Barron’s Weekend Summary: Americans online shopping habits should have most retailers worried.
Cover Story:
-Americans online shopping habits should have most retailers worried. Shein, for example, may be the most ambitious company you’ve never heard of. Shein, which was founded in China and later moved its headquarters to Singapore, was the most downloaded shopping app in the world last year (it was No. 2 in the U.S. after Amazon.com app, according to Apptopia). The retailer took off during the pandemic-era e-commerce boom, rising to global prominence on the back of Gen Z’s taste for the $4 shirts and $6 dresses, which it’s able to churn out with its norm-breaking supply-chain model. Along the way, it picked up backing from some of the biggest names in venture capital, including Tiger Global and Sequoia Capital China, and a valuation of roughly $66 billion, dwarfing fast-fashion and affordable-apparel companies such as H&M and Gap.
Interview:
-On June 6, Barron’s interviewed Joyce Chang, chair of global research for J.P. Morgan, is known for her deep, detailed dives into big-picture topics, from sovereign debt burdens to demographic trends to US-China relations. She teases out of her research the economic and investment implications for clients. Chang spent the earliest part of her career in public policy, working at the US Agency for International Development in the Philippines and India before becoming a Wall Street strategist specializing in emerging markets. As investors grapple with paradigm shifts related to interest-rate policy and geopolitics, Chang’s early experience is helping her get a handle on what could be ahead for the US. Chang spoke with Barron’s on June 6 about looming economic problems, the parallels between developed and emerging markets, and why the aging of the baby boomers demands a rethink of interest-rate assumptions.
Tech Trader:
-Oracle’s emergence as a serious player in cloud computing should not surprise Barron’s readers. In early 2021, Barron’s published a cover story headlined “Oracle Is Turning Into a Cloud Giant.” At the time, Oracle was pushing cloud-based versions of its database software and its portfolio of enterprise applications. Oracle was also aggressively building a cloud-computing business to take on the three cloud giants— Amazon, Microsoft, and Alphabet. There was considerable doubt from investors about Oracle’s chances of success. But the company sure believed. And now it turns out that Oracle shares are up about 110% since the last Barron’s story about the company. Last fall, when the stock had dropped to about $60 from a peak near $100, we wrote that the market had a second chance to buy the evolving cloud play on the cheap. The stock on Thursday closed at $126.55. Sure enough, the Oracle story is now all about the cloud.
The Trader:
-Why all the buying on Wall Street? The Fed is still close to the end of its rate hikes, which would allow economic growth and corporate profits to stabilize, and even rise for many sectors. Meanwhile, rates in the bond market could dip. “The smoke hasn’t cleared, yet the momentum market remains,” writes Evercore ISI strategist Julian Emanuel. That was enough for the S&P 500 to move from 4200 (reached some weeks ago), it’s now well above 4300, where it peaked in August after Fed Chairman Jerome Powell interrupted a summer rally by reminding markets that rate hikes weren’t nearly finished. It ended Friday a hair under Thursday’s close of 4425, its highest level since April 2022, a sign that market participants are confident enough in the outlook to keep buying stocks.
-With summer, which officially starts next week, come summer blackouts. That’s good news for generator stocks. Generac Holdings has had a tough time of it recently. But, with summer here, though, demand is due to pick up. The stock, a Barron’s pick last September, has dropped 76% since its late 2021 record high, amid concerns about high inventory levels and the possibility that electric vehicles and solar battery packs could ultimately replace the need for stand-alone generators. Sales have declined 31% over the several quarters since last June, while earnings have declined 79%.
Features:
-The rise of Artificial Intelligence has the music industry on edge, and has contributed to a drop in the stocks of some key companies. Universal Music Group, which represents Drake and The Weeknd, is down 10% this year despite statistics showing that people are streaming much more music this year than last. Rival Warner Music Group has fallen more than twice as much. AI is dangerous to existing industry players, and appears to be weighing on their stocks, because it can divert money away from musicians and music labels and toward people using technology to mimic them. Its emergence comes at a tough time for some of the industry’s big players. A decline in advertising rates and concerns about a slowdown in the growth rate of streaming-music subscriptions have already been weighing on the shares of music labels.
European Trader:
-Intel said it plans to invest up to $4.6B billion to build a semiconductor assembly and test facility in Poland, with the plant helping “meet demand for assembly and test capacity anticipated in coming years.” The plant in Poland “will help create a first-of-its-kind end-to-end leading-edge semiconductor manufacturing value chain in Europe,” Intel said.
Intel said the plant would create about 2,000 Intel jobs. The plant is expected to be operational by 2027. Intel stock has gained more than 15% this week and was on pace for its best week since July 2009, according to Dow Jones Market Data. The company operates a wafer fabrication plant in Ireland, and announced plans last year for another in Germany.
Emerging Markets:
Could a trade deal with Europe save Brazil’s Amazon Rainforest? Brazilian President Luiz Inácio Lula da Silva (lula for short) cut Amazon deforestation by 80% during previous terms, 2004-12. Jair Bolsonaro reversed this progress with a vengeance from 2018-22. Four-fifths of the (mostly illegally) cleared land is used for cattle ranching, says Erika Berenguer, a Brazilian researcher at Oxford’s Ecosystems Lab. Lula has recently unveiled a new plan for stopping Amazon deforestation by 2030. That could pay off by unsticking a stalled trade agreement between the European Union and Mercosur, a five-nation South American bloc dominated by Brazil.
Commodities:
-Copper prices appear ready for a rally and Freeport-McMoRan stock is the way to play it. Copper got off to a slow start in 2023, and so did Freeport. With the possibility of a US recession dominating the conversation in the US and China’s reopening running out of steam, copper prices fell 4% through the first five months of the year. That weighed on Freeport, which gets three-quarters of its sales from copper, dragging shares down 9.6% over the same period. But things are starting to look up for Freeport. The Phoenix-based company already has the strongest balance sheet of any copper miner, a strong management team, and the ability to return capital to shareholders. And it will benefit from the long-term adoption of electric vehicles and other forms of alternative energy. Now, copper prices are starting to tick higher amid signs of economic resilience, and if they continue to, so will Freeport stock.
Streetwise:
-Summer is about to begin, and Jack Hough has cold beer in mind. He says that America’s new favorite beer is Mexican, and it isn’t Corona—although that one is thriving, too. The beer is Modelo Especial, and the company is Constellation Brands. Mexico is said to have developed a taste for European-style lager after Vienna-born Maximilian I was declared its emperor in 1864. He lasted three years and died by firing squad; local brewing fared better. A 1920s start-up called Cervecería Modelo did so well with its namesake lager that it added a lighter one called Corona. Today, Grupo Modelo controls more than half of Mexico’s beer market.