Money & Markets Daily: 5
It’s impossible to keep track of everything that’s going on in the financial markets and the economy these days. That’s where “The 5” comes in…
Kick off your week right by exploring the most important trends and opportunities you need to know about right now.
1. “Have you tried turning it off and on again?”
Cybersecurity giant CrowdStrike Holdings Inc. (Nasdaq: CRWD) had its worst nightmare come true on Friday when a faulty software update caused networks and computer systems to go offline around the world.
All flights were grounded by several major airlines, bank accounts were digitally frozen and business came to a halt as companies scrambled to implement fixes.
Ground crews did all they could to keep flights running, with one Indian airline going so far as to issue handwritten boarding passes to passengers.
A global systems outage forced ticket agents to resort to the “old-fashioned” solution of using handwritten boarding passes.
This is exactly the type of failure that cybersecurity companies need to prevent. This is the kind of attack that most hackers can only dream of carrying out, and CRWD found itself caught in the crossfire.
According to Matt Clark, principal analyst at Money & Markets, the significant outage will have a lasting impact on the industry: “It will force businesses affected by the outage to think hard about how they build their cybersecurity infrastructure.”
And the impact on stock prices is already being felt…
2. Coding “SNAFU” Costs CRWD $8 Billion
Investors were quick to hit CRWD after the system crash, with shares falling 11% by the close of trading on Friday and wiping out more than $8 billion in market capitalization.
Some investors believe CRWD’s woes could be a windfall for its competitors, but Matt urges caution: “The disruption did no favours for the IT sector. Valuations were already high and we were already seeing a shift from big tech stocks to small caps based on expectations of rate cuts.”
To illustrate his point, he shared an X-ray of the First Trust Nasdaq Cybersecurity ETF (Nasdaq: CIBR): The chart shows the Green Zone Power Ratings (and constituent factors) of each of the ETF’s stocks.
As you can see, there’s a lot of red in the mix, and the top rated stocks don’t even have an overall rating above 80. Size is a tricky factor, especially as it reflects how bloated many of these stocks have become.
Speaking of bloating…
3. The coolest political convention ever
Last week was a big one for the Republican National Convention, a four-day event that featured appearances by Hulk Hogan, UFC founder Dana White, Kid Rock, and, of course, former President Donald Trump.
It was a star-studded convention, featuring dozens of impassioned speakers and a record-breaking 92-minute closing address from newly elected president Trump — for those keeping track, that’s roughly the same length as Dr. Strangelove.
Hopefully, next month’s Democratic National Convention will be just as exciting, and more so now that President Joe Biden has dropped out of the race. Vice President Kamala Harris is currently the front-runner to take on Trump, but she’s not guaranteed to win. Other candidates, such as California Governor Gavin Newsom, could also be strong contenders for the nomination…
Maybe Stone Cold Steve Austin will announce the winner with a cold beer in hand.
Whatever the outcome, we’ll be watching this heated election closely and keeping you updated on how it could impact your portfolio…
4. Worst week in two years for “Mag 7” tech stocks
The market capitalization of the so-called Magnificent Seven companies took a staggering hit of $1.1 trillion last week.
Regular Green Zone Fortune subscribers will already know that Adam O’Dell predicted this week to be “the most important week of 2024” following news that inflation is finally subsiding.
“There’s a three-level chain of logic going on here,” Adam explains…
Step 1: The latest data shows that inflation has fallen to its slowest pace since 2021. This makes it much more likely that…
“Step 2: The Federal Reserve will start cutting interest rates as early as September. And that will…
“Step 3: Small caps are about to get the “rocket fuel” (rate cuts) to rally significantly (and outperform large caps).”
In fact, several of Adam’s recommended small cap stocks saw big gains last week.
He’ll be adding more to this powerful trend after tomorrow’s Wealth Multiplier Summit (don’t forget to apply for your invite here ).
5. Hot Summer
Last week on The 5, we noted that Federal Reserve officials have several upcoming speeches in which they will be paying close attention to the language and phrasing they use.
Fed officials are known for frequently using doublespeak and vague language to signal possible policy changes, but this week Fed Chairman Jerome Powell got down to business, telling investors the central bank won’t wait until inflation is below 2% before starting to cut interest rates.
Of course, that 2% figure is the Fed’s mandated inflation target, and with inflation currently running at 3%, Powell is essentially telling markets to expect a rate cut by the end of the summer, possibly in September.
This is great news for stocks, especially small caps, and we’ll have more insight as the situation develops.
— Money & Markets Team
