Value Rebounds

Issue 72;

• Europe enjoys a relief rally.
• Life Sciences leads Healthcare higher.
• Asia under pressure.

The World Index holds a ByteTrend Score of 4 in USD. The last touch of the max/min lines was min (red), hence not a 5 score until it touches max (blue) again.

World Index – Developed Markets – Daily

Global Equity Breadth – Local Currency

The index had a good week, driven by higher breadth, which, as you’ll see below, came from the weaker groups. The CAPR trends are unchanged since last week and remain thin.

Net Winners

The winners-less-losers metric guides asset allocators. Leadership has constituents from every sector bar consumer defensives. Financial services dominate, with Asia noticeably weak compared to Europe and the Americas.

Industry Average Trend Score

Insurance, Investment, Transport, Health, and Software rise, while Mining, Energy, and Telecoms fall back. Many leading telecoms companies have fallen back into the bear group, and we highlight T-Mobile in the stocks section below.

Net Bullish Trends 0 - Local Currency

Healthcare shows up strongly in terms of price moves. The trouble is that it had been so weak for so long that it will take a little longer to show up more prominently in the CAPR tables. That said, several stocks have shown up in the emerging trends.

Trend Type Performance

The divergence between winners and losers has been wide, but for the first time in many weeks, the weakening and bear stocks are moving up more so than the leading trends. This is what we expect to see in a rotation.

Trend Type Performance - Europe

This stands out even more in Europe, which is experiencing the strongest rotation. The recent strength has been in Consumer and Financial stocks. It is fascinating how, in contrast to the Americas and Asia, the weakening trends have fared best in Europe. That is, oversold stocks should be bought rather than sold at this time – at least in Europe. 

Regions and Industries Average Relative Score

This table (below) shows the average CAPR score for each global industry, by region and in total.

At the top of the table, Tech Hardware remains the strongest sector but is fading slightly, giving back performance to sectors like Banking, Advanced Industrials, Insurance, Investment, and Transport. All have picked up in recent weeks.

Healthcare has had the most notable bounce in recent weeks, while Metals & Mining and Energy have been the weakest. Diversified Holdings is also slipping.

At the bottom of the table, Software continues to claw back some of the relative performance it lost at the start of the year, while Luxury (Home & Lifestyle) is bouncing too.

User Guide

Refer to our GTI: User Guide for an overview of the key concepts and terminology used in this report. These concepts may take a little bit of getting used to, but they are very powerful once you do.

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.

Taiwan Semiconductor Manufacturing Co Ltd

The ultimate tech hardware stock, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), is the 8^th-largest stock in the world with a market cap of $1.5 trillion. Even at this size, it is growing 30%, with returns on capital of 26%. It is so dominant because it focuses purely on manufacturing, which lets it concentrate on scale, yield, and process leadership, leaving the rest of the industry to focus on design. They see continued supply shortages for at least another year, leading to continued capacity expansion and optimistic forecasts.  

CrowdStrike

One of the few areas of software to see real strength this year is cybersecurity. CrowdStrike announced a revenue growth acceleration in its latest results, with 24% growth in annual recurring revenue and gross margins reaching a record 81%. The “Mythos moment”, when Anthropic’s model flagged cyber risks at major institutions across the world earlier this year, was a watershed for the industry from which CrowdStrike has benefitted. 

New Leading Trends

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5, except they are new trends this week, having previously had a score below 5. All charts shown are CAPR rebased to 100.

Rolls-Royce

Having paused after a remarkable run coming out of the 2022 bear market, Rolls-Royce has re-accelerated to new relative highs in recent weeks. Its significant operational overhaul has improved efficiency, driving stronger growth and higher margins, prompting investors to begin treating it as a quality growth story rather than a cyclical rebound. 

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.

Snowflake

Buffett famously overcame his tech-nervousness to participate in the Snowflake IPO, but the experience has probably reminded him why he generally avoids such forays beyond his “circle of competence”. It has fallen steadily since listing. However, sales growth has re-accelerated in recent quarters and is back above 30%, while free cash flow has risen strongly. It has been helped by suggestions for a stronger pivot into AI, including the acquisition of Natoma and the entry into a $6bn cloud contract with Amazon.  

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.

Walmart

Walmart is an incredibly strong, resilient business. However, this quality has led investors to believe it can withstand any shock. Despite rock-bottom consumer sentiment and the struggles of many peers, Walmart stock has carried on higher, reaching record valuations (a 50x PE ratio). For a low-growth business, that is incredibly high, and the recent weakness has barely brought it towards normal historical averages. In 2011, it reached 11x.

Oracle

Oracle went the furthest on capital expenditures to build data centres in recent years, more aggressively than the “hyperscalers” in the Magnificent 7. The market has recently questioned the merits of this strategy, growing fearful of the high costs and uncertain returns. If the value doesn’t go to the builders, they are in trouble, and Oracle is the canary in the coal mine. 

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.

Hermès

Hermès is at the very top end of the luxury sector. Few can match its elite status, the quality of its materials or supply chain, or the consistency of its growth in recent decades. However, the price is too high for stocks and handbags, and the whole sector has suffered from a slump in luxury buying from China. Should Korea start producing millionaires following its AI boom, Hermès could rise again, but for now, the struggles continue. 

T-Mobile

T-Mobile is a major U.S. wireless carrier and national broadband provider. It has come down from a very high valuation after a strong prior run as margins have slipped in recent quarters, and customer churn increased very slightly. This is despite continued acceleration in revenue growth. Its acquisition of Sprint in 2020 raised its debt levels significantly, but it is seen as a successful move, giving it a strong position in 5G and greater scale advantages.

GTI 200 Spreadsheet

We are pleased to share the GTI 200 spreadsheet. Download the spreadsheet below to view the CAPR and local currency scores, and more, for the world’s largest 200 stocks. Have a look at the different groups and the main list “All stocks”. The Insights tab is interesting, and don’t forget to expand the columns by clicking on the “+” at the top of the page if you want to see more trend data.

Outlook

The rotation continues at a modest pace. Just two tech hardware stocks made the leaderboard this week, when only a few weeks ago, they dominated it. Healthcare is improving, especially in higher-volatility stocks, such as biotech. It will be interesting to see if consumer defensives follow.

Thanks for reading GTI.