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American Airlines eyes exclusive credit card deal with Citigroup over rival bank Barclays

American Airlines is in advanced talks to establish Citigroup as its sole credit card issuer, potentially ending its partnership with Barclays, a relationship that began after American’s 2013 merger with US Airways, according to a CNBC report.

For months, the airline has been negotiating with banks to streamline its loyalty program, aiming to consolidate its credit card partnerships and boost revenue from its AAdvantage program, individuals familiar with the matter told CNBC.

The goal of this move is to simplify operations and increase the income generated through its loyalty program.

American Airlines, like many other airlines, heavily relies on the revenue from its credit card partnerships to stay financially stable.

These programs allow banks to offer loyal customers miles for their purchases, which in turn generates billions of dollars for the airlines.

During the pandemic, as air travel collapsed, credit card spending provided a lifeline to airlines.

Even as travel demand recovered, growth in card spending has outpaced passenger revenue in recent years.

This makes co-branded card deals essential to an airline’s financial strategy, and American is pushing for a more profitable agreement through exclusive partnerships.

American Airlines in a statement said:

We continue to work with all of our partners, including our co-branded credit card partners, to explore opportunities to improve the products and services we provide our mutual customers and bring even more value to the AAdvantage program.

Airline credit card deals are a fiercely competitive space, with banks fighting for the opportunity to tap into millions of frequent flyers who generate billions of dollars annually in spending.

In recent years, large brands like American Airlines have been negotiating harder, demanding a larger share of revenue from these partnerships.

At the same time, banks have been facing rising card losses, increased scrutiny from regulators, and higher capital costs, which have made profit margins tighter.

Some banks have stepped away from this sector, while others, like Citigroup, have positioned themselves for long-term deals that can deliver significant returns over time.

American Airlines-Citigroup partnership: What does it mean for Barclays?

American Airlines’ partnership with both Citigroup and Barclays has been an anomaly in the credit card industry, where most companies prefer working with a single issuer.

Since the 2013 merger, the airline has maintained relationships with both banks, renewing their deals in 2016. Under that agreement, Citigroup could market its cards through online platforms and airport lounges, while Barclays was confined to in-flight promotions.

Now, Citigroup seems poised to secure a more lucrative exclusive deal. CEO Jane Fraser has led Citigroup since 2021, and the bank holds a profitable side of American Airlines’ credit card business.

Citigroup customers tend to spend more and default less than Barclays customers, as per the CNBC report.

If the deal goes through, Citigroup would likely sign a contract for seven to ten years, allowing it to recoup costs from acquiring Barclays customers and making the necessary investments.

Regulatory challenges and Barclays’ shift

However, regulatory approval is still required for this deal, and there is a possibility that US regulators, including the Department of Transportation, could delay or even block the agreement.

Should that happen, American would likely keep its dual partnership arrangement with Citigroup and Barclays intact.

Barclays, for its part, has been diversifying its portfolio away from airline co-branded cards.

Executives revealed earlier this year that they are focusing on partnerships with retailers and tech companies instead of airlines.

Citigroup, on the other hand, is aggressively pursuing bigger partnerships, aiming to increase profitability in its card business.

“We are always actively working with our partners, including American Airlines, to look for ways to jointly enhance customer products and drive shared value and growth,” CNBC quoted a Citigroup spokesperson.

As the negotiations continue, American Airlines is poised for a significant shift in its credit card business, which could reshape the competitive landscape of co-branded airline cards.

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Germany to retain Commerzbank shares as bank strives for independence

Germany has made it clear that it will hold onto its remaining shares in Commerzbank for the foreseeable future, affirming that the bank’s strategy remains focused on maintaining its independence.

This was confirmed by Germany’s Finance Agency on Friday, indicating the government’s current stance against a takeover of the country’s second-largest bank.

This announcement follows closely on the heels of Italian lender UniCredit’s unexpected acquisition of a 9% stake in Commerzbank, making it the second-largest shareholder.

UniCredit’s CEO Andrea Orcel has openly expressed his interest in potential mergers, adding to the speculation surrounding Commerzbank’s future.

However, the surprise purchase by UniCredit, internally known as ‘Flash’ after Orcel’s dog, has raised alarms within Berlin.

The acquisition was met with resistance from both labor unions and Commerzbank itself, prompting the bank to outline a defensive strategy against any immediate changes.

