MIFTs Could Be The Commodity Market Version Of FAANGs

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(Wednesday Market Open) Tuesday’s relief rally is struggling to find legs on Wednesday morning despite a couple of positive earnings announcements and a positive retail sales report. The commodity market is finding new stars in technology-related metals and materials. Rising commodities and inflation are a boost for inflationary sectors, but consumers are feeling it in their pocketbooks.

Consumers are also moving away from online shopping. Despite beating on earnings and revenue estimates, Shopify (NYSE: SHOP) was falling 5.57% in premarket trading. The e-commerce and fintech company cautioned investors about revenue headwinds in the first half of 2022 because shoppers are preferring to hit brick and mortar stores versus online as the economy reopens from the pandemic.

Food producer Kraft Heinz KHC is also up in premarket trading by 1.50%. KHC reported better than expected earnings and revenue. The company was able to navigate higher costs and a broken supply chain; it appears to have passed costs onto consumers.

Many of these costs were reflected in this morning’s retail sales report. Retail sales came in much stronger than expected before the open on Wednesday—growing 3.8% month over month, which was above the estimate of 2%. Core retail sales also grew at a much higher pace, reporting 3.3% month over month growth, which was well above the projected 0.8%. The retail sales report isn’t adjusted for inflation, so it’s difficult to say what growth is driven from demand and how much of the growth reflects rising prices.

Tuesday’s Action

Moving over to semiconductors, Analog Devices (NASDAQ: ADI) also beat on top and bottom line numbers leading to it trading 2.44% higher in premarket trading. The company also increased its second quarter earnings outlook as well as its dividend.

After yesterday’s close, metaverse pioneer Roblox RBLX fell more than 16% after reporting underwhelming earnings results despite growing earnings by 83% year over year. User growth was lower than expected, with 49.5 million daily active users instead of the 50.1 million analysts were forecasting.

ViacomCBS (NASDAQ: VIAC) was also down in extended hours trading. VIAC fell 13.89% after reporting lower-than-expected earnings. The company put a lot of resources into its Paramount+ streaming service, which came at a big cost. However, it was able to add 9.4 million subscribers, which was well above the 6.4 million analysts were expecting. Viacom also announced it would change its name to Paramount Global.

Hotel and leisure companies are still dealing with pandemic issues and a changing marketplace. Airbnb (NASDAQ: ABNB) posted better than expected results despite ongoing issues with the COVID-19 pandemic. Gross bookings were up $11.3 billion, which is a 91% increase from a year ago and 32% higher from two years ago. The company also expects to see booking over pre-pandemic levels. The stock rallied 3.57% in premarket trading.

ABNB’s success during the pandemic may reflect a change in how people are vacationing. This morning Hilton Worldwide HLT fell 1.42% in premarket trading after missing its earnings estimates. However, Marriott (NASDAQ: MAR) reported better-than-expected earnings on Tuesday, causing it to rally 5.8%. But Wynn Resorts (NASDAQ: WYNN) missed on earnings, dragged down from its Macau casinos. However, only Airbnb is projecting a return to pre-pandemic bookings.

Tuesday’s Action

Stocks rallied on Tuesday as relief in the form of de-escalation came out of Russia. Igor Konashenkov of the Russian defense ministry released a statement that said the some of the Russian troops stationed along the Ukrainian border were returning to their bases. Additionally, troops performing drills in neighboring Belarus were already scheduled to leave February 20. Later in the afternoon, President Joe Biden said that he hasn’t confirmed any Russian troop movements but stands ready to support Ukraine if needed.

The relief was great enough that the stocks hardly flinched at the much hotter-than-expected Producer Price Index (PPI). The Nasdaq Composite ($COMP) lead the way, closing 2.53% higher on the day. The S&P 500 (SPX) rose 1.58% and was able to close back above its 200-day moving average. The Dow Jones Industrial Average ($DJI) traded 1.22% higher.

Investors appeared to be looking to take on some risk because the Russell 2000 (RUT) rallied 2.76% on the day. Additionally, the S&P 500 Pure Growth Index outpaced the S&P 500 Pure Value Index, returning 2.74% and 1.36% respectively. The Cboe Market Volatility Index (VIX) dropped back near 25, reflecting investor relief. While looking for risk, investors must have been looking at technology and consumer discretionary stocks because they were the day’s top performers. Utilities and energy stocks were the only sectors in the red. Energy was likely pulled lower by oil futures falling 3.64%.

