News of the day for May 14, 2024

Pandemic-era meme stocks GameStop (GME) and AMC Entertainment (AMC) continue to soar in premarket trading following the return to social media of famed investor “Roaring Kitty”; President Joe Biden imposes sweeping tariffs on a large swath of Chinese imports from steel to semiconductors and electric vehicles, turning up the heat in trade tensions between the two countries; Home Depot (HD) posts higher-than-forecast first-quarter earnings but undershoots on sales; the Producer Price Index numbers for April are due today, giving a read on whether price pressures are cooling enough to encourage Federal Reserve officials to cut interest rates; and Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group (BHP). U.S. stock futures are little changed ahead of the U.S. producer prices numbers and a speech by Federal Reserve Chair Jerome Powell today at an event in the Netherlands. Here’s what investors need to know today.

1. GameStop and AMC Continue the Rally Sparked by Return of ‘Roaring Kitty’

Pandemic-era meme stocks GameStop (GME) and AMC Entertainment (AMC), which both surged more than 70% to multi-month highs on Monday, continued soaring in premarket trading. The brick-and-mortar video game retailer and the cinema chain operator were both around 100% higher in premarket trading two hours before the opening bell. In 2021, the social media-fueled meme stock frenzy that swept Wall Street squeezed hedge funds that held short positions in either stock. Monday’s rally was triggered by key meme online persona “Roaring Kitty” making his first post on X in three years—causing losses nearing $1 billion for GameStop short sellers, according to data from S3 Partners cited by CNBC. 

2. Biden Levies Sweeping Tariffs on Chinese Chips, Minerals, EVs

President Joe Biden imposed sweeping tariffs on a large swath of Chinese imports from steel to semiconductors and electric vehicles, turning up the heat in trade tensions between the two countries as U.S. officials accuse China of overcapacity in manufacturing. The changes, the culmination of a review of the Section 301 tariffs under former President Donald Trump starting in 2018, are projected to affect around $18 billion in current annual imports, according to the White House. The administration said that the tariff rate on certain steel and aluminum products under Section 301 will increase to 25% in 2024 from 0%–7.5%; the rate on semiconductors will increase to 50% by 2025 from 25%; and the rate on electric vehicles will rise to 100% from 25%.

3. Home Depot Q1 Revenue Lags Forecasts But Profit Beats  

Home Depot (HD) posted higher-than-forecast first-quarter earnings but undershot Wall Street analysts’ projections on revenue, signaling that elevated interest rates continue to weigh on home improvement spending. The retailer reported diluted earnings per share (EPS) of $3.63, topping the $3.58 consensus expectation, but revenue for the three months through April 28 of $36.42 billion was shy of the forecasted $36.65 billion. Home Depot affirmed its previous guidance and said it expects total sales to rise about 1% in fiscal 2024. Chief Executive Officer (CEO) Ted Decker said the quarter “was impacted by a delayed start to spring and continued softness in certain larger discretionary projects.” Home Depot shares were up less than 1% in premarket trading. 

4. Wholesale Prices for April Due in Latest Read on Inflation’s Path

Investors will be closely watching today’s wholesale price numbers and tomorrow’s consumer price index data to give a read on whether price pressures are cooling enough to encourage Federal Reserve officials to cut interest rates. The Bureau of Labor Statistics is due to report the Producer Price Index (PPI) at 8:30 a.m. ET. Wholesale prices are seen rising 0.3% in April from the previous month, according to economists surveyed by The Wall Street Journal and Dow Jones Newswires. In March, the PPI rose 0.2% from the previous month, less than economists had expected. Core PPI is expected to rise 0.2% in April. Inflation readings have continued to move higher in 2024, and consumers have been raising their expectations for future price increases.

5. Anglo American Plans Breakup After Rejecting BHP’s $43B Bid

Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group (BHP) in a break-up plan CEO Duncan Wanblad called its most “radical” shakeup in decades. Anglo said Tuesday that it would spin off its platinum-metals subsidiary Anglo American Platinum; explore options for putting its nickel operation on “care and maintenance” before divesting it; divest or demerge its diamond unit De Beers; and sell its steelmaking coal assets. BHP had made the bid for Anglo on soaring demand for copper at a time when the world is moving away from fossil fuels toward more renewable energy projects and electric vehicles. Wanblad said the breakup will mean the miner’s assets base will be focused on copper and premium iron ore. BHP shares were 2.5% higher in premarket trading, while Anglo was trading down around 1.6% in London.