Government urged to hold Commerzbank stake

Germany’s government, which still holds 12% of Commerzbank after recently selling 4.5% of its shares to UniCredit, has a crucial role in any future merger discussions.

Despite this, key stakeholders, including union leaders and Commerzbank management, have urged the government to refrain from further share sales.

During a Friday meeting, officials from the Finance Agency, which oversees government-held assets, concluded that no additional shares would be sold “until further notice.”

A spokesperson for Commerzbank reaffirmed the bank’s current approach to CNBC, stating:

Commerzbank is a stable and profitable institute. The bank’s strategy is geared towards independence. The Federal government will accompany this until further notice by maintaining its shareholding.

Orcel has expressed his intention to pursue merger talks, arguing that such a move could create a “stronger competitor” in Germany’s banking sector.

His statement comes at a time when European banks are grappling with the need to become more competitive, especially against larger US and Asian financial institutions.

However, several challenges stand in the way of such a merger. European cross-border banking deals have faced obstacles for years due to weak profitability, which has left many banks hesitant to engage in mergers.

Additionally, regulatory hurdles and political preferences for national banking champions have made such deals even more complicated.

Political hurdles delay UniCredit’s potential Commerzbank takeover

Although UniCredit has made significant strides in recent years—largely due to a strong financial recovery that distinguishes it from its competitors—political dynamics remain a significant barrier to cross-border mergers.

Anke Reingen, a banking analyst at RBC, informed CNBC that a UniCredit takeover bid for Commerzbank is not off the table but is unlikely to happen soon.

She said:

We do not think a deal is off the table, forever, but any move is likely to be later than we had initially expected.

The decision to maintain the government’s Commerzbank shares comes with a broader implication: it extends the current 90-day lockup period established when the share sale to UniCredit was completed.

According to insiders familiar with the situation, this ensures the government’s continued involvement in the bank for the foreseeable future.

The post Germany to retain Commerzbank shares as bank strives for independence appeared first on Invezz

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Why EU tariffs won’t slow down China’s electric vehicle growth in Europe

Chinese electric vehicles (EVs) are poised to maintain their competitiveness in Europe, despite the European Union’s introduction of additional tariffs.

Even with the revised rates that were lowered last month, Chinese automakers are expected to continue expanding their presence in the European market.

In August, the EU adjusted its tariff rates on Chinese auto imports, reducing the tax burden for major manufacturers.

According to a report in CNBC, BYD, one of China’s leading automakers, saw its tariff reduced from 17.4% to 17%, while Geely’s rate fell from 19.9% to 19.3%. SAIC, another prominent Chinese manufacturer, also received a reduction, with its tariff dropping from 37.6% to 36.3%.

However, research group Rhodium noted that to truly discourage Chinese EV manufacturers from exporting to Europe, tariffs would need to reach as high as 50%. For vertically integrated companies like BYD, which control much of their supply chain, the threshold may need to be even higher.

Tariffs: a speed bump, not a roadblock for China’s EV rise

The current tariff rates are unlikely to significantly disrupt Chinese EV makers’ plans in Europe, according to Joseph McCabe, President and CEO of AutoForecast Solutions. He explained that while these tariffs pose some challenges, they are far from an insurmountable obstacle.

“Tariffs on Chinese-made EVs will create a hurdle, but not a barrier to entry,” McCabe told CNBC.

He also highlighted the difference between EU and North American tariffs, noting that while North America has implemented much harsher tariffs, the European market remains more interconnected with Chinese original equipment manufacturers (OEMs).

For instance, the United States imposed a 100% tariff on Chinese EVs in May, with Canada following suit last month.

In contrast, the EU’s tariffs are less severe, reflecting a delicate balance between promoting domestic production and maintaining crucial ties with Chinese manufacturers.

Affordable Chinese EVs: a challenge for European automakers

While the EU works to limit Chinese imports, Chinese automakers are continually rolling out affordable EV models for European consumers.

At a conference earlier this year, Chinese giant BYD introduced its Dolphin model to the European market, priced under $21,550.

The Dolphin is a rebranded version of the Chinese Seagull model, showcasing China’s ability to bring cost-effective options to the table.

Comparatively, Tesla’s Model 3, one of the most affordable options from a Western EV manufacturer, sells for $44,480 in the UK.

Even with the 17% import tariff, BYD’s Dolphin will still be around $23,270 cheaper than Tesla’s China-manufactured Model 3.

