Moderate Portfolio

Disclaimer

This document is a marketing material and is for informational purposes only and must not be construed to be an advice to invest or otherwise in any investment or financial product. JSK does not guarantee as to adequacy, accuracy, completeness or reliability of any information or data contained herein and under no circumstances whatsoever none of such information or data be construed as an advice or trading strategy or recommendation to deal (Buy/Sell) in any investment or financial product. JSK is not responsible or liable for any result, gain or loss, based on this information, in whole or in part.

Please carefully read full disclosure mentioned on the last slide of this document.

Data Source: Bloomberg

Portfolio Snapshot

Total Investment Value: $150,000

Leverage: 2.5x

Portfolio Allocation

• Bonds: 30%
• Indices: 15%
• Gold: 20%
• Equities: 35%

Bonds

Euro Buxl

In its most recent meeting on July 18th, 2024, the European Central Bank opted to maintain interest rates at 4.25%, aligning with market expectations.

Looking ahead, the latest Eurozone CPI report revealed an inflation rate of 2.6%, slightly above the forecasted 2.5%. The primary driver behind this uptick was a significant rise in energy inflation, which increased by 1.3% in July.

A key area of concern for ECB policymakers remains services inflation, which, despite being the most persistent pressure, saw a slight deceleration from 4.1% in June to 4% in July. This marked the first slowdown in three months. Economists suggest that this modest decline in services inflation may be sufficient for a rate cut in September, which is currently viewed as the base case scenario by many economists. As of now, market participants are pricing in a 93.8% likelihood of a rate cut in the upcoming September meeting.

The report also highlighted that the price growth for food, alcohol, and tobacco decelerated to 2.3%, while the cost of other goods saw a slight increase, rising by 0.8%. The core inflation measure remained steady at 2.9%. This steadiness surprised some economists who had expected a slight decrease in core inflation. The unexpected stability was attributed to increased container shipping costs, which temporarily pushed up goods inflation. However, analysts believe the ECB may not be overly concerned about this, as futures markets indicate that the spike in shipping costs is likely temporary.

Overall, economists anticipate that inflation will continue to moderate, paving the way for potential interest rate reductions. This outlook supports a positive sentiment for Buxl prices, as easing inflation and lower interest rates typically bolster bond markets.

Furthermore, given the recession fears in the US, if the Fed decides to cut interest rates, the ECB could follow the same.

Regression Analysis

Regression analysis is a useful tool to assess the strength of relationships between different variables and for modeling how these relationships will evolve in the future. The model below is used to forecast the movement in the Euro Buxl’s price when the 30-year German Government yield changes.

Technical Perspective

From a technical perspective, Buxl experienced a breakout from a wedge formation. Additionally, a breakout from a bull flag pattern has been observed, which reinforces the bullish momentum in bond futures. The breakout has also been retested, confirming the upward trend. The target level is identified at 155, where a strong Fibonacci confluence from a retracement and projection aligns. Meanwhile, the 130-price level serves as a significant support zone.

U.S. T-Bond Ultra

At the July FOMC meeting, the Federal Reserve kept interest rates steady at 5.25% to 5.50%, as expected. Notably, the post-meeting statement highlighted that inflation remains only somewhat elevated, and job gains have moderated. Fed Chair Jerome Powell hinted at a potential rate cut in September due to risks associated with weakening labor market conditions.

Inflation has improved significantly, dropping from a peak of 9.1% in June 2022 to 3% YoY in June 2024. Although still above the Fed’s 2% target, this marks the first month-over-month decline since May 2020. Uneven disinflation is evident in economic reports: Q2 2024 GDP likely accelerated to 2.8%, core PCE inflation held steady at 2.6%, and annual PCE inflation fell to 2.5%.

