BUZZ Investing: Higher for Longer Weighs on Sentiment

Domestic equities were little changed during the recent period between Index selection dates (August 10, 2023 to September 14, 2023, the “Period”). Rising bond yields and persistent inflationary pressures continue to weigh on investor sentiment. Stronger-than-expected readings across several domestic economic indicators pushed interest rates higher across the yield curve, leading some to claim the US Federal Reserve (the “Fed”) may successfully achieve a ‘soft landing,’ avoiding a recession. While the narrative has gained traction, most market participants failed to predict the ‘higher-for-longer’ scenario for interest rates and continue to adjust their forecasts to reflect the central bank’s views, which has maintained a hawkish stance, hesitant to lower interest rates too soon.

As seen in the chart below, longer-term interest rate expectations have shifted materially since the beginning of the year when investors assigned a greater than 50% probability of the Fed setting its target rate between 4.0% – 4.5%, while only a 1.5% probability of its target rate being set above 5%, at its scheduled March 2024 policy meeting. As of the September Index selection date, investors had shifted expectations materially, with the odds of an interest rate hike of at least 25 bps from the current 5.5% level set at 28%.

Target Rate Probabilities for March 2024 FED Meeting

Source: CME FedWatch Tool as of September 14,2023.

The BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index” or “Index”) returned -9.04% during the month of August compared to a return of -1.59% for the S&P 500 Index during the same period. Year-to-date, the BUZZ Index leads the S&P 500 with returns of 34.72% and 18.73%, respectively, as of the end of August.

Shares of Tesla Inc & Rivian Automotive Inc Pace Advancing Stocks within the BUZZ Index

Shares of Tesla Inc (NASD: TSLA) and Rivian Automotive Inc (NASD: RIVN) paced advancing stocks within the BUZZ Index during the recent Period. Several factors have influenced positive performance over the past month. One of the key drivers has been the ability of both TSLA and RIVN to meet or exceed production targets and deliver vehicles to customers. Additionally, investor sentiment towards electric vehicle (EV) companies has improved, further contributing positively to stock performance. DraftKings Inc (NASD: DKNG) was another notable contributor to performance during the recent Period. Shares of the fantasy contest and sports betting company have risen nearly three-fold during 2023 as sentiments toward the segment have improved while the company has exceeded earnings expectations throughout the year. The start of the NFL season may further provide a tailwind for shares of DKNG as increased sports betting volume during the NFL season may boost online betting stocks in the short term.

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.

While shares of TSLA and RIVN were featured as the top contributors to BUZZ Index performance during the Period, another EV manufacturer, Lucid Group Inc (NASD: LCID), was the top detractor to performance during the Period. Shares of the luxury EV maker have stumbled throughout 2023, despite the rebound in the broader EV segment, as the company that many hailed as the ‘next TSLA’ consistently failed to meet expectations relating to earnings, production, and deliveries. Many market participants questioned the company’s strategy as it remains fixed within the luxury segment with no prospects for lower-priced vehicles on the horizon. News that the company’s CEO, Peter Rawlinson, received a total compensation of $379MM during 2022, second only to that of Jen-Hsun Huang of highflyer NVIDIA Corp (NASD: NVDA), left many market observers frustrated and led to TSLA CEO Elon Musk warning investors to “Beware any company where leadership compensation is not linked to performance.”

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 September 2023 Rebalance Highlights

NU Holdings Ltd.

Entering the BUZZ Index for just the second time is NU Holdings Ltd (NYSE: NU), the fintech financial services company based in Latin America. Founded in 2013, NU started by providing traditional banking services in Brazil before rapidly expanding into credit cards, loyalty programs, and personal loans, all with a focus on being accessible digitally. Over the years, the company has attracted capital from several well-known entities, including Sequoia Capital, Tencent, and Berkshire Hathaway. NU has become highly regarded in Latin America and consistently ranks among the top local banks in customer satisfaction surveys. The stock went public in late 2021 and proceeded to decline 67% from its IPO price during 2022 amidst a flurry of macro headwinds. So far, during 2023, NU has nearly doubled, and investor focus has shifted away from the impact of the current interest rate environment towards the company’s growth prospects as it pushes into global markets. Investor sentiment has been steadily climbing, and this month, NU enters the Index with a 0.65% weight.

Apellis Pharmaceuticals Inc.

The past three months have been a roller coaster for shares of Apellis Pharmaceuticals Inc. (NASD: APLS), a biotech company focused on treatments for autoimmune diseases. After years of progress on its core drug, Syfovre, which treats age-related macular degeneration (AMD), the stock abruptly crashed nearly 80% after reports that eight patients had experienced eye inflammation following their first injections. Since then, shares have steadily recovered as further investigations by the company pinpointed the cause to be the syringes used to extract the drug from the vials, which led to increased contamination risks. With seemingly isolated cases, investors have returned to the stock, which has bounced nearly 150% off its lows yet remains trading nearly 50% below its pre-crash price. Sentiment spiked after the initial decline as investors viewed the selling may be overdone, especially as recent news has alleviated safety concerns surrounding Syfovre itself. This month, APLS enters the BUZZ Index with a 0.78% 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.

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