In response to the growing competition from Chinese brands, German automaker Volkswagen has announced plans to release a budget-friendly EV for Europe, targeting a price point of around $21,476 by 2027.

This is a clear indication that European manufacturers are feeling the pressure to match China’s affordability.

Market share over profitability in EV space

“Now, profitability takes a back seat to market share,” McCabe commented.

He noted that investors tend to favor innovative EV companies for their potential future growth, rather than their short-term financial performance—an advantage legacy automakers lack.

William Ma, CIO of GROW Investment Group, emphasized this point, adding that attempting to curb the Chinese EV market with extreme tariffs—such as a 300% rate—would be impractical. “If they really have to kill the EV industry in China, they have to put in 300% of tariffs, which doesn’t make sense,” Ma said in a recent CNBC interview.

Potential retaliation from China looms large

McCabe also warned of potential retaliatory tariffs from China if European measures become too aggressive.

If Europe’s tariff policies cause significant harm to Chinese OEMs, there is a strong possibility that China will respond with its own set of trade barriers against European automakers.

The EU’s tariff discussions, which began in June, stem from concerns over what it views as “unfair subsidies” granted to Chinese EV manufacturers.

These subsidies are perceived as a threat to European automakers, and the EU is striving to protect its domestic industry from economic harm.

However, as Ma pointed out, these geopolitical tensions are unlikely to dissipate anytime soon.

“This geopolitical or sanction will not go away easily for the next year or two,” he predicted, indicating that the global EV landscape will remain complex for the foreseeable future.

The post Why EU tariffs won’t slow down China’s electric vehicle growth in Europe appeared first on Invezz

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BMO strategist predicts S&P 500 could surge to 6,100 following Fed rate cuts

S&P 500 has already rallied well over 20% this year but Brian Belski, the chief investment strategist of BMO Capital Markets, sees further gains in the months ahead.

The benchmark index could climb further and hit the 6,100 level before year-end now that the US Federal Reserve has announced its first rate cut in four years, Belski told clients on Thursday.

Belski expects a stronger-than-normal fourth quarter after the central bank indicated plans to lower interest rates by another 50 basis points in 2024.

His forecast suggests potential for another 9.0% gain in the S&P 500 from here.

Belski expects the rally to continue

The S&P 500 tanked to about 5,400 in the first week of September but has since recovered back to over 5,700 at writing.

Brian Belski had raised his year-end target to a street-high of 5,600 in May.

“We continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted,” he said in a research note today.

The benchmark index could retest its September low but is fairly positioned to quickly rebound and hit the 6,100 level by year-end, the BMO strategist added.

Brian Belski expects the projected upside to materialize even if the large-cap technology stocks trade sideways as he expects the rally to broaden out moving forward.

US economy may not be headed for a recession

The BMO strategist left his earnings per share expectation unchanged at $250 on Thursday. This suggests he applied 24.4 times multiplied to get to the 6,100 level year-end target.  

He agreed that the presumed price-to-earnings multiple may look elevated but said it is not when compared to the mid-1990s.

Belski finds now is comparable to the mid-1990s if the United States does not end up in a recession in the coming months.

Despite recent weakness in jobs data, many experts still foresee a soft landing ahead. Following the 50-bps rate cut the Fed announced last night, Tom Porcelli, the chief US economist at PGIM Fixed Income said:

This was an atypical big cut. We are not knocking on recession’s door. This easing and this big cut is about recalibrating for the fact that inflation has slowed so much.

Last week, the Labour Department said inflation stood at 2.5% for the year in August versus the Dow Jones estimates of 2.6%.

Excluding food and energy, however, the core CPI was up 0.3% for the month, more than 0.2% expected.

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EU announces €35 billion loan to Ukraine as part of G7 aid plan

European Commission President Ursula von der Leyen travelled to Kyiv on Friday to announce a €35 billion loan for Ukraine, marking a significant step in the G7’s broader $50 billion aid plan.

The loan, funded by future profits from frozen Russian state assets, is intended to help Ukraine rebuild and fortify its infrastructure amid ongoing conflict with Russia.

Von der Leyen’s visit, her eighth to the country since the war began, was aimed at discussing critical issues with Ukrainian leadership, including winter preparedness, defense strategy, and Ukraine’s progress toward European Union accession.

