BUZZ Investing: Fed Signals Potential Rate Cuts Amid Cooling Inflation

During the recent period between index selection dates (June 12, 2024 – July 11, 2024, the “Period”), U.S. domestic markets saw meaningful gains, particularly within the artificial intelligence sector. NVIDIA (NASDAQ: NVDA) achieved a notable milestone, reaching a $3 trillion market capitalization and temporarily surpassing Microsoft (NASDAQ: MSFT) as the world's most valuable company on June 18th. However, these gains have raised concerns among some investors about the concentration of growth in mega-cap stocks. They argue that this focus has masked broader market weaknesses and resulted in the narrowest market breadth in over two decades.

Federal Reserve Chair Jerome Powell's testimony to Congress hinted at potential interest rate cuts, contributing to market optimism. Powell noted signs of a cooling labor market and suggested that further economic softening might be unwelcome. Positive inflation data further fueled speculation, with the May Consumer Price Index (CPI) showing lower-than-expected inflation rates, reinforcing hopes for earlier-than-expected rate cuts. These developments led to further gains in equity markets and a decrease in Treasury yields, reflecting increased investor confidence in potential monetary easing by the Fed.

The BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index”) returned 2.15% during the month of June compared to a return of 3.59% for the S&P 500 Index during the same period. Year-to-date, the BUZZ Index slightly lags the S&P 500 with returns of 13.45% and 15.29%, respectively, as of the end of June.

For more on rebalancing results and a full breakdown of index constituents added and removed for the month, view the BUZZ Index reconstitution report.

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

Shares of Coinbase Global Inc. (NASDAQ: COIN) and MicroStrategy Inc. (NASDAQ: MSTR) both fell approximately 15% during the Period, in tandem with a 15% drop in bitcoin's price. Several factors may have contributed to this decline. Media reports indicated that the failed cryptocurrency exchange Mt. Gox might begin returning bitcoin to creditors, who are viewed as likely to sell since the token's value was only in the hundreds of dollars when the exchange collapsed a decade ago. Additionally, speculators faced challenges such as waning demand for U.S. bitcoin exchange-traded products, signs that governments are offloading seized tokens, and political uncertainty in the U.S. A report that German authorities are preparing to sell 50,000 seized bitcoins, further fueled a bearish outlook for the cryptocurrency market. Moreover, beleaguered bitcoin miners are under pressure to sell their holdings to maintain profitability, further exacerbating the decline in bitcoin and related stocks.

Bottom BUZZ Index Contributors: June 12, 2024 – July 11, 2024

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

BUZZ Index July 2024 Rebalance Highlights

Although the EV sector has faced waning investor enthusiasm in recent years, rising positive sentiment suggests a potential comeback for these stocks. The BUZZ Index has shown a steady increase in the weightings of EV stocks throughout 2024, reflecting renewed investor confidence. This shift was recently underscored by impressive Q2 results, with total EV sales in the US rising by approximately 20% quarter-over-quarter. Traditional automakers are reporting record-high sales for their EV lineups, while pure-EV companies like Tesla (NASDAQ: TSLA) and Lucid (NASDAQ: LCID) are surpassing delivery expectations. Notably, Rivian (NASDAQ: RIVN) has created a major stir by partnering with Volkswagen in a $5 billion joint venture. Shares of RIVN gapped higher following the announcement and are now up approximately 50% since the deal was announced. Positive investor sentiment also jumped on the news, propelling RIVN to a maximum 3% weight this month within the BUZZ Index.

On June 28th, Nike announced its earnings and reported an unexpected decline in sales for the latest quarter. The market was taken aback, particularly since many other apparel retailers had posted strong results. As a result, Nike's shares plummeted nearly 20% the next day, marking the worst single day decline in the company's history. Analyzing the situation revealed several missteps, including poor marketing execution and the strategic shift of inventory and traffic from third-party retailers to its own website—a move that made sense during the pandemic but backfired as consumers returned to physical stores. This shift enabled rapidly expanding athletic apparel brands like On to gain access to previously unavailable shelf space. Despite the disappointing earnings, investor sentiment turned positive. Value investors may see the nearly 60% drop from Nike's all-time highs as a buying opportunity, especially with the Summer Olympics on the horizon. Consequently, Nike (NYSE: NKE) has re-entered the Index this month with a maximum 3% weight.