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Watch These Key Levels in Both Stocks

Key Takeaways

• Pandemic-era meme stocks GameStop and AMC Entertainment both surged more than 70% on Monday, potentially triggering a short squeeze where investors rush to cover short positions. 
• Monday’s meme stock rally caused losses nearing $1 billion for GameStop short sellers, according to data from S3 Partners.
• GameStop shares may encounter selling near a zone of resistance from prior price action between $37.50 and $63.50.
• AMC Entertainment shares find a confluence of resistance around $13 from the 50-day moving average and a horizontal line extending back to the March 2020 low.

Pandemic-era meme stocks GameStop (GME) and AMC Entertainment (AMC) both surged more than 70% to multi-month highs on Monday, sparking memories of the social media-fueled meme stock frenzy that swept Wall Street in January 2021.

During that crazy month, brick-and-mortar video game retailer GameStop saw its shares soar seventeen-fold, while shares in cinema chain operator AMC jumped six-fold, causing significant losses for hedge funds that held short positions in either stock.

Monday’s rally—reportedly triggered by key meme online persona “Roaring Kitty” making his first post on X in three years—caused losses nearing $1 billion for GameStop short sellers, according to data from S3 Partners cited by CNBC. That could fuel further gains in the days ahead driven by a short squeeze, an event where investors rush to cover their positions, putting additional upward pressure on prices.

Below, we take a closer look at the charts of both meme stocks and point out important levels to watch in upcoming trading sessions.

GameStop

Taking a look at the weekly chart, the GameStop share price has remained entrenched in a descending channel since topping out in January 2021 at the height of the social media-fueled meme stock rally. In recent weeks, the shares have moved up towards the pattern’s upper trendline that closely aligns with the 50-day moving average, indicating growing bullish sentiment. Moreover, Monday’s 74% gap higher opens the door for follow-through buying, given the move occurred on above average volume and that the price closed above the closely watched 200-day moving average.

Looking ahead, investors should keep an eye on an area between $37.50 and $63.50, a region on the chart where the price may encounter selling pressure from a zone of resistance from prior price action. A breakout above this level could potentially lead to a retest of the stock’s all-time high (ATH) at $120.75.

After gaining 74% during the regular trading session Monday, the stock rose another 21% to $36.90 in after-hours trading.

AMC Entertainment

Also looking at the weekly chart, AMC shares have mostly traded within a descending channel since climbing to over $390 in June 2021 apart from a bull trap breakout over the summer months last year. Interestingly, volume in the stock has significantly increased since that time while the price has continued to plumb new record lows. More recently, buyers have accumulated shares near the channel’s lower trendline, potentially as word of an upcoming meme rally gathered momentum on social media platforms. 

In coming days, investors should monitor the $13 level, an area on the charts where traders may book profits near a confluence of resistance from the 50-day moving average and a horizontal line extending back to the pandemic-era March 2020 low.

After rising 78% during regular trading, AMC shares gained another 24% to $6.42 in extended trading Monday.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above securities.

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Monitor These Key Price Levels

Key Takeaways

• Arm stock will be in focus on Monday after a report surfaced Sunday that the British chip designer plans to launch artificial intelligence chips in 2025.
• The company reportedly plans to establish a new AI chip unit and build a porotype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025.
• Arm shares currently trade within a rising wedge, with a breakdown leading to a possible test of $79, while a breakout could see the price climb up to resistance around $145.

Shares in UK-based chip design giant Arm Holdings (ARM) will be in focus on Monday after Nikkei Asia reported Sunday that the company plans to develop artificial intelligence (AI) chips, aiming to launch its first porotype in early 2025.

According to the report, Arm—in which Japan’s SoftBank (SFTBY) owns a 90% stake—will establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025.

Arm will fund the majority of the initial development costs, expected to be billions of yen, with Softbank also contributing, the report said. Once up and running, the AI chip business could be spun off under SoftBank.

The Japanese financial giant has already commenced negotiations with Taiwan Semiconductor Manufacturing (TSM) and other chipmakers as it looks to sure up production capacity, Nikkei Asia reported.

Arm Continues Push into Lucrative Datacenter Market

Arm, which makes money by selling royalties on its chip designs, has continued its push into the lucrative AI datacenter market, where tech behemoths such as Microsoft (MSFT), Meta (META), Alphabet (GOOGL), and Amazon (AMZN) have announced plans to build their own in-house chips to power their AI computing requirements, helping to reduce their reliance on AI chip supplying giant Nvidia (NVDA).

