar market success thanks to positive economic outperformance, political stability and strong investment in the National Stock Exchange of India.
SOUNDBITES
- The cannabis trade has been an ugly one. Some made a ton of dough early on and then as soon as the governments got their hands on the industry, as expected, things turned horrific. Too many high flyers to even count, turned to rubble and its left the industry bruised and battered. But recent announcements in the US have brought the sector back into the spotlight and it’s a much cleaner industry as all the pretenders are gone and unfortunately a number of pretty good companies also fell by the wayside. What’s left are the entities with strong balance sheets and equally robust businesses. Our analyst Matt Bottomley recently released a report and suggested a mix of Green Thumb Industries (overweight), Trulieve, Verano Holdings and Despite growing enthusiasm for this space, at this time our team is not allocating any funds towards this sector and unlikely to do so.
- Copper continues to build strength and this has lead our mining team to push out most of their price targets on our core group of copper names. Copper is up around 20% this year and continues to climb as tight global supplies have been met by a continued thirst from the EV market and a growing need for consumption associated with AI data room buildouts. The AI situation is a very interesting one in that the appetite for copper didn’t seem to be factored into projections over the past few years and the amount of copper required for these massive data centers is mind-blowing. As a result, the projections being created recently show the shortfall in physical copper reaching catastrophic levels only a few years out. To provide some perspective, Amazon’s new power-hungry data room is likely to require 160MW of power consumption per $1 billion of investment (equivalent to Ero Copper’s entire annual production). Astounding…
- Where’s the beef? With food costs sky-rocketing, restaurants chains are increasingly expanding their chicken offerings to skirt the exorbitant price of beef. The cheaper protein is easy to build multiple different offerings around and aligns with consumers desire for healthier eating. A number of chains including Burger King and Chipotle highlighted chicken’s contribution to revenue in the prior quarter, and the public is seeing an increase in “limited time menus” with chicken as the focus. For example, Chipotle’s Chicken al Pastor helped boost foot traffic by 5.4% despite a difficult economic backdrop. And with Chick-fil-A being closed on Sunday’s, Shake Shack introduced a chicken sandwich offering only on Sunday’s to take advantage of the opportunity. Ironically, this industry innovation is seemingly hurting “chicken-only” franchises which saw their numbers drop in the previous quarter.
MARKETWATCH – A LOOK AT THE WEEK’S NEWSMAKERS
Premium Brands Holdings Corp (PBH) Shares saw their biggest jump in some time after reporting the company’s latest quarter. The Richmond-based company reported record sales of $1.46 billion, driven by its specialty foods segment which accounted for almost 70% of Premium Brands revenue. But the company still facing challenges with its subsidiary Clearwater Seafoods, which is suffering from challenges which include an excess snow crab inventory and a shortage in lobster supply. The company has driven growth through acquisition but didn’t make any moves in Q1, choosing instead to digest and integrate prior purchases. In the recent quarter, shares fell as low as $84.66 but have since recovered back into the 90s and look to have a solid chance of moving higher as business continues to improve.
Anglo American Plc (AAL – London) The company is fighting hard to fend off a takeover from rival BHP Group and plans to exit its operations in coal, platinum and diamonds to concentrate on its copper business. BHP currently has a $43 billion USD offer out after being rejected twice, and by all accounts, Anglo will continue to rebuff their advances. Shareholders have been pressuring company management to focus on its rich copper portfolio and iron ore and shed the less attractive non-core assets for some time, so this takeover situation has forced the hand of CEO Duncan Wanblad. The result would see the sale of is co*king coal business in Australia, its DeBeers diamond business and likely spin-off its Anglo American Platinum operations. These moves would streamline the company and likely make it even more attractive to suitors who are keen on high quality copper assets without all the peripheral businesses.
Netflix (NFLX) announced its first true step into live sports this past week and will be streaming Christmas Day NFL games for the next three years. Two games are set for Christmas Day this year, with at least one each Christmas for the following two years. As of right now, it is unclear how big of a bill Netflix dished out for this but knowing the NFL, it will be a very large number. For context, the three Christmas Day NFL games last year averaged 28.68 million viewers. This all comes at a time where Netflix is trying to boost profits by raising prices and cracking down on password sharing.
NEWS FROM THE X
Jamie Switzer @jamie_switzer
#Copper explosion today:
$HBM +10.65%
$FM +6.23%
$WRN +4.55%
$TKO +4.55%
$CS +2.30%
$ERO +2.02%
TSN @TSN_Sports
TSN is mourning the loss of our friend and beloved SportsCentre host Darren Dutchyshen.
Jamie Switzer @jamie_switzer
While I am highlighting the #copper breakout today, here are some of the top performers in the first 4 months of 2024:
$TKO +96.77%
$HBM +86.42%
$FM +77.97%
$CS +68.99%
$ERO +44.39%
“Given a 10% chance of a 100 times payoff, you should take that bet every time.”
Jeff Bezos
