BUZZ Investing: CPI Surge Spikes Bond Yields

Interest rates rose after the March CPI report indicated unexpected inflation persistence, shaking financial markets and increasing two-year Treasury yields.

U.S. domestic markets extended their gains during the recent period between Index selection dates (March 14, 2024 – April 11, 2024, the “Period”). Equity markets were largely influenced by the Federal Reserve’s decisions during its second Federal Open Market Committee (FOMC) meeting of the year. On March 20th, in an announcement broadly expected by investors, the Fed opted to maintain the upper bound of its target Federal Funds rate at 5.50%. The updated “dot plot” from the Fed suggested a median forecast of three rate reductions by the end of 2024, with further cuts anticipated in the following two years, aiming to achieve a long-term “neutral rate” – one which is neither stimulative nor restrictive toward economic growth – of 2.5%. This announcement was interpreted by investors as an affirmation of the Fed’s recent dovish policy stance, emphasizing support for economic stability and growth rather than signaling any new shifts in monetary policy.

Interest rates held steady in the weeks following the March FOMC meeting before spiking higher following the release of the March 2024 Consumer Price Index (CPI) report on April 10th which showed a year-over-year increase of 3.5%, up from 3.2% in February, suggesting a stronger persistence of inflation. This unexpected uptick led to weakness across financial markets, particularly affecting the two-year Treasury bond yields, which rose 15 bps as investors adjusted their expectations for the timing of Federal Reserve interest rate cuts.

The BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index”) returned 5.39% during the month of March compared to a return of 3.22% for the S&P 500 Index during the same period. Year-to-date, the BUZZ Index leads the S&P 500 with returns of 14.88% and 10.56%, respectively, as of the end of March.

Shares of Coinbase Global Pace Advancing Stocks within the BUZZ Index

In the recent Period, shares of Coinbase Global Inc. (COIN) led gains within the BUZZ Index. COIN benefitted from continued gains in the price of bitcoin and other cryptocurrencies, which provided a supportive background to broader crypto market trends. Micron Technology (MU) stood out as its shares gained nearly 40% during the recent Period. The company released its second-quarter earnings on March 20th, which showcased a significant financial turnaround, including a substantial increase in revenue to $5.82 billion from $4.73 billion in the previous quarter and $3.69 billion year-over-year. Investors may increasingly be of the view that Micron is well-positioned for future growth, especially in sectors driven by advancements in artificial intelligence.

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Technology-related stocks were featured among the top detractors to BUZZ Index performance. Super Micro Computer Inc. (SMCI) was notable as its share declined more than 17% during the recent Period. The stock’s downturn may be linked to a broader retreat in demand for technology companies and was likely exacerbated by an announcement of a proposed public offering of common stock, which can often lead to share price volatility due to concerns about share dilution and valuation impacts. The public offering involved the launch of 2,000,000 shares of common stock with the possibility of an additional 300,000 shares being offered through underwriters, subject to market conditions. Super Micro Computer Inc., known for its server and storage solutions, also made headlines for its new server family and expanded compute portfolio, suggesting a strategic push towards cutting-edge technologies like AI and edge computing. However, despite these growth initiatives, the company also faced legal scrutiny with investigations on behalf of investors, which may have negatively influenced investor sentiment during the Period.

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BUZZ Index April 2024 Rebalance Highlights

Viking Therapeutics, Inc.

The biotech sector has been extremely active since the start of the year. While shares of the iShares Biotechnology ETF (IBB) have been flat for most of 2024, several individual biotech stocks have been extremely volatile. The sector has also been the most active in terms of capital markets activity, with over 50 secondary offerings and 7 IPOs year-to-date. Viking Therapeutics (VKTX) is the latest example of a stock that has been moving on company-specific news. On February 26th, the company reported that the latest trials on its weight-loss drug had far exceeded expectations and showed significant improvement over the leading existing obesity drugs from Eli Lilly (LLY) and Novo Nordisk (NVO). Shares of VKTX more than doubled the following day and have been range-bound since, while sentiment surged on the news and has been growing steadily. This month, VKTX entered the BUZZ Index for the first time with a 1.08% weight.

Paramount Global

Paramount Global (PARA) has been involved in several noteworthy events over the past few years. In March 2021, the company, then known as Viacom CBS, witnessed a surge in share price attributed to concentrated buying by Bill Hwang’s Archegos Capital Management, which eventually held over half of the company’s shares. This led to an unprecedented rally where the stock catapulted from $10 to $100 within a year. However, Archegos’ collapse triggered a drastic 50% plummet in PARA’s share value. Several key developments have since occurred, including Berkshire acquiring a 15.4% stake in May 2022, a rebrand from the name Viacom CBS, and a potential merger with Warner Bros. Discovery in January of this year, which was subsequently called off just a month later. Earlier this month, Paramount announced it was in preliminary merger talks with Skydance Media. Sentiment on PARA, which had been steadily rising in recent months, jumped on the merger speculation, pushing the stock to a 3% maximum weight in the BUZZ Index.

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