Apple (-6.6%) gets bitten post-broker downgrades; Red Sea attacks to dictate the year

A happy 2024 to everyone! I hope everyone had a great holiday and are well rested to do it all again in the new year.

This first trading week for the year was, well… eventful to say the least.

Today’s newsletter covers; the Fed, the most important data print, Apple’s recent weakness and the potential ramifications of Red Sea tensions.

STOCK SPECIFICS:
[Apple, JD Sports, Maersk]

Apple (WTD -6.6%): Has been hammered in the past week, amid several negative catalysts. (1) Received a downgrade at Barclays, which cited concerns that demand for its devices (iPhone & Mac) will remain weak in 2024. (2) The following day, received another downgrade at Piper Sandler for the aforementioned reasons. (3) The US aims to file an antitrust case against Apple’s strategies to protect the dominance of the iPhone.
My Opinion? Price action following broker downgrades is more-so a “rotation“ out of Tech in the new year, rather than Apple investors “jumping ship“ (Nasdaq WTD -3.3%). Going ahead, the main catalyst will be government’s anti-trust trial against Google, which may have a significant impact on Apple’s revenue. I will cover this closer to the closing arguments in May - but for now, if you are interested click here.

JD Sports (WTD -28.5%): The trendy UK fashion retailer saw its shares slump, after the company missed on its revenue expectations and lowered its profit guidance - blaming milder weather and “cautious spending”.
What the institutions are thinking? Peel Hunt noted that the significant drop represents “a good opportunity to buy a high-quality, growing market leader”, citing weakness over the Christmas period is transitory. The brokerage firm maintained its “buy“ rating (price target 250p; current 120p). Shore Capital, on the other hand, has put its “buy“ rating on review.

Maersk (WTD +16.5%) + Macro Themes: The shipping company announced on Friday 5th, that all vessels travelling through the Red Sea are to be diverted around Africa for the foreseeable future, in hopes to avoid Houthi militant attacks. Ramifications: Longer stock deliveries, higher prices - inflation? The Next CEO mentioned that should these reroutes persists, it will moderate sales growth. In the past week, freight rates have more doubled and will no doubt be reflected in consumer prices. This will be an important theme in the coming weeks and months ahead, and Maersk’s decisions re. the Red Sea will be closely watched by analysts - they are, of course, the world’s largest shipping company.

KEY EVENTS:
[FOMC Minutes]

Concerns remain, but generally boring: The FOMC Minutes (released 3rd Jan 2024) highlighted that the members continued to maintain a data-dependent approach and reaffirmed that it would be appropriate for rates to remain at the current level longer than currently anticipated.

KEY DATA:
[US Payrolls, ISM Services, EZ CPI]

US: The US labour market added 216k jobs in December, an upward increase from the prior. Along with the unemployment rate and wages metrics, overall the release was hawkish - fuelling the narrative of rates staying “higher for longer“. Market Bulls will focus on the dovish aspects of the release (negative revisions to the headline). Bears will draw attention to the robust wage growth and point to external data (EZ inflation, Weekly Claims) as hawkish in nature.
ISM Services provided a boost to stocks at time of release, after it fell to 50.6; consensus was 52.6. The report was undeniably dovish, and with this release being a leading indicator (NFP lagging), this may help support the markets.

EZ CPI: Yawn! Metrics rose against the prior and slightly below consensus (2.9%, expectations 3.0%). Desks are generally unconcerned with the rise in inflation, attributing the increase to energy base effects.

FINAL THOUGHTS:
[Chinese & US CPI, US Earnings]

The main sentiment changing data points for next week will no doubt be the CPI prints from the world’s two largest economies, UK GDP and US earnings.

For China - Look out for any signs of any economic slowdown; Luxury and Mining equities will be particularly reactive to these metrics.
For US - Markets will keep an eye out for any reemergence in inflation, which could potentially impact the markets dovish view of the Fed this year.

US Earnings season begins on Friday (a few precede this day), starting with a number of big US banks alongside Delta Airlines.

I want to hear from you! Reply to this email on your thoughts on the markets going forward - and you may just make the next edition!