HI Market View Commentary 08-19-2024

HI Market View Commentary 08-19-2024

Why don’t you make up all the downward movement?
– Because of reality
– IF someone is claiming to catch the tops and the bottoms all the
time, they are full of (insert swear-word here).
– Is it possible to catch the tops and bottoms? YES!
– BUT it is mostly luck.
– NO ONE on God’s green earth knows what the future is
– SO, we try to catch a portion of the downward movement and
buy new shares to have extra profit for a portion of the bounce
back up
– Catching some profits from protecting on the way down is
definitely possible with regularity
– Catching the very tops and very bottoms with consistency is
impossible
Why aren’t you profitable going up?
– We are! Who are YOU following?

How do we catch some of the wave down and profit on some of the
bounce back up?
– We watch charts for support and resistance
– We know beforehand the temperament and perceptions of the
stock market in general
– This way we know how to react accordingly
– As we watched the charts and prices fall below support levels,
we understand news events that are causing the draw downs
and we can decide how serious or overblown the stock market is
reacting.
– NVDA and MU both have had stellar returns for the year, so the
market quickly chose to take profits there first BUT, those
companies are still doing well and no specific news told us that
they were under any real problems.
– Seeing stocks hit oversold tells us there’s a good chance there
will be buying back in
– AND the FED saw new inflation numbers showing that inflation
was continuing down and reiterated there could be rate cuts still
on the table.
– You can’t JUST look at charts and make all decisions, you NEED
to understand the current market temperament and perceptions
that are affecting the market movements.
– THIS IS WHAT WE DO

What sectors will profit for a presidential win for each party?
What if Kamala wins?
– Clean energy/ solar
– Healthcare
– Government jobs

What if Trump wins?
– Gas/Oil/ energy
– Deregulation and generally business friendly
– Tax cuts
– Banks
– Tech usually makes a run

https://www.briefing.com/the-big-picture
The Big Picture
Last Updated: 16-Aug-24 14:41 ET | Archive
Fed to buy what market is selling
The inflation data could be better, but it is not lost on the market that it has been a lot
worse and continues to improve. That is true no matter the inflation gauge.
The Producer Price Index (PPI), the Consumer Price Index (CPI), and the PCE Price
Index are all in a state of disinflation. None, however, are at the Federal Reserve's 2%
inflation goal, but all are tracking in that direction, some a little more slowly than
others.

Importantly, the Fed's preferred inflation gauge — the PCE Price Index — is closer to the
2% goal than the CPI is. That makes sense given that the shelter component has a
lower weighting in the PCE Price Index than it does in the CPI; also, the PCE Price Index
captures the substitution effect, which accounts for consumers trading down to less
expensive items, whereas the CPI is tabulated based on a fixed basket of goods and
services.
There is often about a half percentage point difference between the two consumer
inflation readings because of those nuances, and that half a percentage point is apt to
go a long way in the Fed's decision to cut the target range for the fed funds rate at the
September FOMC meeting.
A Good Look
Although the Fed's inflation goal is 2%, hitting it is not a precondition for cutting rates.
Fed Chair Powell has clarified that the committee needs to be confident that inflation is

on a sustainable path toward reaching the 2% goal. The charts of the PCE and core PCE
Price Indexes are exhibiting favorable trendlines to that end.

The PCE Price Index was up 2.5% year-over-year in June and the core PCE Price Index
was up 2.6%. In June 2022 they were up 7.1% and 5.2%, respectively.
The Fed's Summary of Economic Projections in June showed a median estimate of 2.6%
for PCE inflation and 2.8% for core PCE inflation in 2024 with the range of estimates
between 2.5-3.0% for PCE inflation and 2.7-3.2% for core PCE inflation.
Right now, then, it is a good look for the inflation readings and the prospect of an
impending rate cut. We suspect Fed Chair Powell will intimate as much in his August 23
speech on the Economic Outlook at the 2024 Jackson Hole Economic Policy Symposium.
The market is going to be expecting as much, too. If he does not, the market will be
deflated.
A Second Chance
Currently, there is a 100% probability of a 25-basis points rate cut priced into the fed
funds futures market, according to the CME FedWatch Tool. That includes a 23.5%
probability of a 50-basis points rate cut in September, which is down sharply from the
55.0% probability seen on August 8.
Expectations for a larger rate cut got dialed back with the arrival of some pleasing initial
jobless claims data, a retail sales report for July that was much stronger than expected,
and Walmart's (WMT) contention that it has not seen any additional fraying of consumer
health. Walmart said that after reporting a robust 4.2% increase in U.S. comparable
sales, excluding fuel, for its fiscal second quarter ending in July.
The confluence of these happenings silenced the hard-landing fears that arose with the
weaker-than-expected ISM Manufacturing and Employment Situation reports for July,
and breathed life back into the soft-landing scenario.
What the market does with this second chance of a soft-landing life remains to be seen,
but it will be resting on future economic releases and the Fed's policy decision in
September.
A Debatable Point
The Fed has held the target range for the fed funds rate steady at 5.25-5.50% since
July 2023. With the improvement in inflation in the interim, there has been a jump in

