MicroStrategy and Microsoft Lead

Issue 14;

Welcome to the 14^th issue of the Global Trend Investor (GTI), which, for the first time, is ready for public release. The aim is to inform our clients about what is really happening within Global Equities. We highlight the trends, both good and bad, and we hope you will have a better understanding of what is driving stockmarkets.

This is an advanced technical report dealing with some complex investment concepts. We’ve compiled a User Guide that provides an overview of the key concepts and terminology used in this report. We strongly recommend that you take a look at it, as navigating the report without it may be difficult.

Following the Liberation Day crash, the World Index is back to a ByteTrend Score of 5. That is good news. Long may it continue. It is also worth noting that the US dollar has stabilised.

World Index – Developed Markets - Daily

On the weekly chart, the ByteTrend Score is a 3 as the 30-week moving average remains negatively sloping and the price is yet to make a 20-week max. If it managed that, it would be a 5, signalling a new uptrend. 

World Index – Developed Markets - Weekly

Measuring breadth in local currency, there are fewer bear trends (red) with ByteTrend scores of 0, and a modest but growing number of ByteTrend Scores of 5 (blue), indicating uptrends. This is an improvement in market breadth, which is a positive sign.

ByteTrend: Weekly Breadth Signal

The regional CAPR chart shows the markets in line in recent weeks. That said, Europe, EM, and Japan have been outperforming. Japan has been strengthening this year from an all-time CAPR low in January.

Europe, USA, Emerging Markets, Japan CAPR

Growth has recently had a bounce, but gold is once again back in charge. Quality is struggling while Value remains the best market factor this year.

Major Factors CAPR since 2020

The world matrix still sees financials and utilities as the strongest sectors. Energy is the weakest all over the world, alongside real estate (Latin America excepted) and healthcare. The other strong area outside of the US is communications, which is mainly internet.

Average ByteTrend Score by Region and Sector Heatmap - CAPR

At the stock level, Microsoft and MicroStrategy lead the market, which bodes well for all things Micro. However, there is a distinct lack of emerging trends coming through this week, meaning new market leadership is thin.

In contrast, there are many weak stocks in transport, energy, logistics, and healthcare. The first three point to the reduced movement of goods, and likely a weakening economy. In the case of healthcare, it marks a change as margins are under pressure.

Leading Trends with New Highs

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5. All charts shown are CAPR rebased to 100.

Microsoft was the first stock from the Magnificent 7 to return to a ByteTrend Score of 5 and remains the only one. We discussed its good results last week (revenue up 22% in constant currency, and the Azure cloud services division up 35%). Elsewhere in the business, its AI agent, Copilot, has grown its user base 3x over the last 12 months. Its cybersecurity business grew 21%, and on LinkedIn, growth continued as time spent watching videos on it increased by 36% (YoY), and comments were up 32%. Microsoft reminded people of its breadth and strength even as the AI hysteria fades.

Microsoft

Another US tech giant, Mastercard, is seen as a serial winner but hasn’t made a new high versus the market since 2020, until recently. Their results outlined weak business sentiment but resilient consumer spending, and financials grew ahead of expectations. A key area of attention is cross-border payments, where the traditional banking industry is being disrupted by technology companies offering faster, cheaper solutions. Mastercard is expanding its partnership with Corpay to grow this offering to institutions. 

Mastercard

MercadoLibre is the leading commerce and fintech ecosystem in South America. Its fintech arm grew 30% last quarter to reach 64 million customers, while new buyer growth in the commerce division reached its highest level since the pandemic. It has been growing strongly even as the share price surged after Covid faded. As a result, it’s now offering its highest free cash flow yield since 2009, while returns on capital are back to pre-covid levels.

MercadoLibre

MicroStrategy, recently renamed Strategy, is essentially Bitcoin on the stockmarket. Bitcoin is on the cusp of an all-time high, and Strategy’s business model is to hold a large stash of Bitcoin.  It holds 550,450 BTC worth $57.6 bn. The market cap is $114 bn, which means the stock trades at a hefty premium. Strategy has been successful because the Bitcoin ETFs are banned, or at least restricted, in most countries. Strategy is a member of the Nasdaq Index and so has become a convenient workaround. Bitcoin is bullish, but Strategy’s biggest threat is a change of heart from regulators. If they reversed the ban, Strategy would become exposed to heavy selling pressure. Regardless, it’s a bullish trend for now.

MicroStrategy

The extraordinary success of Ferrari leaves it 350% ahead of the world index over the last decade, on a historically high EV/Sales multiple of 11.4x, but the business continues to deliver sustainable, profitable growth, backed by a historic brand. Net revenues grew in the last quarter by 13% on growing EBIT margins. Other luxury companies have come under increasing pressure, especially from Chinese weakness, but Ferrari has broken the mould so far. Super-rich valuations mean the pressure is high, but the trend is solid for now.  

Ferrari

There are 90 additional leading trends with new highs in the GTI universe.

Emerging Trends

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of less than 5. They don’t have to be in an uptrend, just emerging. All charts shown are CAPR rebased to 100.

Charles Schwab has consistently grown its revenue per employee for decades. However, the powerful forces that drove trading activity around the pandemic are what really drove the strength in 2021. Then, in 2022, it suffered as it had reserves in long-dated US treasuries, which fell in value. More recently, client assets have grown 16% over the last 12 months, suggesting that asset price growth rather than inflows has driven its return to outperformance. Customer margin balances grew 32% YoY, which adds risk, while earnings from deposits declined.