Despite robust job growth, the labor market has eased. The unemployment rate rose to 4.3%, and wage growth slowed. Payrolls posted an increase of only 114,000 versus an analyst consensus of 175,000. In line with this, markets anticipate rate cuts later this year to support the economy. According to the CME Fed Watch Tool, there is now an 85% probability of a 50 basis point rate cut in the upcoming September meeting. This marks a significant increase from just a month ago when the probability stood at only 5.50%. Additionally, markets are factoring in the possibility of a recession early next year, leading to expectations that bonds will outperform other assets making U.S. T-Bond Ultra an attractive investment opportunity.

Regression Analysis

Technical Perspective

From a technical perspective, T-Bond Ultra experienced a breakout from a wedge formation. The target levels are identified at the 144-146 price level followed by 155-157 price level, where a strong Fibonacci confluence from a retracement and projection aligns. Meanwhile, the 125 and 122 price levels serve as a significant support zone.

Blue-chip Stocks

CrowdStrike Holdings Inc

CrowdStrike has established itself as a leading technology company in the Endpoint Security market, utilizing a groundbreaking platform that effectively expands into key and related markets. The company utilizes a cloud-native architecture, lightweight agents on endpoints, and the network effects of its AI-based data and analytics platform, positioning it as a software company of the future.

For the first quarter of fiscal year 2025, ending on April 30, 2024, CrowdStrike achieved a total revenue of $921.0 million, marking a 33% increase compared to the previous year. Subscription revenue also experienced a 34% increase, reaching $872.2 million. Net cash generated from operations totaled $383.2 million, while free cash flow amounted to $322.5 million, both surpassing market expectations.

Nvidia Corp.

Nvidia showcased a blockbuster quarter with record revenue of $26 billion, up 18% from Q4 and up 262% from a year ago. Moreover, it reported quarterly Data Center revenue of $22.6 billion, up 23% from Q4 and up 427% from a year ago. The company announced a ten-for-one forward stock split effective June 7, 2024, to help increase liquidity. Quarterly cash dividends were also raised 150% from $0.04 to $0.10 per share of common stock. However, following a planned stock split, the dividend will translate to $0.01 per share. Nvidia currently holds an estimated 80% market share for AI-powering processors.

Nvidia has recently introduced its latest AI chip, which is twice as powerful as its current generation of GPUs for training AI models and five times more capable for "inference," which refers to the speed at which AI models like ChatGPT can respond to queries. This chip could command a 40% premium to the H100 chips, which are currently priced between $30,000 to $40,000 each.

The company’s market capitalization has reached $2.8 trillion, surpassing Google and Amazon to become the third most valuable company in the world by market cap, following Microsoft and Apple. Nvidia's chips have become the cornerstone of the generative AI revolution across the world. Companies like Microsoft, OpenAI and other entities have invested billions of dollars in Nvidia's chips. These chips possess the computational power behind generative AI technology, enabling the rapid generation of human-like text, video, and code.

Recently, NVIDIA is making a strategic push in the future of computing by collaborating with ORCA Computing and the Poznań Supercomputing and Networking Center (PSNC). This partnership focuses on accelerating the development of hybrid quantum-classical high-performance computing (HPC).

By integrating its GPUs and quantum software (CUDA-Q) with ORCA's quantum computers and PSNC's infrastructure, NVIDIA gains valuable insights into how its technology interacts with real-world quantum systems. This early access allows them to optimize and refine their offerings for the emerging field of hybrid computing. Moreover, this collaboration positions NVIDIA as a frontrunner in the development of tools and resources for hybrid HPC. By demonstrating the capabilities of its technology in a collaborative setting, NVIDIA strengthens its position in this rapidly evolving market. If successful, this could lead to new applications and markets for NVIDIA's technology, expanding their reach and impact. Nvidia is poised to announce its Q2’2025 results by August-end.

Amazon.com Inc.

E-commerce giant Amazon offers potential for growth through cloud computing and a dominant online retail presence. Amazon’s financial performance for Q1’2024 came in well above consensus estimates. Revenue surged 13% year-over-year to $143.3 billion. Operating income stood at $15.3 billion, significantly higher than the guidance range between $8 billion to $12 billion while EPS surpassed expectations at 98 cents. Revenue stemming from Amazon Web Services (AWS) showcased the strongest growth in four quarters as it surged 17% to $25 billion. Ad revenue grew 24% to $11.8 billion while revenue from third-party seller services rose 16% to $34.6 billion. Ad revenue growth was driven by strength in Sponsored products due to improvements in relevancy and measurement.