real rates that has started to create some jump scares about the fed funds rate being
overly restrictive.

That concern is rooted in the lag effect, whereby it takes many months for a single rate
cut (or hike) to have an effect on economic conditions. The concern is that the lag
effect of prior rate hikes is starting to hit home with a weakening labor market.
Participants, therefore, have become increasingly worried that the Fed is sticking too
long with its current policy rate and will be forced to react to a weak economy as
opposed to taking a proactive step of cutting rates to forestall a weak economy.
This is a debatable point with an economy still projected to increase 2.0% in the third
quarter, according to the Atlanta Fed's GDP Now model estimate, and the
unemployment rate sitting at a relatively low 4.3%. Employment, however, is a lagging
indicator, which is what has some participants worried. Then again, initial jobless claims
are a leading indicator, and they continue to run well below levels typically associated
with a recession.
See, we told you it is debatable as to whether the Fed is making (or has already made)
a policy mistake. This is why there is a lot of hand-wringing around every economic
release, because participants are handicapping what each release could mean for
monetary policy.
What It All Means
Fed officials have been paying more lip service to the idea that a decision to cut rates is
drawing near. The market has its mind made up that this decision will be made at the
September FOMC meeting.
The market has had its mind made up before, of course, only to be proven wrong by its
rate cut projections. This time feels different.
 It feels different because Fed officials are at least talking about the idea of
cutting rates soon.
 It feels different because there is a legitimate case to be made that the fed funds
rate is overly restrictive for where inflation is.
 It feels different because — the July Retail Sales Report notwithstanding — there
have been a lot of anecdotal reports about consumer spending pressures.
 It feels different because the PCE inflation readings have a 2-handle on them,
and each is steadily moving closer to the Fed's 2% inflation goal.

The economy is still growing, inflation is coming back toward the Fed's 2% goal, and
the labor market has softened. That is a good sketch of a soft-landing environment, and
it is why it has become more of a soft sell for the Fed to cut rates than it was at the
start of the year.
We expect the Fed this time to buy what the market is selling.
–Patrick J. O'Hare, Briefing.com

Earnings dates:
BIDU 08/22 BMO
DG 08/29 est
MU 09/25 est
TGT 08/21 BMO
Where will our markets end this week?
Higher to flat
DJIA – Bullish

SPX – Bullish

COMP – Bullish

Where Will the SPX end August 2024?
08-19-2024 -2.00%
08-12-2024 -2.00%
08-05-2024 -2.00%

Earnings:
Mon: EL, PANW
Tues: LOW, MDT, TOL,
Wed: M, TGT, TJX, A, SNOW, URBN, ZM
Thur: INTU, ROST, BIDU, NTES
Fri:     BKE

Econ Reports:
Mon: Leading Indicators
Tue
Wed: MBA, FOMC Minutes
Thur: Initial Claims, Continuing Claims, Existing Home Sales
Fri: New Home Sales
How am I looking to trade?
We Started taking protection off based on Technical Analysis
www.myhurleyinvestment.com = Blogsite
info@hurleyinvestments.com = Email
Questions???

https://www.marketwatch.com/story/three-different-factors-
could-trigger-the-third-wave-of-a-stock-market-pullback-says-
strategist-1225820b?mod=need-to-know
Three different factors could trigger the third
wave of a stock-market pullback, says
strategist
Critical information for the U.S. trading day
By Steve Goldstein
Last Updated: Aug. 15, 2024 at 8:41 a.m. ET
First Published: Aug. 15, 2024 at 6:50 a.m. ET
Another wave of selling could be triggered by any of three
factors, says a strategist.
The S&P 500 index, the German DAX and, especially, Japan’s
Nikkei 225, have all bounced off the early August lows.

