Barron's Weekend Summary: Former President Donald Trump accepted the Republican presidential nomination in a raucous four-day celebration
Cover:
-Former President Donald Trump accepted the Republican presidential nomination in a raucous four-day celebration in Milwaukee, Wisconsin. Trump's speech focused on unifying notes and attacking his political enemies, painting a grim picture of a nation in decline. He promised to fix a world in disarray and promised to stop wars with just a telephone call. Trump's pitch to voters is grounded in his economic successes as the 45th president, with tax cuts, deficit spending, and economic nationalism. However, his more statist vision would represent greater change for the country and its economy than his 2017-21 term. If Trump wins the Nov. 5 election, he may have a unified Republican Congress and a presidency strengthened by the Supreme Court.
Interview:
-The Federal Reserve's decision to cut interest rates is expected to benefit emerging markets, as lower rates may weaken the dollar and strengthen local currencies, allowing central banks to cut rates and boost domestic demand. Alison Shimada, the head of Allspring Global's emerging markets strategy, has co-managed the Allspring Emerging Markets Equity Income fund for the past dozen years, which has returned almost 18% in the past 12 months, beating 80% of its peers. The fund's latest average yield of 3.6% is higher than its benchmark's 2.5% and triple that of the S&P 500 index. Shimada's career began in Asia, working as a senior analyst at Fidelity in Japan and investing in Malaysian stocks during the late-1990s emerging markets currency crisis. The MSCI Emerging Markets index has returned 4% in the past month, outpacing the S&P 500's near-4% return.
Tech Trader:
-The tech-heavy market has been a concern for years, with the Nasdaq Composite experiencing its worst day in two years. The week also saw new concerns about Taiwan's safety and the global chip supply chain. A software failure caused widespread disruptions, including airlines, payment systems, personal computers, and corporate websites. The six largest tech companies make up 30% of the S&P 500. Analysts predict 15.9% growth in the Information Technology sector and 18.7% for the Communications Services group, with overall S&P 500 earnings expected to grow 9.7%. However, tech's starring role during earnings season may be underplayed, with four tech companies generating 56% earnings growth in the second quarter. Without them, the S&P 500's growth could be a more pedestrian 5.7%.
The Trader:
-Visa's stock has been weighed down by concerns about its future dominance, which began during the pandemic and intensified after a federal judge rejected a March settlement between card companies and merchants. The market is concerned that Visa and Mastercard will have to reduce the fees they charge businesses, which would eat into their profits. Visa stock has risen just 3.4% this year, trailing the S&P 500 by about 13 percentage points. With Visa stock down 7.3% since its March 21 record high, it might be time to buy the dip. J.P. Morgan analyst Tien-tsin Huang believes these concerns are reasonable, but sees the recent underperformance in the stocks as overdone. Investors should look past the noise heading into its earnings on Wednesday.
-The market rotation of the past week left investors dizzy, with the Nasdaq Composite dropping 3.7%, the S&P 500 index falling 2%, and the Dow Jones Industrial Average rising 0.7%. The moves reflect ongoing optimism that the Federal Reserve will begin cutting interest rates in September, as lower inflation and weaker jobs data suggest it's time to ease monetary policy. The market may also be responding to higher odds of a Red Sweep following the assassination attempt on former President Donald Trump, as big GOP wins could bring lower taxes, reduced regulations, and other policies favorable to companies. However, it was unclear how broad or sustainable the rotation would be. The Russell 2000, for example, gained 11.5% over the five trading days ended July 16, nearly 10 percentage points more than the S&P 500 during that period, the largest five-day gap between the two since at least 1986.
Features:
-Microsoft has faced criticism for computer issues, with global airlines, hospitals, enterprises, and banks experiencing mass PC outages and disruptions due to a buggy update sent by cybersecurity company CrowdStrike. The update, which targeted Windows users, was sent to CrowdStrike customers who use Windows. Microsoft blamed CrowdStrike for the issue, stating that it wasn't caused by a hack or other security issue. CrowdStrike has its own update mechanism and doesn't use the update feature built into the Windows operating system. The update came with a bug, which CrowdStrike will have to fix in the future to keep customers. Microsoft has a public relations issue, not a software problem. CrowdStrike has its own update mechanism and is actively supporting customers to assist in their recovery.
-Chinese top leaders acknowledged the economic risks but did not provide any indication of the overhauls investors want to address the country's structural challenges. Chinese stocks have been struggling after a 30% rally in the first few months of the year, as officials' measures to stabilize the property market and boost property and consumer confidence fell flat. Investors want more stimulus and clarity on how China will tackle its structural issues, including restructuring bad debts and rebuilding confidence among private businesses and consumers. China's economy is losing steam after growing at an average rate of 5% in the first half of the year.
Europe:
-Major US airlines, including United Airlines, Delta Air Lines, and American Airlines, have grounded some flights due to communications issues linked to global technology outages. The Federal Aviation Administration's system status page states that American Airlines has safely re-established its operation. The issue was caused by an update from cybersecurity company CrowdStrike. Microsoft employees and outside technology professionals familiar with the matter told The Wall Street Journal. Delta has resumed some flights after a vendor technology issue impacting airlines and businesses globally. Delta and United issued travel waivers. As the systems are restored, some flights are resuming, but many customers may experience delays.
Emerging Markets:
-Femsa, a holding company with a near-majority stake in Coca-Cola Femsa, the largest franchise bottler of Coke products in the world by volume, is looking attractive for investors. The company's shares have slumped over 9% this year to $117.60, following the departure of its CFO and CCO in February and the naming of an acting CEO last July. The Mexican presidential election, which resulted in a victory for Claudia Sheinbaum and a sweep of Congress by her left-wing Morena party, further pushed the shares lower. However, Femsa's bottling business is a steady grower, and the company has been selling nonessential businesses to continue returning cash to shareholders in the form of buybacks and dividends. The real story is its expanding convenience-store business in South America, Central America, and possibly even Texas.
Commodities:
-Alcoa reported better-than-expected second-quarter results ahead of closing a key deal, leading to a higher stock price after a market wobble. The company disclosed adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) of $325M, with earnings per share of 16 cents from $2.9B in sales. Wall Street was expecting Ebitda of $314M and EPS of 8 cents from sales of $2.8 billion. Citi analyst Alexander Hacking called the print solid and has a $50 price target for the stock. Shares were up over 2% in after-hours trading at $37.19, after closing 4.8% lower in regular trading. The S&P 500 fell 1.4%. Alcoa's full-year shipments forecast remains unchanged, with the company expecting to ship 12.8M tons of alumina and 2.6M tons of aluminum in 2024. The acquisition of Alumina AWC Limited is expected to be completed in early August, reducing operating costs and simplifying the company's structure.
Streetwise:
-No uC C JPM T META pdate