Following in the footsteps of Microsoft and Alphabet, Amazon plans significant capital expenditure increases in 2024 to meet the rising demand for cloud-based AI workloads. Spending is likely to "meaningfully increase" from 2023's $48.4 billion. Q1 capital expenditure reached nearly $14 billion, comparable to Microsoft but exceeding Alphabet. The annual capex is expected to be the highest among public companies, reaching $58 billion according to analyst estimates.

The retail and cloud giant’s second quarter earnings report was mixed, showcasing strength in its cloud business while facing challenges in its retail operations. Overall, the earnings exceeded analyst expectations, coming in at $1.26 per share. However, its revenue growth of 10.1% YoY, totaling $148 billion, fell slightly short of market forecasts. The company's core online store business saw a slight 5% increase in sales compared to the previous year. However, Amazon's revenue from third-party sellers, including fees and shipping, surged by 12%. Its advertising business also performed well, jumping 20% to $12.77 billion, though slightly missing expectations. This division has become a major profit driver for Amazon, expanding its reach beyond sponsored product listings to compete with tech giants like Meta and Alphabet. Amazon's cloud service, AWS, exceeded forecasts with a 19% growth rate. These strong performances across multiple segments contributed to a doubling of net income to $13.5 billion, reflecting the company's cost-cutting measures. Free cash flow for the trailing twelve months grew an impressive 664% y/y to $51.4 billion.

Looking ahead, Amazon plans to launch a discount store focused on low-priced, unbranded items. The company also expects operating income to remain steady in the third quarter. Kuiper, a subsidiary of Amazon, is scheduled to launch its first production satellites in 2024, with Amazon targeting the 400 million to 500 million households without broadband connectivity.

Microsoft Corp.

Microsoft Corporation (MSFT) is an American tech giant renowned for its products and services, such as Windows, Microsoft 365, Azure, and Microsoft Edge. In its most recent quarterly earnings report, Microsoft posted a double beat in earnings but surprisingly missed expectations in its Azure Cloud business. Despite this, overall revenues grew by over 15% YoY to $64.7 billion, net income increased by over 10% YoY to $22 billion, and net cash from operations surged 29% YoY to $37.2 billion.

While some may see the underperformance in Azure as a potential indicator of waning interest in AI, it is essential to note that revenue in the Intelligent Cloud segment rose by over 19% YoY to $28.5 billion, with Azure explicitly increasing by 29%. Additionally, Microsoft announced plans to increase capital expenditures for the fiscal year 2025. CEO Satya Nadella and CFO Amy Hood suggested that this higher CAPEX spending reflects a strong demand for AI capabilities. They emphasized the architectural alignment between cloud and AI infrastructure, indicating that any excess AI capacity could be monetized through cloud computing services. This perspective aligns with similar statements made by Alphabet's leadership.

In the gaming sector, Microsoft experienced a significant 61% increase in revenue from Xbox content and services, mainly due to the acquisition of Activision Blizzard. The success of new game releases, such as Diablo IV, and the expansion of games across multiple platforms have bolstered Microsoft's gaming ecosystem, which is expected to grow.

From a valuation perspective, Microsoft's P/E ratio is 35.72, slightly below the industry median of 37.66. The company's ROA is notably strong at 19.13%, compared to the industry median of 5.59%, highlighting its strong financial position. Moreover, with the stock trading more than 10% below its 52-week high, it presents a compelling entry point for investors. This robust economic performance, strategic investments in AI and gaming, and solid valuation metrics make Microsoft an attractive investment opportunity.

Alphabet Inc.