Since going public in September last year, the company’s shares have more than doubled from their $51 initial public offering (IPO) price as investors place bets that the chip designer can capture a sizable slice of the AI infrastructure market. Precedence Research of Canada expects the AI chip market to grow from $30 billion this year to $200 billion by 2032.

Monitor These Levels Amid Breakout From Rising Wedge

The Arm share price has traded within a narrow rising wedge since mid April—a chart pattern technical analysts typically interpret as having a bearish bias because it indicates an easing of buying momentum. In the short-term, the price may continue to oscillate in the wedge until the downward sloping 50-day moving average catches up with the pattern’s top trendline before the stock makes its next significant move. 

Amid a move lower, investors should monitor the $79 level, an area where the price may find buyers near the February pre-breakout level. However, if the price climbs above the wedge, it’s worth keeping in mind that the stock could make another attempt at testing key overhead resistance near prior price action around $145.

Arm shares closed trading last week at $108.84, after gaining 5.1% during Friday’s session.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above securities.

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Key Takeaways

• Berkshire Hathaway, Third Point, and other institutional investors will file 13F forms for the first quarter by Wednesday.
• Berkshire has already revealed that it trimmed its position in Apple and exited its position in Paramount as it works to build up its cash reserves.
• AI is once again a major trend to watch, as investors will keep an eye on changes to holdings in AI-focused tech firms, chipmakers, and other companies tied to the emerging technology.
• Nvidia will be another company to watch, as it will feature as an investment while also filing its own for its positions in stocks such as Arm and SoundHound.

If you look to the investment wisdom of major investors, such as Warren Buffett, Dan Loeb, and others, you will be keeping a close eye on 13F filings this week that will reveal how their equity positions changed from the beginning of the year to the end of March.

Most large investors with assets under management of $100 million or more are required to report their equity holdings each quarter via the SEC’s Form 13F. The deadline for these filings for the March quarter is May 15.

But remember, the 13F filings are only a snapshot of the portfolios at the end of the March quarter, and offer no insight into the price investments were made at or any profit or loss from their sale. They may also not be accurately representative of the portfolios today since trades after March will not be accounted for in these filings.

More Changes For Buffett After Apple, Paramount?

At the recent Berkshire Hathaway (BRK.A, BRK.B) annual shareholders meeting. Warren Buffett revealed two changes to the company’s portfolio, and investors will be keen to know if there were more. The will be especially eager to know any details around the mystery stock investment that it has kept a lid on for almost two filing cycles.

The company pared its stake in Apple (AAPL) for a second quarter in a row, though it remains Berkshire’s largest stock holding. According to Berkshire filings, its Apple position was worth $135.4 billion at the end of the first quarter, compared with $174.3 billion at the end of 2023. That’s a roughly 22% decline in value, when Apple’s price dropped only about 11% at the end of March, compared to the last trading day of December.

The sale was linked to Buffett’s desire to add the the company’s already massive cash reserve of $189 billion, which he predicts will rise to over $200 billion by the end of the second quarter. Investors may want to keep an eye on whether Buffett sold shares of any other companies last quarter to add to the cash pile.

But there was one investment that didn’t quite work out for Berkshire, a rare mistake from Buffett. He admitted during the annual meeting that Berkshire sold its entire position in Paramount Global (PARA) at a big loss. The company had bought Paramount shares in the first quarter of 2022 and at the end of last year, it held 63.3 million shares.

Loeb’s Learning To Love Alphabet Again On AI Potential

Dan Loeb’s Third Point Capital sold its entire Alphabet stake (GOOG) (GOOGL) in the fourth quarter of 2023. But, it looks like Loeb’s changed his mind.

Third Point made a “substantial investment” in Alphabet during the first three months of the year, Loeb said in a recent investor letter, adding that any artificial intelligence-related benefits to the company could outweigh any risks AI poses to its core business.

Alphabet “has both a substantial distribution and technology advantage over competitors and is positioned to use its AI capabilities to unify, enhance, and better monetize the entire suite of its products,” Loeb wrote.

Of course, investors will want to know how large Loeb’s renewed position in Alphabet is, but will also be looking for details around other AI-related investments that now comprise of about half of his entire portfolio.

Third Point upped its holding of Taiwan Semiconductor Manufacturing Co. (TSM) and Loeb pointed specifically to legacy tech companies like Microsoft (MSFT) and Amazon (AMZN) as key players in the AI race, perhaps signaling that those are companies to watch for in the upcoming 13F filing. The fund had sold shares in all three companies in the fourth quarter.