Charles Schwab

The contrarian trade in Boeing has been a theme here for some weeks now. In recent times, there are few more hated stocks as its growth and returns on capital have never recovered from Covid, and high-profile product failures have mounted. Business performance is slow, but the stock performance might be even worse. Meanwhile, British Airways' owner, IAG, just bought 32 planes worth $13 billion, and total deliveries exceeded expectations in the most recent quarter.   

Boeing

Itochu Corp is a diversified Japanese trading company. It has grown its dividend consistently over decades, backed by steady growth and high returns on equity. It has an unusually high amount of debt for a Japanese company, even after steadily reducing it since the 1990s. Over the last nine months, its textile and Family Mart businesses have been particularly strong, while metals and minerals were notably weak. It operates nine diverse divisions.

Itochu Corp

Australian retail conglomerate Wesfarmers continues to see growth in its Bunnings (hardware) and Kmart (general) stores. Operating at the value end, they have benefitted from downtrading during cost-of-living pressures. Analysts have been raising their price targets sharply since January 2024, as Australian consumer demand has remained resilient, up 3.7% over the last year.

Wesfarmers

Tech company, Fujitsu, has finally reached the price and valuation levels it hit back in the tech bubble of 2000, which reminds us how painful and enduring the losses can be when you buy a stock at its peak. Revenues crept up by 2.1% in FY 2025, driven by its mainstay digital solutions business, which makes up 2/3rds of sales, grew sales by 5.1%, and also delivered higher margins. The fourth quarter was especially strong, with the group beating sales expectations by the largest amount (24%) in at least twenty years.

Fujitsu

There are 58 additional emerging trends in the GTI universe. 

Weakening

These stocks are trading at the 30-week CAPR lows with a ByteTrend Score above 0. They are weakening trends but not yet downtrends. All charts shown are CAPR rebased to 100.

Apple is now flat against the world index over the last five years, which is extraordinary given the narrative. Concerns about antitrust and its partnership with Google are one factor, as the huge payments it receives to make Google the default browser on iPhones come under scrutiny. The more recent impact of tariffs is another. Growth has slowed over the years, and while there are many ways to justify it, the high valuation multiples have become a concern.

Apple

The same antitrust pressure impacts Google, but the market is also offering a challenger to its search monopoly in the form of AI chatbots. Natural language search, backed by links, has quickly become the default for many, and its growth surpasses almost all historical precedent. Google is no longer the only way to discover things online, and it is showing. Search advertising makes up half its revenues, and Alphabet faces a classic innovator’s dilemma of weighing up cannibalisation of its own business or falling behind on AI, if it hasn’t already. Its version, called Gemini, has less than a quarter of the users of ChatGPT.

Alphabet

Mixed economic signals aren’t signalling recession yet, but the verdict from oil markets on the tariff war was clear: carry on and this will end badly. OPEC have been happy to see it decline, while US producers have suffered. We highlight Conoco, but there is little strength anywhere in oil at the moment.

ConocoPhillips

CMS offers comprehensive corporate finance and capital markets services in China and Hong Kong. It shot up with the broader Chinese stimulus rally in September 2024, but lost its momentum soon after. It failed to deliver any material growth in its 2024 results in March and slightly missed earnings expectations. The tariff shock on April 2 worsened the pain a week later, and recent progress between the US and China has failed to generate any new outperformance.

China Merchants Securities

There are 16 additional weakening trends in the GTI universe.

Bear Trends

These stocks are trading at the 30-week CAPR lows with a ByteTrend Score of 0. They are in a downtrend. All charts shown are CAPR rebased to 100.

UnitedHealth weathered the first few days of the tariff storm very well, but quarterly results saw it crash 20% in a day soon after. It saw a significant and unexpected surge in Medicare utilisation, leading to higher costs, on revenues that were already below expectations. A shifting customer mix in its Optum Health division impacted its Medicare reimbursements, as new customers had a greater level of undocumented conditions. Moreover, it aggressively slashed its profit guidance.

UnitedHealth

Merck & Co was hit hard by tariffs and was struggling massively even before that. It announced a $200m hit from the tariffs that were in place in late April, as it wasn’t planning to pass on the price increases. Meanwhile, sales of its top product, the cancer immunotherapy drug Keytruda, grew 6% to $7.2 billion, but were below analyst forecasts. This is a multi-year CAPR low.

Merck & Co

Bristol-Myers Squibb’s legacy drugs like Revlimid are hitting patent expiry and seeing sales fall sharply as generics enter the market. It gave guidance of a 6% fall in revenues this financial year, and analysts expect that to continue all the way to 2028. However, its very long period of underperformance has left it with its lowest EV/Sales multiple in a decade, while returns on capital have been improving steadily since the lockdowns ended. The company has shrunk the workforce to cut costs.

Bristol-Myers Squibb

Norfolk Southern offers rail transportation for commodities. It reached an all-time high valuation in the 2021 bull market, but revenue growth then fell and turned negative at the end of 2023. The dividend hasn’t grown since then, and it has since come under pressure from activist investors, particularly Ancora Holdings. They have tried to overhaul the company's operations to increase profits, which have missed expectations in both 2023 and 2024.

Norfolk Southern

Target was the first big retailer to report results following Tariff Day. The US consumer remains remarkably resilient, but Target’s portfolio is increasingly discretionary, and this has caused them trouble since the inflation surge began in 2022. They are especially struggling in home and electronics. Walmart is over 50% food, while Target is around 20%. There’s a new CFO, who will have to tackle the fact that margins are falling and cost inflation pressures persist.

Target

There are 108 additional bear trends in the GTI universe.

Outlook

The aim of GTI: Top 200 is to help you be better informed. By understanding where the market trends are, investors stand a better chance of holding the strong rather than the weak.

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