Upon arriving in Kyiv, von der Leyen posted on social media platform X, stating that her discussions would cover a wide range of topics including “defense, EU accession, and progress on the G7 loans.”

The announcement comes at a pivotal moment as Ukraine faces increased pressure due to repeated Russian attacks on its energy infrastructure.

Part of a larger G7 initiative

The €35 billion loan is part of the G7’s $50 billion support plan for Ukraine, which has been under negotiation for several months.

According to sources familiar with the discussions, G7 leaders initially agreed in June to provide the aid package and distribute the financial burden according to each nation’s economic standing.

The US and EU were set to contribute $20 billion each, while Japan, Canada, and the UK would make up the remainder.

However, legal and political obstacles, especially concerning the frozen Russian assets, delayed the US contribution.

The plan relies on future profits from frozen Russian state assets, of which nearly €200 billion are immobilized in EU jurisdictions alone.

However, Hungary’s opposition to extending the sanctions regime against Russia prevented the EU from guaranteeing that these assets would remain frozen long enough for the loan to be fully realized.

Addressing the urgent need for aid

In the wake of Russia’s relentless attacks on Ukraine’s energy infrastructure, the need for financial support has become increasingly urgent. Ukrainian President Volodymyr Zelenskyy underscored the importance of this aid in a speech on Thursday, stating,

These assets should be used to protect lives in Ukraine against Russian aggression.

He also expressed the necessity for a mechanism to ensure that the $50 billion loan materializes quickly to offer much-needed relief.

“There is a clear decision regarding $50bn for Ukraine from Russian assets, and a mechanism for its implementation is needed to ensure that this support for Ukraine is felt in the near future,” Zelenskyy said, stressing the immediate need for tangible assistance.

EU’s increased share and the compromise reached

While the US remained hesitant to finalize its share of the loan, citing concerns over the duration of asset freezes, the European Commission sought to increase its contribution to €40 billion to compensate for the delay.

However, this figure met resistance from EU member states, who were reluctant to shoulder such a high proportion of the loan.

As a result, the final compromise of €35 billion was reached, allowing the US to join the program at a later stage and reducing the EU’s overall exposure.

Von der Leyen’s announcement of the loan is seen as a diplomatic victory for the EU, which has been striving to maintain unity and show unwavering support for Ukraine despite internal divisions.

The loan still requires approval from the majority of EU countries and the European Parliament before the end of the year.

If approved, it will represent a significant contribution to Ukraine’s efforts to stabilize its economy, rebuild critical infrastructure, and fortify its defenses against continued Russian aggression.

The €35 billion loan is a vital step in securing Ukraine’s future and forms part of the larger $50 billion G7 plan to aid the country during its ongoing conflict with Russia.

While challenges remain in securing legal guarantees and overcoming political resistance, the European Union’s commitment signals robust support for Ukraine as it continues its fight for sovereignty and stability.

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As Fed lowers rates, advisors urge shift from cash to higher-risk investments

Investment advisors are now recommending that clients reconsider large cash positions as the Federal Reserve begins its anticipated easing of interest rates.

With this shift, money-market funds, which have seen massive inflows, may soon lose their attractiveness, prompting investors to seek alternative options with greater risk.

Money-market funds boom since 2022: will the trend continue?

Retail money-market funds attracted a staggering $951 billion in inflows since the Fed kicked off its rate-hiking campaign in 2022 to curb inflation, according to the Investment Company Institute, an organization representing investment funds.

By September 18, 2023, total assets in these funds surged to $2.6 trillion, marking an 80% increase since early 2022.

However, with the Federal Reserve now reversing course and lowering rates, the appeal of these ultra-low-risk investments may be short-lived.

“As policy rates fall, the appeal of money-market funds will wane,” Daniel Morris, Chief Market Strategist at BNP Paribas Asset Management, told Reuters.

Fed rate cut signals a shift in investment strategy

On Wednesday, the Federal Reserve cut the federal funds rate by a significant 50 basis points, bringing it down to a range of 4.75% to 5%.

This sizable reduction may push investors to reassess cash holdings and other low-risk assets as returns dwindle.

Jason Britton, founder of Reflection Asset Management, overseeing $5 billion in assets, advises that investors will need to accept more risk.

Britton emphasized the need for higher-risk strategies, adding:

Money-market assets will have to become fixed-income holdings; fixed income will move into preferred stocks or dividend-paying stocks.