Looking outside of the eastern European tensions, Tower Semi TSEM rallied 42.1% after Intel (NASDAQ: INTC) announced plans to acquire the TSEM for $5.4 billion. Monolithic Power (NASDAQ: MPWR) rallied more than 10% in sympathy to TSEM as investors may be hoping that MPWR will also be an acquisition target.

Commodities Version of FAANGs

Oil has been and will be the major commodity around the globe for some time, but some investors are seeing MIFTs as the new FAANG investment. MIFTs stands for metals important for future technologies. There’s not an official list of MIFT commodities, but they often include lithium, tin, copper, graphite, silicon, titanium, aluminum, niobium, cobalt, manganese, and nickel. Some lists include other commodities, but not every commodity has a large market to it.

Let’s look at a couple of examples. Tin is a major component in technology because it’s used to solder electronic circuit boards and microchips. According to Rio Tinto RIO, in 2018, 50% of tin was used for electronics. Tin futures have experienced enormous growth over the last year. On February 20, 2021, it was trading around $14,700 per contract. On Tuesday, it traded near $43,267 per contract. That’s a return of about 194%.

While the growth in tin is impressive, it hardly compares to lithium, which is seeing enormous demand from various technologies, especially in elective vehicle batteries. After reaching its bottom in August 2020, lithium futures were trading at $34,500 per contract. On Tuesday, they were trading for $392,500 per contract. That’s a gain of 1,037%.

There are several mining stocks that produce tin, lithium, and all the other MIFTs including Freeport-McMoRan FCXBHP Group BHPAlbemarle ALBSociedad Quimica y Minera de Chile (SQM), Livent LTHM, and Lithium America LAC to name a few. But buying the stock isn’t always the same as buying the futures contract because there are several other factors like capital expenditures and company management that can cause issues for investors.

Additionally, mining companies commonly score low in ESG ratings. ESG is one way in which investors evaluate companies based off social consciousness. It considers environmental, social, and governance (ESG) issues related to the company’s products, management, employees, and potential damages to the environment. Many technology companies are able to sidestep ESG ratings because they are end users and not miners, producers, or refiners. If ESG is an important consideration in your analysis, you’ll want to check out the ratings on these companies before investing.  

CHART OF THE DAY: BATTLE FOR SECOND PLACE. The Industrial Select Sector Index ($IXI—candlesticks) has underperformed the Materials Select Sector Index ($IXB—blue) over the last year in price performance and relative strength. After the first of the year, $IXI did make a push against $IXB, but it has recently weakened. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platformFor illustrative purposes only. Past performance does not guarantee future results.

Runner Up: We’ve noted many times that energy is the dominate inflationary sector because oil is king among commodities. The materials sector has been a distant second, even though it covers so many other commodities from metals to lumber. Materials have been among the top in price and earnings growth. However, in Monday’s Market Update, I noted that the industrials sector could make a push to surpass materials because the sector has had the second-highest estimated earnings growth rate for Q1. While industrials were able to exhibit some relative strength against materials, the sector has some work to do to slide in behind energy.

One problem the industrials sector might have is that it needs to sell heavy equipment to companies in the materials sector. So, industrials need materials to do well. Of course, energy is likely to be a bigger driver of demand for industrial equipment, so it could give industrials the boost it needs. Either way, the high demand and rising prices for commodities and construction materials should help both sectors in the near future.

Rent Out: The NMHC Rent Payment Tracker dropped to 92%, which means that on-time rent collections have dropped to their lowest levels since December 2019. The trend for renters missing rents has been downtrending since 2019 but saw spikes in on-time rents with the $1,200 and $1,400 stimulus checks.

Throughout 2021, rent for one-bedroom apartments hit an all-time high, rising 12% according to real estate platform Zumper. Rent on a two-bedroom apartment rose 14%. However, the January’s jobs report revealed that average weekly earnings grew 4%. With rents rising faster than incomes, a new problem could be developing in the housing markets.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Pixabay

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

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