That’s classic pullback behavior, says Christopher Watling, the
chief executive and chief market strategist of Longview
Economics. “Most pullbacks typically follow a three-wave
pattern: An initial ‘wave one’ of selling; followed by a ‘wave two’
relief rally (in which some of the ‘wave one’ losses are retraced);
and then a ‘third wave’ back to the wave one lows, or lower,” he
says.
Also classic behavior was that the safe-haven assets — notably
the yen— sold off at the same time. But Watling says his firm’s
“safe havens” positioning model still shows a capacity for a
further shift toward safer assets.
So the question is whether the third wave will come, and what
could trigger it. Dhaval Joshi, chief strategist of BCA Research’s
Counterpoint service, says an analysis of the “price complexity”
shows that the yen carry trade and the AI bubble are one and the
same trade, and that any of three factors could torpedo it.
He notes that when investors have been selling the Japanese yen,
they have been inflating the valuations of AI stocks. He shows
that by overlaying moves in the euro/yen to the ratio of the 30-
year Treasury yield to the forward earnings yield on U.S. tech
stocks.
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“While the seller of the yen might not be the very same person
that is buying AI stocks, the selling of yen and the inflating of the
AI bubble are two ends of the same trade process. Selling yen is
facilitating the AI bubble and the AI bubble is facilitating the
selling of yen. So, the relationship is not so much causation as
reflexivity,” he says. “The merging into one of the yen carry trade
and the AI bubble is significant because all bubbles need
leverage. And in the AI bubble, the leverage has been coming
from borrowing yen.”
Granted, Bank of Japan officials have said they won’t lift interest
rates anymore while the market is unstable. But the yen is still
vulnerable if other central banks cut their interest rates, and
obviously, that’s a possibility as investors debate if the U.S.
Federal Reserve will cut interest rates next month by a quarter
percentage point or half-point, following rate reductions from
the European Central Bank, the Bank of England and other
central banks.
The other point Joshi makes is that the euphoria around AI
stocks depends on how quickly it benefits the companies that are

investing in the product. He notes most of the tech stock
superstars of early 2000 — Intel, IBM, Oracle and Cisco — have
faded, with only Microsoft transitioning to become a big winner
of Web 2.0. He says of today’s superstars, Nvidia is unlikely to be
a long-term winner, and only one or two at most will be a big
winner from AI. “Meaning that the inflated aggregate valuation
of the superstar stocks is in peril, especially as the valuation
inflation has been fuelled by the yen carry trade,” he says.
For Joshi, any of the three legs — Japanese interest rates, the
Japanese yen and the high-returning investment (AI) — could
buckle, and once it does, “the whole stool will collapse.”
The markets extended gains after a wave of economic data,
setting the stage for a possible six-day winning streak for the S&P
500
Key asset
performance Last 5d 1m YTD 1y
S&P 500 5455.21 4.92% –

2.38% 14.37% 23.86%

Nasdaq
Composite 17,192.60 6.15% -4.47% 14.53% 27.59%
10-year Treasury 3.84 -15.70 -36.50 -4.09 -44.40
Gold 2496.9 1.20% 2.00% 20.52% 30.12%
Oil 77.44 1.77% -4.19% 8.57% -3.27%
Data: MarketWatch. Treasury yields change expressed in basis
points
The chart

Michael Donnelly, IBM’s chief economist, put together this chart
showing that this year consumers are spending more on things
they have to buy rather than those that are fun. He told
MarketWatch that the chart is based on carving up real personal
consumption expenditure — that is, spending adjusted for
inflation — into two categories. While 2024 has not been “fun”,
the last two decades have been, with the fun category seeing
spending rise 102% between 2002 and 2024, while the have-to
category up just 50%.

https://www.cnbc.com/2024/08/15/warren-buffett-did-
something-curious-with-his-apple-stock-
holding.html?__source=iosappshare%7Ccom.apple.UIKit.activit
y.Mail