Seeking higher returns amid falling rates

Money-market funds, which primarily invest in short-term government securities, have long been attractive due to their risk-free returns.

When interest rates rise, so do their returns, drawing investors seeking safety. But now, with rates declining, their shine may start to fade.

In the same Reuters report, Ross Mayfield, investment strategist at Baird Wealth, suggests investors re-evaluate their portfolios.

If you’re relying on income from money-market funds, you may need to consider longer-term investments to lock in rates and protect yourself from falling interest rates.

Despite the shifting landscape, some experts, like Carol Schleif, Chief Investment Officer at BMO Family Office, believe there’s still value in holding cash to seize future stock-buying opportunities.

Although analysts suggest it may take a week or longer for the market to fully react to the Fed’s decision, the Investment Company Institute’s latest report shows money-market fund flows have remained stable.

Retail investors, however, have been hesitant to abandon their cash holdings entirely, according to advisors.

Investors face tough choices

As interest rates fall, clients are increasingly eager to find alternatives to cash, says Christian Salomone, Chief Investment Officer at Ballast Rock Private Wealth.

Yet, Jason Britton warns that “investors are stuck between a rock and a hard place,” faced with either taking on more risk or settling for lower returns in cash-like investments.

With the Fed’s rate-cutting cycle just beginning, the months ahead will likely see a reallocation of assets, as investors adjust to the new economic reality.

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Time to buy cheap Wayfair stock as Fed starts cutting rates?

Wayfair (W) stock price has remained under pressure in the past few years as concerns about weak consumer spending remain. It was trading at $52.67 on Friday, down by over 41.8% from its highest point in July 2023 and 86% from its all-time high during the pandemic.

Weak consumer spending

Wayfair shares were among the top beneficiaries of the Covid-19 pandemic as more people stayed at home. At the time, surging demand for home furniture and decor pushed its stock to a record high and its market cap to over $35.86 billion.

This trend reversed after the pandemic as demand waned and as inflation jumped to a multi-year high. It also happened as many investors moved from pandemic winners like PayPal, Block, Zoom Video, Moderna, and Novavax. 

As a result, Wayfair has moved from a high-growth company to one that is struggling to achieve single-digit revenue growth. Data shows that its revenue moved from $9.12 billion in 2019 to a peak of $14.1 billlion in 2020.

After that, its revenue dropped to $13.7 billion in 2021 to $12.2 billion and $12 billion in the following two years. Analysts expect that Wayfair’s revenue will slip to $11.8 billion this year and then bounce back to $12.3 billion in 2023.

The company’s key challenge is that consumer spending, especially in the furniture and decor industry has been significantly weak as interest rates have remained high in the past few years. 

With inflation and interest rates high, most people shifted to consumer staples items like food instead of discretionary like furniture. In the last financial results, Niraj Shah, Wayfair’s CEO said:

“Customers remain cautious in their spending on the home, and our credit card data suggests that the category correction now mirrors the magnitude of the peak to trough decline the home furnishing space experienced during the great financial crisis.”

Therefore, there is a likelihood that the company will receive a boost as interest rates start falling and home sales pick up. The challenge, however, is that it will take several rate cuts for rates to move back to where they were before the pandemic.

Wayfair earnings download

The most recent financials showed that Wayfair’s revenue was $3.1 billion, down from $3.17 billion in the same period in 2023. Its half-year revenues dropped from $5.9 billion in 2023 to $5.8 billion.

These results revealed that Wayfair had 22 million customers, a small increase while the number of orders delivered in the second quarter fell to 10 million. The average order value rose to $313 as the company hiked prices because of inflation.

Wayfair is still losing money, which explains why the management decided to lay off 13% of its total workforce earlier this year. Its net loss in the last quarter was $42 million, an improvement from the $46 million it lost in 2023. 

Data by SimilarWeb shows that website to its traffic and applications has dropped recently. Total visits in August stood at 89.5 million, down by almost 6% from the previous month, meaning that the challenges in the industry continued. 

I believe that Wayfair will need to boost its marketing spend to deal with the elevated competition and industry challenges. 

Analysts have mixed opinions about the Wayfair stock. The most recent note was from Argus Research who downgraded the stock from buy to hold. Other analysts from Barclays, JP Morgan, and RBC Capital have an equal-weight, overweight, and sector perform, respectively. The average Wayfair stock price forecast among analysts is $62.87, higher than the current $52.50. 