Alphabet, a dominant force in digital advertising and the proprietor of Google Search, YouTube, Google Cloud, the Android mobile operating system, and the recently unveiled Gemini model, showcased an exceptional performance in the second quarter.

The company introduced its range of generative AI-powered Gemini models, featuring various models tailored for specific use cases and deployment environments. Indicators suggest these models are aiding Alphabet in maintaining its supremacy in the search market, with revenues from the "Google Search & other" segment escalating by 13.8% yearly.

Alphabet's Google Cloud arm achieved a milestone by surpassing $10 billion in quarterly revenue for the first time during the second quarter, generating over $1 billion in operating profit. YouTube continues to drive substantial growth, extending its streak as the most-viewed streaming platform on U.S. televisions for 17 consecutive months in June. The platform benefits from heightened viewer engagement and advertising budgets shifting from traditional TV to connected TV.

Alphabet closed the second quarter with $105 billion in cash and marketable securities, supported by $60.8 billion in free cash flow over the past four reported quarters. Despite these strong financials, the company trades at a price-to-sales multiple of 7.27, notably lower than many AI-focused companies.

Reporting a robust revenue of $84.7 billion, a 14% increase from the corresponding period in 2023, Alphabet saw net income surge to $24.3 billion, marking a 29% rise from the previous year's second quarter. This growth resulted in a profit margin of 28%, up from 25.3% in the second quarter of 2023, primarily driven by increased revenue. The earnings per share (EPS) reached $1.95, up from $1.48 in the same period in 2023, outperforming analyst expectations by 2.4%.

Alphabet remains well-positioned with its array of AI-driven growth drivers, strong financial performance, and attractive valuation. This positions Alphabet as a potentially rewarding investment for those looking to capitalize on its prospects.

Indices

S&P 500 Index

The S&P 500 is arguably the most important stock market index. It tracks the 500 largest U.S.-based companies. The index has surged 14.7% YoY buoyed by signs of economic resilience, robust Q1 corporate earnings and upbeat guidance for upcoming quarters. The top 10 constituents make up 34% of the index and include companies like Apple Inc, Microsoft Corp, Nvidia Corp, and Amazon.com Inc. Recently, the index has been experiencing a major pullback due to "The Great Rotation," as investors and hedge funds shift their focus from overvalued tech stocks to defensive sectors poised to benefit from the evolving macroeconomic landscape.

Adding to the pullback was July’s jobs report, which revealed a weakening labor market. The U.S. economy added just 114,000 nonfarm payrolls, registering one of the weakest prints since the pandemic. This sparked concerns about a potential economic downturn amongst investors. Moreover, the unemployment rate rose to 4.3% in July from June’s reading of 4.1%, effectively breaching the trigger for the Sahm Rule, which is a closely watched recession indicator. Meanwhile, Even U.S. manufacturing activity, measured by the PMI reading, slid to 46.8 in July, marking its steepest contraction in eight months.

What the markets are experiencing now is an unwinding of the bullish positioning which resulted in such a strong rally in H124. However, stocks are expected to find their footing and recover as inflation declines and GDP grows. With the heavy weights of the index being fundamentally strong companies, any selloffs present a good buying opportunity in anticipation of economic recovery in H224. The S&P is currently trading at $5,186 and has a P/E of 22.7. Its expected earnings for 2024 are $244.07. The index P/E ratio fell to a support level of 20.6x in 2019, 2023, and 2024. By multiplying the P/E with the expected earnings we get a support level of $5,027, which can serve as a good entry point for exposure to the index.

Nasdaq Index

The Nasdaq 100 is a stock market index that includes 100 of the largest non-financial companies listed on the Nasdaq Stock Market. It is a tech-heavy index, with significant weightings in the technology and consumer services sectors. The index has outperformed the majority of the indices across the globe and rose 16% YoY driven by a surge in tech stocks. However, in the past month Nasdaq 100 has fallen 7% due to a tech sell-off and sector rotation from large cap to small cap. This is driven by the fact that investors believe the tech sector valuations are stretched. Moreover, July’s job data suggested a weaker than expected jobs market which intensified the selloff due to recession fears.

