THE WELL-TH NOTES

By 213 Strategic Partners on May 27, 2024

Weekly data-driven insights on the markets and economy

Fourth Week of May 2024

Mixed Bag. On Thursday, the Dow Jones was last down 600 points, or 1.5%, putting it on track for its biggest one-day loss since April 30. Boeing was the biggest laggard in the Dow, falling 6.7%. The S&P 500 and Nasdaq dipped 0.7% and 0.4%, respectively, after reaching record highs earlier in the day.[i]

Uptick. U.S. Treasury yields ticked up Wednesday after the latest Federal Reserve meeting minutes suggested policymakers lack confidence that they will be able to lower interest rates anytime soon. The 10-year yield rose 1 bp to 4.42%, and the 2-year yield rose 4 bps to 4.87%.[ii]

Business Is Booming. Nvidia’s historic rally is being driven by its data center business, which grew at a whopping 427% in the latest quarter as companies keep snapping up its artificial intelligence (AI) processors. Nvidia’s revenue more than tripled in the fiscal first quarter and its shares surpassed $1,000 for the first time on Wednesday. If Nvidia’s chips can provide a strong and sustainable return on investment, that suggests the AI boom may have room to run.[iii]

Targeted Cuts. Target has slashed prices on more than 1,500 popular items in an attempt to attract inflation-wary shoppers turned off by high prices. Other major retailers, like Ikea and Aldi, have been reducing prices in recent months as well. Shoppers have pulled back for a year now as costs have risen 20% to 30% higher than they were three years ago and as incomes failed to keep up.[iv]

Lobster Tank-ruptcy. Red Lobster has filed for Chapter 11 bankruptcy protection, citing a difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives, and increased competition within the restaurant industry. Red Lobster currently operates 551 locations in the U.S. and 27 restaurants in Canada. The chain closed 93 underperforming locations on May 13 and is asking the bankruptcy court to reject 108 of its leases to further slim down its footprint.[v]

Alexa Upgrade. Sources say Amazon is upgrading its decade-old Alexa with generative AI to make the voice assistant more conversational and plans to charge a monthly subscription fee to offset the cost of the technology. The upgrades would potentially position it to better compete with new generative AI-powered chatbots from companies including Google and OpenAI. One source estimated the cost of using generative AI in Alexa at 2 cents per query and said a $20 price point was floated internally, comparable to OpenAI’s ChatGPT, which charges $20 per month.[vi]

Across the Pond. U.K. Prime Minister Rishi Sunak on Wednesday called for a general election to take place on July 4 after data from the Office for National Statistics showed that U.K. inflation dropped to 2.3% in April. Sunak’s ruling party had been hoping for signs of an improving economic environment, as it lags in the polls ahead of the national election. The U.K. economy has been recovering from a period of sky-high inflation in the wake of Covid-19, the commercial impacts of the country’s exit from the European Union and elevated energy prices resulting from geopolitical conflict. After a shallow recession in the second half of 2023, recent figures have indicated slight growth in the country in early 2024.[vii]

Apple vs. Android. The rivalry between Apple and Google has been ongoing for years. There are now more than 1 billion active iPhones and over 3 billion active Android devices. As of early 2024, Android has a 70.69% market share worldwide, meanwhile iPhones hold a market share of 60.77% in the U.S. Android smartphones accounted for 56% of all smartphone sales worldwide in Q4 2023.[viii] Which side do you choose?

[i] Kim, Hakyung and Samantha Subin, “Dow slides 600 points, S&P 500 retreats from record even after Nvidia’s blockbuster report: Live updates,” CNBC, May 23, 2024, https://www.cnbc.com/2024/05/22/stock-market-today-live-updates.html. Accessed May 23, 2024.

[ii] Kim, Hakyung and Sophie Kinderlin, “Treasury yields inch higher as Fed still sees no rate cuts soon,” CNBC, May 22, 2024, https://www.cnbc.com/2024/05/22/us-treasurys-investors-weigh-fed-speaker-comments.html. Accessed May 23, 2024.

[iii] Leswing, Kif, “Nvidia shows no signs of AI slowdown after over 400% increase in data center business,” CNBC, May 22, 2024, https://www.cnbc.com/2024/05/22/nvidia-no-sign-of-ai-slowdown-after-over-400percent-jump-in-data-center-unit.html. Accessed May 23, 2024.

[iv] Valinsky, Jordan, “Target is cutting prices on up to 5,000 items to lure back inflation-weary shoppers,” CNN Business, May 20, 2024, https://www.cnn.com/2024/05/20/business/target-price-cuts/index.html. Accessed May 23, 2024.

[v] Lucas, Amelia and Gabrielle Fonrouge, “Red Lobster files for Chapter 11 bankruptcy protection,” CNBC, May 20, 2024, https://www.cnbc.com/2024/05/20/red-lobster-bankruptcy.html. Accessed May 23, 2024.

[vi] Rooney, Kate, “Amazon plans to give Alexa an AI overhaul — and a monthly subscription price,” CNBC, May 22, 2024, https://www.cnbc.com/2024/05/22/amazon-plans-to-give-alexa-an-ai-overhaul-monthly-subscription-price.html. Accessed May 23, 2024.

[vii] Iordache, Ruxandra and April Roach, “UK Prime Minister Rishi Sunak calls July 4 general election,” CNBC, May 22, 2024, https://www.cnbc.com/2024/05/22/uk-pm-rishi-sunak-calls-for-july-4-general-election-sky-news-reports.html. Accessed May 23, 2024.

[viii] “iPhone vs Android Statistics,” Backlinko, March 13, 2024, https://backlinko.com/iphone-vs-android-statistics. Accessed May 23, 2024.