Wayfair stock price analysis

The weekly chart shows that the Wayfair share price has moved sideways since 2022. It has remained inside the key support level at $29.10 and the resistance level at $91. There are signs that it has struggled to drop below that support point. 

Wayfair is consolidating at the 50-week and 25-week Exponential Moving Averages (EMA). Also, the Average True Range (ATR) has moved upwards, signaling that some investors are slowly accumulating the shares.

Therefore, the stock will likely start to bounce back in the next few months as investors target the next key resistance point at $75, its highest point in May this year. This rebound will likely happen ahead or after its next financial results on November 1.

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Morgan Stanley cuts ASML stock rating to ‘Equal-weight’: is it time to sell?

Morgan Stanley downgraded ASML Holding NV (NASDAQ: ASML) on September 20 by cutting the stock’s rating from Overweight to Equal-weight.

The firm also revised its price target for ASML to €800 from €925, citing concerns about a potential slowdown in semiconductor capital expenditures and specific risks tied to weak capacity additions at Intel and a softening dynamic random-access memory (DRAM) cycle, expected to impact growth in 2025.

Despite the downgrade, Morgan Stanley acknowledged ASML’s strong earnings history but indicated that the risks around China’s demand and Intel’s challenges in the foundry business may weigh on the stock.

Other analysts are also cautious

The downgrade is part of a larger theme for ASML, as other analysts have expressed caution recently.

UBS, for example, lowered its rating earlier this month, seeing a “transition” year ahead for the company and reducing its price target to €900 from €1,050.

This highlights a growing concern that ASML’s earnings growth, particularly in the DRAM sector, may slow down due to global macroeconomic headwinds and more restrictive chip export policies.

The firm’s strong backlog, largely supported by orders for its advanced EUV lithography machines, is still seen as a long-term strength, but the near-term risks are gaining more attention.

In addition to the downgrade, ASML faces regulatory headwinds, particularly in China, where about half of its system sales are concentrated.

The Dutch government recently expanded export licensing requirements for some of ASML’s most advanced machines, tightening the company’s ability to sell certain models to Chinese clients.

This regulatory environment is expected to further complicate ASML’s outlook, especially as the US pressures its allies, including the Netherlands and Japan, to restrict advanced semiconductor exports to China.

ASML stock: HBM in demand

On the positive side, there is optimism around High Bandwidth Memory (HBM) growth, driven by AI demand.

ASML is expected to benefit from this sector’s resilience, particularly with companies like Taiwan Semiconductor Manufacturing Co. (TSMC) continuing to invest in high-tech nodes such as N2/A16.

Still, these growth areas may not be enough to offset the broader risks posed by China’s uncertainties and Intel’s weaker capacity outlook.

Despite the mixed outlook from analysts, ASML remains fundamentally sound, boasting a gross margin above 50% and an operating margin near 30%.

However, its exposure to cyclical downturns in the semiconductor industry could make it vulnerable, particularly as capital expenditures across the sector show signs of cooling off.

Additionally, ASML’s backlog, which stood at €39 billion in Q2, offers some protection but may not be enough to fully shield it from upcoming challenges.

Headwinds aside, ASML still has substantial tailwinds.

The adoption of its new High NA EUV machines, which are critical for advanced chip manufacturing, continues to gain traction.

Major clients like Intel and Samsung are set to place orders soon, reinforcing the company’s leadership in the semiconductor equipment market.

Additionally, the demand for AI chips and the shift to more advanced semiconductor nodes will likely support ASML’s long-term growth.

ASML stock valuation

The valuation of ASML, with its forward price-to-earnings (P/E) ratio currently hovering around 28x, which, while lower than its peak, remains elevated compared to historical averages.

The stock’s recent pullback has attracted some buyers, but with projected growth of just 13% for 2025-2030, compared to the previous 24% CAGR, some believe the stock may be priced too high for its slowing growth trajectory.

With all these factors at play, the stock’s future direction remains uncertain.

Now, to better understand what lies ahead, let’s turn to the charts and see what the technicals reveal about ASML’s price trajectory.

ASML stock shows a medium-term downtrend

ASML’s stock made its all-time high above $1100 in the first half of July this year but has been in a downtrend ever since the company reported its Q2 earnings on July 17.

