BUZZ Investing: Semiconductor Surge Leads Market Rise

U.S. domestic markets saw gains, the S&P 500 rising, and the Nasdaq gaining, driven by upbeat semiconductor earnings, boosting investor confidence amid lower rate cut expectations.

U.S. domestic markets gained during the recent period between Index selection dates (January 10, 2024 to February 8, 2024, the “Period”). The S&P 500 Index rose by 5.7%, and the Nasdaq Composite Index, known for its technology focus, gained 4.6%. The BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index”) gained 5.7% during the Period, particularly driven by gains in stocks from the semiconductor sector following upbeat earnings reports. Impressively, the MVIS US Listed Semiconductor 25 Index (the “MVIS Index”) surged 15.6% during the Period. Since the beginning of 2023, the MVIS Index has seen an extraordinary increase of 98.6%, primarily driven by investor enthusiasm for the growing demand for semiconductors, especially for AI applications. This sustained upward trajectory of the MVIS Index has positively influenced investor confidence in domestic equity markets and potentially played a key role in offsetting the effects of reduced expectations for interest rate cuts.

MVIS US Listed Semiconductor 25 Index | January 1, 2023 – February 8, 2024

Investors lowered expectations for the timing and pace of interest rate cuts following comments from several Federal Reserve officials, notably Fed Board of Governor member Christopher Waller, who stated he saw “no reason” for the Fed to move quickly on rate cuts. The Federal Open Market Committee (FOMC) reinforced Waller’s view, maintaining the upper bound of their target rate at 5.5% in their January 31st meeting while noting in their policy statement that “the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” During his post-meeting news conference, Fed Chair Jerome Powell further stated, “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to [cut].” Reflecting this shift in investor outlook, the CME FedWatch tool showed a significant decrease in the likelihood of a 25 bps rate cut by the FOMC in March 2024, which at the end of the Period stood at approximately 19%, down from about 73% at the end of 2023.

The BUZZ Index returned -3.60% during the month of January, compared to a return of 1.68% for the S&P 500 Index during the same period.

Shares of Palantir Technology Pace Advancing Stocks within the BUZZ Index

Palantir Technologies Inc. (PLTR) paced gains in the BUZZ Index during the recent Period. The AI-driven data analytics company saw its shares surge 46% during the Period after projecting higher-than-expected 2024 profits due to strong demand for its AI technology. The company announced it anticipates adjusted operational income between $834 million and $850 million for the year, surpassing analysts’ average estimate of $760.3 million. In 2023, Palantir reported its first profitable year with a net income of $210 million, exceeding the analyst forecast of $194.5 million. CEO Alex Karp highlighted the overwhelming commercial demand they’re facing, noting during the company’s earnings call that “we don’t know what to do with the onslaught of demand.” Other notable contributors to BUZZ Index performance during the period include semiconductor and related industry companies, including Super Micro Computer, Inc. (SMCI), NVIDIA Corporation (NVDA), and Advanced Micro Devices, Inc. (AMD), whose shares rose 103.9%, 28.1%, and 14%, respectively during the Period amid positive earnings and continued investor enthusiasm for the market segment.

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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.

Electric vehicle (“EV”) manufacturer Tesla, Inc. (TSLA) led the top detractors to performance during the recent Period. TSLA’s recent financial performance revealed weaker-than-expected results for the fourth quarter, with a profit of 71 cents per share on $25.17 billion revenue, falling short of Wall Street predictions. This occurred despite a record delivery of 484,507 vehicles in the quarter. The company did not provide detailed guidance on its strategy regarding ongoing price cuts, margin structure, and fluctuating demand. A key point of interest was Tesla’s profit margins, which are closely monitored by analysts. These margins narrowed to 17.6% in the December quarter, down from 23.8% in the same period in 2022 and below the anticipated 18.3%. Shares of fellow EV manufacturer Rivian Automotive, Inc. (RIVN) were also featured in the top detractors to BUZZ Index performance during the period. The company faces ongoing challenges in meeting production targets and experiencing declining profit margins. These issues are exacerbated by persistent industry-wide price pressures, significantly influenced by larger competitors like Tesla.

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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 February 2024 Rebalance Highlights

ASML Holding N.V.

In 2023, a key investment trend emerged with the rise of Artificial Intelligence (AI), highlighted by OpenAI’s introduction of ChatGPT and the significant investment influx into large language models. AI transitioned from a futuristic concept to a prevalent aspect of everyday life for many. This shift sparked an exponential increase in demand for semiconductor chips, essential for powering this AI revolution. NVIDIA, a leading company in this domain, has seen its stock soar by over 70% since November 2023. Investors who missed out on NVDA’s surge are now turning to alternative semiconductor stocks like Advanced Micro Devices, Super Micro Computer, and ASML Holding (ASML, OTCPK:ASMLF). ASML, a lesser-known semiconductor equipment manufacturer, is gaining traction among investors. It’s seen by some as a more affordable option to invest in the AI chip market. Despite limited mainstream media coverage, ASML’s potential is being recognized on online platforms. This month, ASML makes its debut in the BUZZ Index, with a 0.47% weight.

Archer-Daniels-Midland Company

Archer-Daniels-Midland Company (ADM), established in 1902, is a prominent agricultural firm specializing in producing and processing food products and ingredients globally. It ranks among the top 50 U.S. companies by revenue. ADM’s journey, however, is as notable for its controversies as its achievements, having been embroiled in various scandals, including price fixing, antitrust violations, and tax crimes. Its notoriety even inspired the book “The Informant” in 2000 and a subsequent film, focusing on its involvement in the lysine price-fixing scandal during the 1990s. Recently, ADM was back in the spotlight due to a Department of Justice investigation into its accounting practices, causing its stock to fall 25% the next day. Paradoxically, investor sentiment has risen since the announcement, possibly because the price drop is seen as an investment opportunity in a company with a proven track record of weathering scandals. Reflecting this interest, ADM is making its first appearance in the BUZZ Index this month, holding a 0.56% weight.

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