Warren Buffett did something curious with
his Apple stock holding
Published Thu, Aug 15 202411:57 AM EDTUpdated Thu, Aug 15
20242:39 PM EDT
Yun Li@YunLi626
Warren Buffett speaks during the Berkshire Hathaway Annual
Shareholders Meeting in Omaha, Nebraska on May 4, 2024.
CNBC
A coincidence or master plan? Warren Buffett now owns the
exact same number of shares of Apple as he does Coca-Cola after
slashing the tech holding by half.
Many Buffett followers made the curious observation after a
regulatory “13-F” filing Wednesday night revealed Berkshire
Hathaway’s equity holdings at the end of the second quarter. It
showed an identical 400 million share count in Apple and Coca-
Cola, Buffett’s oldest and longest stock position.
It’s prompted some to believe that the “Oracle of Omaha” is done
selling down his stake in the iPhone maker.
“If Buffett likes round numbers, he may not be planning to sell
any additional shares of Apple,” said David Kass, a finance
professor at the University of Maryland’s Robert H. Smith
School of Business. “Just as Coca-Cola is a ‘permanent’ holding
for Buffett, so may be Apple.”

The 93-year-old legendary investor first bought 14,172,500
shares of Coca-Cola in 1988 and increased his stake over the next
few years to 100 million shares by 1994. So the investor has kept
his Coca-Cola stake steady at essentially the same round-number
share count for 30 years.
Due to two rounds of 2-for-1 stock splits in 2006 and 2012,
Berkshire’s Coca-Cola holding became 400 million shares.
Buffett said he discovered the iconic soft drink when he was only
6 years old. In 1936, Buffett started buying Cokes six at a time for
25 cents each from his family grocery store to sell around the
neighborhood for five cents more. Buffett said it was then he
realized the “extraordinary consumer attractiveness and
commercial possibilities of the product.”
Slashing Apple stake
Investing in tech high flyers such as Apple appears to defy
Buffett’s long-held value investing principles, but the famed
investor has treated it as a consumer products company like
Coca-Cola rather than a technology investment.
Buffett has touted the loyal customer base of the iPhone, saying
people would give up their cars before they give up their
smartphones. He even called Apple the second-most important
business after Berkshire’s cluster of insurers.
So it was shocking to some when it was revealed that Berkshire
dumped more than 49% of its stake in the iPhone maker in the
second quarter.
Many suspected that it was part of portfolio management or a
bigger overall market view, and not a judgement on the future
prospects of Apple. The sale brought down Apple’s weighting in
Berkshire’s portfolio to about 30% from almost 50% at the end of
last year.
And with it settled at this round number, it appears to be in a
spot that Buffett favors for his most cherished and longest-held
equities.
Still, some said it could just be a pure coincidence.
“I don’t think Buffett thinks that way,” said Bill Stone, chief
investment officer at Glenview Trust Co. and
a Berkshire shareholder.
But at Berkshire’s annual meeting in May, Buffett did compare
the two and referenced the holding period for both was
unlimited.

“We own Coca-Cola, which is a wonderful business,” Buffett
said. “And we own Apple, which is an even better business, and
we will own, unless something really extraordinary happens, we
will own Apple and American Express and Coca-Cola.”

https://www.tipranks.com/news/article/why-meta-platforms-
stock-nasdaqmeta-outperformed-big-tech-this-earnings-season
Why Meta Platforms Stock (NASDAQ:META)
Outperformed Big Tech This Earnings
Season
Bernard ZamboninAug 12, 2024, 01:48 PM
In the AI gold rush, large-cap tech firms have struggled to
impress this earnings season amid very high comps. However,
Meta Platforms stood out with strong results and optimistic
guidance, easing short-term concerns about profitability despite
significant and ongoing investments in AI.
The earnings season for the June quarter has been quite volatile
for large-cap tech firms. With challenging comparisons due to
rapid growth driven by AI in recent years, investors have been
focusing on how companies manage to expand margins while
increasing capital expenditures. As a long-term Meta
Platforms META -1.84% ▼ bull, I remain optimistic, as the
company’s Q2 results not only exceeded expectations but also
surpassed those of other AI tech giants, helping it be an
outperformer this earnings season.

Meta’s Q3 guidance further boosts confidence, indicating that AI
spending is positively impacting short-term results despite tough
comparisons, which strengthens the long-term bull case. In this
article, I’ll review Meta’s key Q2 highlights and explain why its
approach to AI appears to be effective, addressing both short-
term concerns and long-term expectations for shareholders.
Meta’s Q2 Results Were Better than Expected
When I wrote about Meta’s earnings expectations in a previous
article, I took a cautious stance due to the typical volatility after
earnings. As expected, volatility hit, but this time, it was positive
for META’s bulls.
Meta’s performance was less surprising, given its recent track
record of beating estimates. Still, it’s impressive, considering the
tough comparisons. For Q2, analysts expected a 20% revenue
increase, down from 27% in Q1. Meanwhile, Meta delivered $39.1
billion in revenue, a 22% annual increase, surpassing Wall
Street’s $38.3 billion forecast.