Source: TradingView

This downtrend dragged the stock down to the $750 level, which was a previous resistance that has now turned into a support.

Although the stock remains in control of bears in the short to medium term, it offers a low-risk entry to bulls at current levels.

Investors who have a bullish outlook on the stock can initiate a long position near $790 with a stop loss at $748. If bullish momentum returns, we can see the stock near its all-time high again in the coming months.

Traders who are bearish on the stock must wait for it to either bounce back to $880 levels or fall below $755 before initiating fresh short positions.

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How I would invest $500 in penny stocks in H2 2024

Penny stocks could see a revival in 2024 as the Federal Reserve and other central bank starts cutting interest rates. Historically, these companies tend to thrive when there is a risk-on sentiment in the financial market, which is already happening as the fear and greed index has risen to 66. 

Penny stocks often give investors a good way to make some quick returns. However, most of them can be highly risky. For example, as we wrote earlier this year, Bit Brother was becoming a favorite company among penny stock investors. The stock has plunged since then and is no longer all that active.

Traders have also lost substantial money investing in penny stocks like Mullen Automotive, Canoo, Fisker Automotive, and Lordstown Motors. Here are some of the top penny stocks to consider if I had $500 to invest.

Lloyds Bank Group

Lloyds Bank Group is a large banking organisation in the UK, where it offers its financial services to over 26 million customers. In addition to its eponymous brand, it also owns other brands like Halifax, Scottish Widows, Bank of Scotland, MBNA, and Black Horse. 

Unlike most penny stocks, Lloyds is not a small, troubled company. It is a juggernaut with a market cap of over $46 billion. 

Lloyds is listed in the UK, where its stock was trading at 58.26 GBX. It also has ADRs that are traded in the United States, which go for just $3.1, making it a penny stock.

Lloyds’s ADR has done well this year, rising by almost 60% in the last 12 months, helped by higher interest rates in the UK and its focus on boosting shareholder returns.

The RealReal

The RealReal is a company that aims to disrupt the luxury fashion industry. It operates a website and applications that lets people list and sell their designer items like clothes, bags, jewerly, and watches. 

The company has had a rough patch in the past few years as its stock plunged from $30 in  2021 to a low of $0.9824. It has also made substantial losses in the past few years. 

However, looking at its financials shows that its business is improving. Its revenues rose from $130 million in the second quarter of 2023 to over $144.9 million in the last quarter. It also narrowed its quarterly loss from $41 million to $16.7 million This improvement explains why its stock has jumped by over 41% in the last 12 months.

New Gold | NGD

The other penny stock to buy is New Gold, a Canadian company whose stock was trading at $3.05 in the United States. 

It is a gold mining company valued at over $2 billion. Its business is made up the Rainy river and the New Afton copper-gold mine.

New Gold’s stock has surged by over 190% in the last 12 months, helped by the ongoing gold price rally. As a result, its revenue rose from $184 million in the second quarter of 2023 to over $218 million. 

Gold jumped to a record high of $2,558 and this trend may accelerate as the Fed starts cutting interest rates. 

Ocugen | OCGN

Ocugen is another penny stock to consider. It was trading at $1.14 and has soared by over 185% in the last 12 months, giving it a market cap of over $328 million. 

Ocugen is a biopharmaceutical company focused on the eyes, especially the retina. Its primary product, known as OCU400 has now moved to the third phase and analysts expect that it will gain the final approval by the FDA. 

If this happens, it means that the stock will bounce back as hopes of its acquisition rise. The main risk for Ocugen is that it may be forced to raise cash to fund its R&D since it ended the last quarter with less than $16 million in cash.

Read more: Ocugen stock is a good speculative buy but there’s 1 key risk

EVgo | EVGO

EVgo is a company I wrote about this week, as you can find here. It is a penny stock trading at $4 and with a market cap of over $1.12 billion.

There are a few reasons why EVgo is a good contrarian penny stock to buy. First, the number of EVs on American roads is rising. It is estimated that the number has moved from below 100k a decade ago to over 2 million today. While the growth is slowing, the reality is that the industry will always be there.

Second, EVgo’s business is still growing despite the challenges in the EV industry. Its quarterly revenues rose from $50.6 million in Q2’23 to over $66.6 million in the last quarter. 

Third, it has a goal to become profitable in the next few years. Most importantly, its top competitors like Blink Charging and ChargePoint are all struggling, meaning that it will continue gaining market share. 