Nvidia: An Investment and An Investor

No conversation around AI-related equity investments can be complete without mentioning Nvidia (NVDA). But prominent investors have extremely divergent views on investing in the tech giant that provides hardware for AI platforms.

Buffett, for example, didn’t own any shares of Nvidia as of December and given the views on AI he expressed at the annual meeting, chances are that stance hasn’t changed much.

But Ray Dalio‘s Bridewater Associates bought a massive stake in Nvidia at the end of last year, increasing its holding nearly six-fold. Investors would want to know if the fund continues to remain bullish on the chipmaker, or has its view changed like that of Stanley Druckemiller.

Druckenmiller’s Duquesne Family Office sold Nvidia shares after they more than tripled in 2023, he told CNBC, adding that the AI trend is “a little overhyped now, but underhyped long term.”

But Nvidia’s not just an investment, it filed its first 13-F last quarter to reveal companies it had invested in.

As of December, Nvidia had positions in AI-focused firms including Arm (ARM), SoundHound AI (SOUN), Nanox Imaging (NNOX), and Recursion Pharmaceuticals (RXRX). Several of the stocks included in the 13F experienced an increase in share price after the disclosure.

Given Nvidia’s prominent position in AI, it’s likely that shifts in its holdings revealed in its upcoming 13F filing could prompt additional market movement for those companies.

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What You Need to Know

• Advisors to presidential candidate Donald Trump have reportedly circulated plans to bring the Federal Reserve more under the president’s control.
• Economists say the Fed’s independence, and the public’s belief in it, is important to the central bank’s ability to keep inflation down.
• In the past and in other countries, political control of central banks has led to higher inflation.
• Political leaders tend to want lower interest rates that benefit the economy in the short run, but which can cause higher inflation down the road.

Who should control America’s money supply: the experts, or elected representatives of the people? 

A long-running debate about who should run America’s central bank flared up again last month after The Wall Street Journal reported that members of Trump’s inner circle have passed around several proposals for bringing the Federal Reserve, with its crucial role in running the economy, more under the president’s control.

Economists have said that handing the Fed’s policy decisions over to a president would almost certainly lead to higher inflation. Most presidents would likely pressure the Fed to keep its benchmark interest rate lower than it otherwise would, worsening inflation. 

“The evidence is pretty clear that if you give up an independent central bank you’re going to get higher and more variable inflation eventually,” said James Bullard, former president of the Federal Reserve Bank of St. Louis, who served on the Fed’s policy committee between 2008 and 2023.

Sarah Binder, a professor of political science at Georgetown University, and an expert on how politicians influence the Fed, pointed to the “stagflation” era as a cautionary tale. The double-digit inflation and economic stagnation of the 1970s happened partly because presidents Lyndon Johnson and Richard Nixon pressured the Fed to lower interest rates, she said. 

“The record of the 1970s shows that that type of political pressure helped to unleash inflation for over a decade,” she told Investopedia. “It’s not a foregone conclusion that the Fed would bend to Trump’s will, but it certainly puts the Fed in a particularly politically precarious position.”

The Fed’s Independence

The Federal Reserve is an unusual part of the U.S. government in that it’s designed to be insulated, at least to some extent, from influence by politicians. 

The Fed was established in 1913 to stabilize the financial system after a wave of bank failures, and its powers have grown over the years. It’s now responsible for regulating banks and, crucially, setting the nation’s monetary policy. 

Congress tasked the Fed with a dual mandate in 1977—control inflation while keeping the economy at full employment. It does this mainly by manipulating the fed funds rate, which determines the interest rate at which the nation’s banks lend money to one another. This influences rates for all kinds of other loans throughout the economy, including business and personal loans such as mortgages.

Decisions on raising and lowering interest rates are made by a committee that is a mix of presidential appointees who serve 14-year terms and regional bank presidents who serve one-year terms on a rotating basis. 

Because the president is only ever able to appoint a handful of Federal Open Market Committee (FOMC) members during any given term in office,  the committee has greater freedom than other federal agencies to operate as technocrats and make decisions based on what they deem to be wise economic policy, rather than political considerations—at least in theory. 

Critics of the Fed have long sought to bring the central bank more under the control of the other branches of government. They often argue the public isn’t able to hold the Fed accountable because of its independence, making its governance undemocratic. Critics have also called the Fed’s economists unelected bureaucrats, saying they shouldn’t be allowed to make economic policy decisions.