Source: Meta Platforms’ Investor Relations
This growth indicates that Meta is capturing more market share
in advertising as advertisers shift from traditional methods to
digital platforms like Instagram and Facebook. The success of
Meta’s short-form video platform, Reels, in countering TikTok’s
popularity also plays a role.
Revenue growth led to a 58% jump in operating income, which
reached $14.8 billion from $9.4 billion last year. With an
operating profit margin of 38%, Meta’s model is impressive,
especially considering that most of its services are free.
Despite its massive market share, Meta increased its family daily
active users by 7%, hitting 3.27 billion. This broad user base and
increased engagement provide a strong competitive edge. Ad
impressions across its apps grew by 10% year-over-year,
reflecting higher user engagement and more ads being shown.
Notably, Meta achieved these strong operational metrics with
fewer employees. The company reduced its headcount by 7,800
in Q2, highlighting Mark Zuckerberg’s effective cost
management and contributing to the significant rise in operating
income.
Here’s What Sets Meta Apart in the Current Earnings Season
A key concern for Q2 across Big Tech, especially amid the AI
boom, were capital expenditures (CapEx) and guidance for both
the top and bottom lines. For instance, major players like

Alphabet GOOGL +1.03% ▲ and Microsoft MSFT -0.61%
▼ disappointed investors with high spending on AI that did not
lead to a corresponding increase in cloud segment margins.
Consequently, the big question becomes, what return will Meta
see from this spending, and when will those benefits
materialize?
To answer that question, it’s important to note that Meta’s
focus on AI is to improve its ad business and consumer behavior
on its platforms. Then, secondarily, the company expects to drive
revenue growth by scaling up new AI-based products like Meta
AI and AI Studio.
Given this clear focus, Meta’s Q3 outlook helped alleviate
concerns about inconsistent returns. The company projected
revenues between $38.5 billion and $41 billion for Q3, signaling
a 20% increase despite tough comparisons. This has sent a
message that the AI investments are already paying off,
particularly in how Meta manages CapEx and operating
expenses.
Additionally, Meta raised its annual CapEx forecast from
$35–$40 billion to $37–$40 billion, but this didn’t negatively
impact the stock price. The stock performed well, jumping
around 7% after the Q2 results, while other Big Tech peers,
except for Apple AAPL +0.59% ▲ , saw share prices fall following
earnings reports.
Meta also warned that CapEx will increase even more by 2025.
While this sounds significant, the current data doesn’t indicate
long-term concern. On the contrary, Meta is seeing revenue
growth, more daily active users, and increased ad impressions,
all pointing to higher user engagement and effective AI
recommendations.
The bottom line is that, in my opinion, Meta is currently the top-
performing Big Tech company when it comes to managing AI
growth expectations. It has adeptly balanced shareholders’
short-term expectations with its long-term growth ambitions.
In fact, Jensen Huang, CEO of Nvidia—referred to as the
“Godfather of AI” by tech analyst Dan Ives of Wedbush—has
credited Meta Platforms and its CEO, Mark Zuckerberg, with
leading the field of AI. This recognition is due to Meta AI’s
integration across the company’s social media platforms and the
successful launch of Llama 3.1, an open-source AI project.

What Could Go Wrong for Meta?
At the same time, investors in Meta should be prepared for price
swings and an aggressive investment strategy. While Meta
posted strong Q2 results despite tough comps, challenges are
expected to grow each quarter. With CapEx rising until at least
2025, the future returns of this high spending remain uncertain.
Currently, META stock trades at a forward price-to-earnings
ratio of 24x, near its five-year average of 23x. I believe this
valuation is reasonable for long-term investors, but short-term
volatility may still occur.
Is META Stock a Buy, According to Analysts?
Meta Platforms stock is rated a Strong Buy by Wall Street
analysts. Out of 28 analysts covering the stock, only two are
bearish, two are neutral, and the remaining 24 are bullish. 12
analysts have raised their price targets for META, with
the average META stock price target now at $549.35. This
suggests upside potential of 6.7% based on the latest share price.