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Market Update: U.S. Stocks Tumble Amid Economic Concerns

This week began with significant declines in U.S. stock markets as investors grappled with growing economic uncertainties. The Dow Jones Industrial Average fell by 890 points, approximately 2.1%. The S&P 500 dropped by 2.7%, while the Nasdaq Composite experienced a steeper decline of 4%, although they managed to recover slightly from their lowest points of the day.

The decline coincided with a notable decrease in bond yields, which did not ease the worries on Wall Street. Concerns grew after former President Donald Trump’s comments on Fox News Sunday, where he did not dismiss the possibility of a recession triggered by tariffs. He emphasized the need to build a “strong country,” indicating that he is not overly concerned about the stock market’s performance.

Sector Performance

Among the sectors, technology led the downturn, with major players such as Nvidia and Apple contributing to the sell-off. The communications services sector also faced significant losses, heavily impacted by declines in shares of Alphabet and Meta Platforms. The financial sector saw its own struggles, with Wells Fargo ranking as one of the portfolio’s weakest performers, while Goldman Sachs also saw considerable declines.

Healthcare, which had shown resilience recently, faced a minor setback with a 1.1% loss. However, firms like Bristol Myers Squibb and Abbott Laboratories ended the day positively amidst the broader market turmoil.

Investment Strategy Update

Reflecting the same approach as last week, our strategy remains focused on identifying undervalued stocks with robust fundamentals, while also considering adjustments to outperforming stocks that have thrived on market rotations towards defensive positions. The S&P Short Range Oscillator had briefly emerged from oversold territory after a rally on Friday, but Monday’s market plunge is likely to revert it back to that state.

During Monday’s trading session, we capitalized on the opportunity to purchase shares of CrowdStrike, which has faced heavy selling pressure following its underwhelming fiscal guidance. We also secured profits on Abbott, benefiting from its recent market performance, and Linde, which has shown resilience this year. Part of the profits was reinvested into Goldman Sachs, which remains approximately 20% below its previous highs. Further, we enhanced our position in Capital One Financial, which we initially bought into last week, along with additional shares of Disney, as we believe it may navigate impending consumer slowdowns effectively.

Antitrust Developments Impact Alphabet

Shares of Alphabet fell nearly 5% following the Department of Justice’s filing of a revised proposed final judgment in its ongoing antitrust case. While the changes were minimal, they largely retained the remedies proposed during President Biden’s administration. Notably, the Trump administration had previously advocated for remedies requiring Google to divest its Chrome browser, critical for its digital advertising and search operations. However, the latest proposal has softened, with Google no longer being compelled to sell its artificial intelligence interests, although it must inform regulators before making further AI investments.

The legal challenges holding Alphabet back continue to present concerns for investors, as the outcome of these cases could significantly influence the company’s operational framework and market influence. Analysts from MoffettNathanson indicated that the recent proposal should not have come as a surprise, citing the Tunney Act and its implications on antitrust settlements. Although some concessions were made for AI investments, the broader issues are not expected to dissipate anytime soon. JPMorgan noted that investors’ hopes for relief from regulatory pressures under the new administration may not materialize as anticipated.

Jim Cramer has expressed wariness about Alphabet’s long-term outlook amidst these antitrust cases, highlighting potential risks despite the company’s strong market presence. He contends that while Alphabet holds a commanding position in search and digital advertising, it should not be viewed as fundamentally problematic, given the competitive landscape advertisers face.

Upcoming Reports and Economic Data

Looking ahead, companies within our portfolio are not slated to report earnings imminently. However, Oracle will be a key focus, particularly regarding insights into AI demand and investment from co-founder Larry Ellison. Other companies reporting after market close include Mission Produce and Vail Resorts. On the economic front, vital data is expected from Dick’s Sporting Goods, Kohl’s, and Viking, with critical reports on small business optimism from the NFIB and the Job Openings and Labor Turnover Survey (JOLTS) scheduled for release before the market opens on Tuesday.

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