BUZZ Investing: Back to Bear Market

Inflation persistence and hawkish Fed remarks pushed equities into bear market territory. Despite this, Oil & Gas stock weights increased in the BUZZ Index as sentiment in the sector held steady.

Equities tumbled during the recent period between the BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index” or “Index”) selection dates (September 8, 2022, to October 13, 2022, the “Period”), as higher interest rates and a surging US dollar stoked investor concerns relating to the current macro environment. US Federal Reserve Chair Jerome Powell fueled the rally in rates noting, “the FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.” The comments followed the Fed’s third consecutive 75 basis point hike of its target rate, its most aggressive pace of monetary policy tightening since it started using the overnight funds rate as its principal policy tool in 1990. In turn, investors reassessed their view of the pace of future interest rate increases and the projected ‘Terminal Value’ of the Fed’s target rate.

The US dollar extended its advance against a basket of currencies during the month, leading some analysts to lower their expectations for US corporate earnings resulting from the effects of foreign exchange headwinds on those mega-cap multinationals which generate a substantial portion of their business outside of the U.S. Yields on the U.S. two-year note spiked, yielding above 4% for the first time in fifteen years. The BUZZ Index fell 11.9% during the Period, while the S&P 500 Index fell 10.2%, pushing the benchmark domestic equity index back into bear market territory for the year and leaving many market prognosticators declaring a 2023 domestic recession is all but a certainty.

The BUZZ Index returned -10.81% during the month of September compared to a return of -9.21% for the S&P 500 Index during the same period. Year-to-date, the BUZZ Index trails the S&P 500 with returns of -45.37% and -23.87%, respectively, as of the end of September.

Shares of Twitter Lead Advancing Stocks within the BUZZ Index

Shares of Twitter Inc. (NYSE: TWTR) gained over 20% during the Period, pacing advancing stocks within the BUZZ Index. The turbulent saga between the world’s richest man, Elon Musk, and the popular online social networking and micro-blogging company appears to be finally concluding with the brash billionaire conceding to acquire Twitter at the originally agreed-on price of $54.20 per share, the $44 billion valuation which Musk offered to pay back in April 2022. Amidst a severe correction in the value of thematic and growth-oriented equities, Musk appeared to exhibit buyer’s remorse, accusing the company of misleading investors regarding the proliferation of ‘bots’ across its platform as justification to either re-price or terminate the deal. The dispute was scheduled to be heard in a formal trial in the Delaware court of chancery; however, after months of discovery, testimony, and drama, many commentators were of the view that Musk’s case lacked merit. It appears Musk and his counsel may have reluctantly succumbed to the diminishing prospects of a favorable ruling. In an unexpected and sudden about-face, Musk offered to close the transaction on the original terms by the end of October if Twitter agreed to “enter an immediate stay” of the coming trial. Musk’s setback provided a windfall for shareholders of TWTR. Following months of uncertainty, during which time shares of TWTR languished well below the proposed $54.20 offer price, the announcement fueled a spike in TWTR’s share price as the prospects of the transaction closing appear more certain than ever.

Shares of Oil & Gas stocks were featured in last month’s ‘BUZZ Investing’ blog as several stocks within the sector saw their weights increase in the BUZZ Index. Investor sentiment proved prescient, as the cohort provided a safe haven for investors to the recent volatility across equity markets. Notable BUZZ Index constituents Occidental Petroleum Corp. (NYSE: OXY), Exxon Mobil Corp. (NYSE: XOM), Devon Energy Corp. (NYSE: DVN), and Chevron Corp. (NYSE: CVX) all traded higher during the Period by an average of nearly 6%.

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 a range of stocks from the Communication Services, Consumer Discretionary, and Information Technology sectors. Chip makers were lower following weaker-than-expected preliminary third-quarter revenue results from industry leader Advanced Micro Devices (NYSE: AMD), which warned that weakness in its business resulted from a combination of a “weaker than expected PC market and significant inventory correction actions across the PC supply chain.” Meta Platforms (NASD: META) continues to be a notable stock featured within the top detractors to BUZZ Index performance. It’s been one year since the company formally known as Facebook changed its name to reflect its commitment to the metaverse, an ideological pivot that today seems ominous as users remain slow to adopt to the virtual reality platform while advertisers continue to drift away from the company’s core social platforms.

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 – FedEx Corporation

The Industrial sector, consisting of a diverse group of companies including machinery makers, airlines, rail, and defense, has often been viewed as a proxy for overall economic activity and health. Package carriers such as FedEx (NYSE: FDX) and UPS (NYSE: UPS) are viewed by some market participants as a more direct measure of global economic conditions, as shipping activity is an integral part of many businesses. Rising inflation and increasing interest rates have dampened economic activity over the past year. Many market participants now view a domestic recession over the next year as a likely event. Last month, FedEx provided the most recent indicator of an economic slowdown when it withdrew its full-year guidance due to weakening global demand. The news sent shares down 21%, its largest one-day decline in over 40 years. Despite the negative day for the shares, positive sentiment jumped as investors may believe that the drop-in price went too far and shares of FDX reflect value at their current levels. This month, FDX enters the BUZZ Index as the largest new entrant with a 1.89% weight, its highest ever weight within the BUZZ Index.

FedEx Corporation Stock Price | August 2016 – October 2022

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 October 2022 Rebalance Highlights

Financial Stocks

Recent readings of domestic inflation continue to exceed investor expectations, leaving many market participants forecasting another large interest rate increase from the Federal Reserve next month. While equity markets have been volatile and broadly traded lower, shares of Financial stocks are increasingly experiencing gains in positive investor sentiment. Shares of JPMorgan (NYSE: JPM) recently rose after reporting and beating earnings estimates, and this month, its weight in the BUZZ Index rose by a full percentage point. Wells Fargo (NYSE: WFC) enters the Index this month with a 0.67% weight. The weights of other bank stocks already in the BUZZ Index, such as Bank of America (NYSE: BAC), Citigroup (NYSE: C), and Morgan Stanley (NYSE: MS), all rose as well during the October rebalance and reconstitution. Rising interest rates may lead to increased profit margins for many of the banks’ businesses, and with inflation still on the rise, investors’ sentiment suggests the upcoming market environment may continue to benefit stocks within the Financials sector.

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

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Originally published by VanEck on 21 October 2022.

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