The other top penny stocks to consider are Tilray Brands, Planet Labs, Clover Health Investment, and The Honest Company.

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Burberry is falling apart as shares fall for 14 straight months

Burberry Group (LON: BRBY) share price has been in a strong freefall this year as concerns about its growth prospects continue. It has dropped in the last 14 consecutive months, making it one of the worst-performing names in London. 

BRBY was trading at 597p, its lowest point since August 2010, and over 75% below its all-time high. This crash has brought its market cap to £2.14 billion, triggering its expulsion from the blue-chip FTSE 100 index. 

Burberry stock monthly performance

Why Burberry is falling apart

Burberry stock is imploding for a few reasons. First, this sell-off is happening as some other top luxury goods companies drop. In France, shares of Kering, the parent company of Gucci, have dropped in the last three consecutive months and are hovering at their lowest level since April 2017. They are down by almost 70% from last year’s high.

LVMH, the biggest company in France, also tumbled to a low of 600 euros, its lowest point since October 2022 and 33% below its all-time high. In Switzerland, Richemont’s stock has fallen by 25% from its all-time high.

Hugo Boss is the other lagging luxury group brand as its stock has plunged by 43% from its all-time high.

These companies are struggling with the ongoing soft demand for luxury goods, especially in China, their biggest market.

There are signs that many people in China are being selective about their spending habits now that the housing and stock market are not doing well. In Hong Kong, the Hang Seng index remains 42% below the highest point in 2021. 

The same is happening in Mainland China, where the China A50 has dropped by over 45% in the same period. These indices have been left behind by their Asian and American peers. 

The housing market is also under pressure following the collapse of Evergrande, Country Garden, and other companies. While the government has pledged support, the promised $70 billion is not enough and is coming very late.

Therefore, many wealthy shoppers in China have started to focus on reducing their debts instead of overspending. This explains why Bloomberg has noted weak luxury mall traffic in a place like Hong Kong.

Burberry and other luxury brands have flagged the Chinese risk in their financial statements. In its last financial results, Kering noted that sales in Asia, except in Japan, continued to underperform. 

Burberry financial results

Second, Burberry stock price has imploded because of the last financial results, which have showed that its business continued to deteriorate. 

Its revenues in the third quarter stood at £458 million, down by 22% from the £589 million it made in the same period in 2023. Comparable store sales, one of the most important numbers in retail, came in at minus 21%.

Most of Burberry’s sales slowdown was in the Asia Pacific region where sales dropped by 23%. It was followed by the Americas and EMEIA regions where sales dropped by 23% and 16%, respectively.

Most importantly, Burberry lowered its forward guidance and suspend its dividend to preserve cash. It expects that its wholesale revenue will drop by about 30% this year. It was the third consecutive time that the company slashed its guidance. 

Third, and most importantly, Burberry has had more CEO turnover than other luxury brand companies. Its current CEO, Joshua Schulman replaced Jonathan Akeroyd. 

Akeroyd replaced Marco Gobbetti who was the head for four years between 2017 and 2021. Christopher Bailey was the CEO between 2014 and 2017 while Angela Ahrendts served between 2006 and 2014.  A high turnover of CEOs is often seen as a red flag.

Additionally, there is a sense that Burberry’s positioning in the luxury goods industry has an issue. Unlike Hermes, which caters to the ultra-wealthy, Burberry’s customers tend to be more cost-conscious.

Most importantly, there are signs that Daniel Lee’s designs are not doing well. The company appointed Lee in 2022 and its performance has not improved.

Burberry share price analysis

Burberry stock chart

Fundamentally, there is a likelihood that Burberry will stage a comeback or even get acquired, especially now that interest rates are falling. However, such a comeback will only happen if the company publishes an encouraging financial report. 

On the weekly chart, we see that the BRBY share price has been in a strong freefall in the past few months. It has dropped from a high of 2,458p in April 2023 to below 600p. It formed a death cross pattern as the 50-week and 200-week moving averages crossed each other. 

The MACD has remained below the neutral point while the Relative Strength Index (RSI) has moved below the oversold level. Therefore, the path of the least resistance is still downwards, with the next point to watch being at 500p. 

The alternative scenario is where the stock rebounds and retests the key resistance point at 887p as interest rates start falling. Such a move would mean a 50% rebound from the current level.

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