BUZZ Investing: Inflationary Concerns Weigh on Equities

Consumer and producer prices rose above forecasts while retail sales and job growth data remained strong. All eyes are on the upcoming FOMC meeting for the rate hike decision.

Renewed inflationary concerns weighed on domestic equities during the recent period between the BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index” or “Index”) selection dates (February 9, 2023, to March 9, 2023, the “Period”). Economic reports highlighted consumer and producer prices rising above most forecasts. At the same time, strong retail sales and job growth data signified an economy that remains stronger than many expected following the U.S. Federal Reserve (Fed)’s aggressive rate hike program, which saw the upper bound of its Target Rate rise from just 25 bps to 4.75% since March 2022. February’s economic reports led several Fed members to note that more rate hikes may be needed, as the narrative shifted to a ‘terminal rate’ which would likely exceed 5%. On March 7, in his prepared semi-annual testimony before the Senate Banking Committee, Fed Chair Jerome Powell supported his colleague’s remarks, noting, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated."

The CME FedWatch Tool, which calculates the probabilities of changes to the Fed rate as implied by 30-Day Fed Funds futures pricing data, predicted a nearly 70% probability, following Powell’s remarks, for the Fed’s target rate to be set in the range of 5.25%-5.50% (a 50bps hike from current levels) at its upcoming March 2023 meeting, up from a 0% probability at the start of the February.

The BUZZ Index returned -1.58% during the month of February compared to a return of -2.44% for the S&P 500 Index during the same period. Year-to-date, the BUZZ Index leads the S&P 500 with returns of 16.74% and 3.69%, respectively, as of the end of February.

Federal Reserve Target Rate Probability History

(March 2023 Meeting, 5.00% - 5.25% range)

Federal Reserve Target Rate Probability History (March 2023 Meeting, 5.00% - 5.25% range)

Source: CME FedWatch Tool.

Not intended as a forecast or prediction of future events. For illustrative purposes only.

Shares of DraftKings, Inc. Pace Advancing Stocks within the BUZZ Index

Shares of DraftKings Inc. (NASD: DKNG) paced advancing stocks within the BUZZ Index during the recent Period. The popular fantasy sports contest and sports betting company posted fourth-quarter earnings that beat most analyst estimates on the top and bottom line. DKNG further raised its forecast for 2023 revenues to a range of $2.85B - $3.05B, citing additional states’ plans to legalize sports betting as a key revenue driver. DKNG posted 2022 revenues of $2.24B. Investors cheered the results and subsequent forecast, with shares of DKNG rising more than 15% on the day of the announcement. Traditional analysts were likewise impressed, as a wave of ‘upgrades’ followed the company’s earnings release. After several years of disappointing results, the percentage of analysts rating DKNG’s stock a ‘buy’ had dipped below 50%. Following the ensuing upgrades, the percentage of analysts rating DKNG’s stock a ‘buy’ jumped to 55%, producing the first increase in ‘buy recommendations in over a year.

Top BUZZ Index Contributors: February 9, 2023 – March 9, 2023
Company Ticker Average Weight (%) Return Contribution (%)
DraftKings Inc DKNG 2.03 0.23
NVIDIA Corp NVDA 3.26 0.15
ROBLOX Corp RBLX 1.18 0.11
Roku Inc ROKU 0.86 0.10
General Electric Co GE 0.59 0.08
Enphase Energy Inc ENPH 1.40 0.07
Meta Platforms Inc META 3.16 0.05
Advanced Micro Devices Inc AMD 2.93 0.04
Warner Bros Discovery Inc WBD 0.94 0.04
Crowdstrike Holdings Inc CRWD 0.62 0.04

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.

The top detractors to performance featured several stocks of Electric Vehicle (“EV”) Manufacturers. The segment, which had posted strong returns to start the year, gave back some of its gains as investors took a cautious stance following the recent rally. Shares of Lucid Group paced decliners in the BUZZ Index during the recent Period, falling 22%, while EV industry leader Tesla Inc. (NASD: TSLA) and upstart EV manufacturer Rivian Automotive Inc. (NASD: RIVN) each featured in the top five detractors to Index performance. Of note was positive investor sentiment toward the segment, which remained elevated despite the sell-off. During the scheduled March BUZZ Index rebalance, TSLA and LCID maintained a maximum 3% weight in the index, while RIVN saw its weight increase from 1.26% to 1.78%.

Bottom BUZZ Index Contributors: February 9, 2023 – March 9, 2023
Company Ticker Average Weight (%) Return Contribution (%)
Lucid Group Inc LCID 2.94 -0.66
Tesla Inc TSLA 3.31 -0.54
Netflix Inc NFLX 2.69 -0.52
GameStop Corp GME 3 -0.37
Rivian Automotive Inc RIVN 1.24 -0.31
Walt Disney Co/The DIS 2.29 -0.31
Carnival Corp CCL 1.56 -0.20
Shopify Inc SHOP 1.45 -0.19
Amazon.com Inc AMZN 2.91 -0.18
Plug Power Inc PLUG 1.07 -0.18

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.

Sentiment Stock Highlight – Airbnb, Inc.

Airbnb, Inc. (NASD: ABNB) completed its initial public offering on December 10, 2020. While the company’s choice of timing initially seemed questionable as the travel sector was battered by reduced demand amidst the global COVID-19 pandemic, equity market strength provided ABNB with plenty of investor demand for its offering. Shares of ABNB closed their first day of trading near $145, more than double their $68 offering price. As the pandemic subsided, the reopening of economies around the world, together with loosening travel restrictions, helped ABNB’s business recover as people began to leave the isolation of their homes and return to travel routines. Many travelers also preferred the relative safety of staying in Airbnb homes compared to hotels (minimizing exposure to large groups of people). This trend the company believes will remain in place for the foreseeable future.

ABNB recently reported strong Q4 financial results, and management issued positive guidance for the company’s prospects. Despite the current macro headwinds and high inflationary environment, bookings, and demand for ABNB rentals, continue to increase. Cultural shifts towards more flexible work conditions have provided a further tailwind for ABNB, as many people are choosing to travel more frequently, able to combine aspects of work and vacation from remote destinations. ABNB’s share price is up 60% year-to-date, and both positive investor sentiment and the volume of conversation relating to the company have been climbing in recent months. This month ABNB made a big jump in the Index from a 0.53% weight to a 1.43% weight.

Airbnb Stock Price | December 2020 – March 2023

Airbnb Stock Price | December 2020 - March 2023

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 March 2023 Rebalance Highlights

Twilio Inc.

One of the most discussed cloud computing companies, Twilio (NYSE: TWLO), exemplified both the velocity of the gains and subsequent reversal losses that characterized trading in the sector following the COVID-19 market lows in 2020. After declining to $70 at the height of the pandemic, shares of TWLO subsequently soared, reaching a peak of nearly $450 per share in the span of a single year as cloud-related companies exploded in popularity. Shares of TWLO have since completed their round-trip, trading back at (and below) their pre-pandemic levels. However, like many technology stocks, TWLO has had a great start to 2023, with its share price rising more than 60% year-to-date. In the company’s Q4 earnings report, management indicated a shift in strategy, emphasizing margins and profitability instead of maximizing growth. TWLO jumped 20% on the report as investors seemingly supported the strategic shift toward focusing on profitability metrics. Investor sentiment climbed alongside the jump in price, rising more than 300%. After a 5-month absence, TWLO returns to the BUZZ Index this month with a 0.68% weight.

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

For more news, information, and analysis, visit the Beyond Basic Beta Channel.

Originally published by VanEck on March 17. 2023. 

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