Weekly Market Wrap | 17 June 2023

#NoRateHike #AdobeResults #TeslaGains

Topic #1: Fed keeps the interest rates at the same level


What Happened?

After 10 successive rate hikes, The US Federal Reserve delivered a widely expected decision by pausing its series of aggressive interest rate hikes. However, the central bank surprised many with its hawkish tone, suggesting the potential for two additional rate hikes later this year to address mounting inflationary pressures. This comes after inflation eased to its lowest level since a year to 4% but remains well above the target rate of 2%.

Why did it happen?

Fed Chair Jerome Powell acknowledged the resilient state of the US economy and job market which have surpassed expectations despite the previous year’s monetary tightening. This resilience has given the central bank the opportunity to exercise caution, gathering additional data before making future rate decisions. Powell emphasized that the rate pause serves as a means for the Federal Reserve to carefully assess the economic landscape and determine the necessity of further rate adjustments.

What does it mean for the investors?

The Fed’s recent policy decision yielded a mixed impact on stock markets. While some investors welcomed the rate pause and the indication of future rate hikes, others expressed apprehension about potential disruptions in the financial system. Nonetheless, as the end of the rate tightening cycle approaches, the majority of investors remain unconcerned about the possibility of an additional half-percentage point increase by year-end. However investors should take note of the upcoming macroeconomic data and adjust their valuation inputs accordingly. 

Topic #2: Adobe’s results surpasses expectations

Adobe Share Price (Source: Google Finance)

Adobe, the design software company announced record-breaking revenue for the fiscal second quarter, surpassing Wall Street’s projections. The company’s net income for the quarter reached $1.3 billion, a slight increase compared to the same period last year. Adobe’s earnings before certain costs, such as stock compensation, amounted to $3.91 per share, comfortably beating analysts’ consensus estimate of $3.79 per share.

Adobe attributed its exceptional performance to robust demand across all product lines, including Creative Cloud, Document Cloud, and Experience Cloud. Shantanu Narayen, Adobe’s Chief Executive, highlighted the company’s groundbreaking innovation and its potential to lead the era of generative AI, leveraging rich datasets, foundation models, and widespread product interfaces. The Digital Media segment, which includes Creative Cloud, generated $3.51 billion in revenue, a 10% year-on-year increase.

Despite somewhat mixed guidance, Adobe’s stock has been on a strong upward trajectory, rising more than 46% this year. The company’s expansion into artificial intelligence has been well-received, with recent offerings such as Firefly, a family of generative AI models, demonstrating the potential for AI to assist design professionals rather than replace them.

Analysts praised Adobe’s strategic approach to growth management, emphasizing a focus on R&D investments rather than excessive go-to-market spending. Investors are hopeful that Adobe will sustain its double-digit growth throughout the rest of the financial year, particularly as subscription revenue continues to grow.

Topic #3: Tesla’s stock price increases for 13 trading sessions in a row

Tesla Share Price (Source: Google Finance)

Joining the S&P 500’s return to bullish territory, Tesla’s stock embarked on a remarkable 13-day winning streak starting from May 25th. The electric vehicle (EV) maker has witnessed a doubling of its stock price year-to-date, ranking behind only Nvidia and Meta Platforms in terms of 2023 returns among S&P companies.

The surge in Tesla’s stock was initiated by the news that legacy U.S. automakers Ford and General Motors would adopt Tesla’s charging system. This move effectively establishes the North America Charging Standard (NACS) used by Tesla as the predominant charging system for 60% of the U.S. electric vehicle market, despite the presence of competing charging systems worldwide.

Additionally, in response to increased competition and weakened economic conditions, the company has shifted its focus to lower-priced offerings. Although this led to a year-over-year earnings decline, the market has responded positively to this strategic pivot.  The Energy Generation and Storage business has also witnessed remarkable growth, driven by increased deployments of Powerwall and Megapack systems.

Tesla’s stock price currently exceeds Wall Street’s forecasts, remaining 28% higher than the median target of $200 among Wall Street analysts, as reported by Refinitiv data. Analysts from Wedbush Securities highlighted that Tesla’s recent partnerships with Ford and GM for superchargers have prompted a realization in the market that Tesla’s sum-of-the-parts valuation is beginning to be recognized.

IndexLevel1 Week1 MonthFrom Jan 1 2023
S&P 500 (US Stocks)4,410+2.26%+6.03%+15.31%
Nasdaq 100 (US Tech Stocks)15,084+3.19%+11.00%+38.86%
CSI-300 (Chinese Stocks)3,963+3.55%+0.08%+1.94%
Bitcoin (in USD)26,336+1.66%-3.88%+58.60%

Source: Google Finance, Bloomberg, Yahoo Finance, CNBC, Financial Times, Reuters, Business Times, CNN

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