Why More Politics Would Lead To Higher Inflation

The Fed has been in a particularly bright spotlight the past few years as it steadily raised the fed funds rate to tame inflation that had risen far above the central bank’s 2% target level. The range for the benchmark rate is currently at a 23-year high of 5.25%-5.50%, where its been since July.

The tight monetary policy has helped bring inflation down, which has led to hopes among consumers and investors that interest-rate cuts may be on the horizon. However, Fed officials have said they need more confidence that price pressures are under control before easing policy.

Economists warn a Fed that answers to the president is one that would be more likely to let inflation run rampant.

Presidents have every reason to pressure the Fed to lower interest rates and have done so in the past, partly because election cycles push them into short-term thinking, said Victor Li, a professor of economics at Villanova.

When the Fed sets interest rates extra low, loans are cheaper, people borrow more to buy more stuff, companies hire more workers, and the economy booms—all great things for a president to have happen on their watch. 

“Low interest rates may temporarily lead to a lower unemployment rate, which looks great for an incumbent running for reelection,” Li said in an email.

But then comes the inevitable hangover—merchants find that their customers are richer and can pay higher prices, so they raise them. Worse, because inflation is partly a psychological phenomenon, economists have found that popular belief about it can become a self-fulfilling prophecy

“Inflation is a lagging indicator,” Li said. “But when it comes, it can easily spiral out of control and become hyperinflation when inflation expectations become unanchored. This is the lesson of history and it’s doomed to repeat when it is not understood.” 

Li and other economists pointed to the example of Richard Nixon, who leaned on Fed chair Arthur Burns to keep interest rates low ahead of the 1972 election. Despite being by all accounts a respected economist who should have known better, Burns complied, helping set off the bout of double-digit inflation the country experienced in the 1970s. 

How Much Should The Fed Be Influenced? 

To be sure, the Fed is not, in reality, completely removed from politics.

As Georgetown’s Binder and fellow researcher Mark Spindel documented in their book, “The Myth of Independence: How Congress Governs the Federal Reserve,” Fed officials do consider how their actions will be received by politicians, the public, and financial markets. Those concerns show up in transcripts of FOMC proceedings, which are released to the public after five years. 

Fed officials must answer to lawmakers in Congress, who, at public hearings, frequently urge Fed officials to move interest rates in one direction or the other. Congress, however, despite having reshaped the Fed over the years, has left the final say on monetary policy up to the FOMC.

“If it came right down to it, the Congress could do whatever it wants with monetary policy, so in that sense, it is political,” Bullard, the former St. Louis Fed president, said. “But Congress has looked at this over the last 100 years and decided to keep it at arm’s length from the day-to-day political to and fro.”

A large part of the Fed’s ability to shape inflation comes from the public’s belief that it will keep inflation running at its long-term goal of 2%. That could be undermined if a president were to blatantly put their thumb on the scales.

“The challenge for the Fed is its credibility, its legitimacy,” Binder said. “It’s all wound up in the public having confidence that the Fed knows what it’s doing and that it’s going to do it in a methodical way. That it’s not going to simply twist in the wind, buffeted by competing parties or competing ideologies.”

Binder also worries the Fed could overreact in the opposite direction, keeping interest rates too high in an effort to defend its credibility, unnecessarily damaging the economy by keeping money too tight. 

Cautionary Tales From Around The World

Ian Sheperdson, chief economist at Pantheon Macroeconomics, used Britain as an example, where the central bank was under the control of the elected government until 1997. That year, the Bank of England’s governing structure was changed to make it more independent. Not coincidentally, British inflation, which had been chronically several points higher than in the U.S. and Germany fell into line with its economic peers that year. 

A study of 17 contries in Latin America by the International Monetary Fund, the financial arm of the United Nations, in 2022, found that inflation consistently ran lower in countries where central banks had more independence. 

Turkey provides another dramatic example of the link between politics and inflation. Authoritarian ruler Tayyip Erdogan tried out an unorthodox economic theory: that lowering interest rates would reduce inflation. Instead, the inflation rate got as high as 85.5% in 2023 before the central bank began using a more traditional approach, and raised rates.

Ultimately, the decision to change the Fed’s structure would be up to Congress. Bullard said he sees little chance of that actually happening, based on conversations he has had with lawmakers.

“Even people that you think might be kind of more extreme, either on the left or the right, they’re pretty supportive in ordinary conversation,” Bullard said. “I didn’t get the sense that they were seriously considering changing the structure of the Fed in a fundamental way.”

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