Before the bell: investing in war

Wednesday, 25 June may go down in history as the day NATO members agreed to raise their defense spending to 5%. Meanwhile, FedEx disappointed investors after withdrawing its full-year profit forecast.

Today marks the final day of the NATO summit in The Hague. Around 2:00 p.m., Mark Rutte is expected to announce—likely in his future role as Secretary General—that European defense budgets will increase to 5% of gross domestic product. That should be good news for defense stocks such as Rheinmetall, although their prices had already risen in anticipation of the summit. In Asia, markets are rising quietly this morning as the ceasefire between Iran and Israel appears to be holding. The price of a barrel of WTI crude has fallen back to 65 dollar. Meanwhile, interest rates in the United States are retreating after Federal Reserve Chair Jerome Powell told the U.S. Senate that a rate cut is possible if inflation continues to decline and the labor market softens. For now, he emphasized, the U.S. economy remains strong.

In corporate news, chip stocks are stealing the spotlight: Intel rose 6.4%, AMD gained 6.8%, and Arm Holdings advanced 4.7%. Cruise line stocks also rallied after Carnival raised its earnings forecast, sending its share price up 6.9%. The Flemish investment firm Gimv announced it will acquire a majority stake in Alpine, a Dutch specialist in hearing protection. Alpine will become one of the five largest investments in Gimv’s portfolio. On a less upbeat note, biotech company Celyad Oncology has warned that it will run out of cash in a few months and is currently exploring options. Later today, earnings are expected from chipmaker Micron, investment bank Jefferies, and food giant General Mills.

Nvidia CEO sells shares

You’ll likely see headlines today that Nvidia CEO Jensen Huang has begun selling some of his shares. The current tranche is worth 15 million dollar. While that’s a huge sum for most of us, some investors see insider selling as a sign that a stock might be overvalued. At Spaarvarkens, we urge caution with that conclusion. Insider selling is rarely a reliable indicator of a stock’s future direction. There are countless personal reasons for executives to sell their shares—taxes, diversification, or estate planning, to name a few. Insider buying, on the other hand, tends to send a stronger signal, often indicating confidence in the stock’s prospects. As for Huang, his share sales were pre-scheduled months ago under a trading plan. He is allowed to sell six million shares this year, worth up to 873 million dollar. But that’s still a drop in the ocean when you consider that Huang owns over 800 million shares. As of today, he ranks 12th on the Bloomberg Billionaires Index with a net worth of 126 billion dollar.

The future matters more than the past

We’ll repeat it forever: on the stock market, the future matters more than the past. Even if quarterly results beat expectations, poor forward guidance can send investors rushing for the exit. That’s exactly what we expect today from FedEx. The company posted earnings per share of 6.07 dollar, well above analysts’ forecast of 5.81 dollar, and revenue of 22.2 billion dollar, 450 million dollar more than expected. But the real issue is that the company withdrew its full-year earnings guidance.

For the current quarter, FedEx now expects earnings per share between 3.40 and 4 dollar—a sharp drop blamed on the trade war. Since early May, trade volumes between China and the United States have fallen sharply and remain weak. We expect the stock to open in the red.

Did you know…

that the concept of a “stock exchange” originated in 13th-century Bruges? The word “beurs” (Dutch for stock exchange) is derived from the Van der Beurze family, who ran an inn where merchants gathered to trade. That makes Belgium a pioneer in stock market history.