Nonetheless, the Nasdaq 100 remains a robust and influential index, heavily influenced by the performance of major tech companies. While economic and geopolitical uncertainties present challenges, the continued innovation in technology provides a positive outlook. Looking ahead analysts remain bullish on the index, driven by the strong balance sheet and long-term growth prospects of the technology sector and any dip in the index can be seen as an attractive opportunity.

The Nasdaq 100 is currently trading at $17,895 and has a P/E of 28.8. Its expected earnings for 2024 are $672.5. The index P/E ratio fell to a support level of 26.2x in 2021, 2023, and 2024. By multiplying the P/E with the expected earnings we get a support level of $17,619, which can serve as a good entry point for exposure to the index.

Gold

Following a near two-year hiking cycle that drove Fed fund rates to a 22-year high point, markets are anticipating the arrival of the first rate cut in the second half of 2024. The Federal Reserve has signaled rate cuts contingent upon inflation easing from the 40-year high observed in mid-2022.

Historically, it has been observed that gold tends to outperform during the beginning of the rate cut cycle and through the cutting cycle.

The table above showcases gold price performance through the rate-cutting cycle.

The table above showcases gold price performance from peak rate to first rate cut.

During the last three historical time periods between peak rate to first rate cut, gold clocked in an average price appreciation of 11%. Moreover, during the last three rate cut cycles, the average price appreciation of gold was about 33%. Considering the historical trends, the conviction for a bullish forecast for the remainder of 2024 appears to be strong with potential for gold to see an upside ranging between 35% to 40%.

Market Analysis

In July, the pace of job creation in the US decelerated noticeably. Last Friday, the Nonfarm Payrolls print clocked in at 114,000, falling short of the anticipated 175,000. The unemployment rate rose to 4.3% from 4.1%, while wage growth moderated. Additionally, the annual growth in Average Hourly Earnings slowed to 3.6% from 3.8%. The labor market, typically a lagging indicator signaling economic downturns, has shown signs of weakness. The latest Nonfarm Payrolls (NFP) report, with a lower-than-expected increase of 114,000 jobs, coupled with rising jobless claims, has fueled recession fears. Consequently, markets are pricing in a significant 50-basis-point interest rate cut at the September Fed meeting. The prospect of lower interest rates remains a positive force for non-interest-bearing assets like gold along with increased interest in gold for its safe-haven appeal during uncertain times.

While the impending pivot of Fed on rate cuts fuels the current gold surge, other factors contribute to its strength. Central Bank purchases of gold, during two consecutive years in 2022 and 2023, have exceeded 1000 tonnes per annum in comparison to a mere 450 tonne per annum purchase in 2021, following the Ukraine war. Despite China putting a pause on its buying spree, central banks in emerging countries are expected to continue purchasing gold.

Market analysis suggests a 64.94% probability of a Trump presidency in 2024, which is anticipated to positively impact gold prices. During Trump's previous term, from January 20, 2017, to January 19, 2021, gold prices surged from $1,209 to $1,839. This substantial gain was largely attributed to Trump's impactful actions that reshaped the geopolitical landscape both domestically and internationally. Under Trump, known for his protectionist stance, the U.S. dollar could weaken further as he pushes for a more competitive currency. This would likely boost gold prices, which are already nearing record highs, as gold traditionally benefits from a weaker dollar. The combination of potential rate cuts, central bank purchases and a weaker dollar under a Trump administration would provide a strong tailwind for gold.

Testimony of Our Distinction!

This document is a marketing material and is for informational purposes only and must not be construed to be an advice to invest or otherwise in any investment or financial product. JSK does not guarantee as to adequacy, accuracy, completeness or reliability of any information or data contained herein and under no circumstances whatsoever none of such information or data be construed as an advice or trading strategy or recommendation to deal (Buy/Sell) in any investment or financial product. JSK is not responsible or liable for any result, gain or loss, based on this information, in whole or in part.