Wall Street loves to complicate situations and throw in a lot of lingo, which is just what happened last week when the S&P 500 sold off and carried down many other stock market indexes across the globe. The response to this price action? The so-called “Carry Trade” between the United States Dollar and the Japanese Yen is what investors have used as a soundbite to repeat when asked about the stock market lately.
It’s more complicated than that, and it has everything to do with where the Federal Reserve (the Fed) is looking to bring interest rates this year and where the Bank of Japan has already got their interest rates, which is higher after a recent hike. All told, this spells bad news for the Dollar, and while that’s usually bearish for the S&P 500 and U.S. stocks, not all are made equal in today’s economy.
As most of the United States has become a services economy driven by technology stocks and business services platforms, these businesses with international exposure could benefit from what’s happening today. This could be why stocks like Airbnb Inc. (NASDAQ: ABNB), Trex Company Inc. (NYSE: TREX), and even Shopify Inc. (NYSE: SHOP) saw unusual trading volume breakouts despite a recent market selloff.
Airbnb Stock’s Business Model Shines Despite Market Dip
Despite trading down to only 79% of its 52-week high price, Airbnb stock still has all the fundamental momentum it needs to carry on a recovery rally in the coming quarters. Judging by the company's latest quarterly results, all of the business drivers are now in place to make this a reality.
Starting with an 11% jump in revenue over the past 12 months, driven by an equal 11% rise in gross booking value, the company generated up to $1 billion in free cash flow (operating cash flow minus capital expenditures), which is up by 16% over the year.
With this free cash flow, management boosted investor confidence despite the recent selloff. Up to $749 million were allocated toward share repurchases, signaling confidence from insiders in Airbnb's future price. The same weak Dollar expectations drive this; foreign currencies become stronger, potentially boosting tourism in the platform's international reach.
Wall Street analysts forecast up to 14.8% earnings per share (EPS) growth in the coming year, a sign that even a potentially weak Dollar will be no match for Airbnb's international diversification. More than that, analysts at Benchmark still see a $155 a share price target on the stock, calling for up to 34.8% upside from where it trades today.
Trex Stock Positioned to Soar with New Real Estate Cycle
There is now a clear trend for the Fed to cut interest rates this year, and according to the CME’s FedWatch tool, cuts could be here as soon as September 2024. Considering that the real estate cycle is at a historical low, this could spell good news for stocks like Trex, which are exposed to real estate renovation materials and more.
Here is where the market is: the Mortgage Market Index is now at 1997 lows, and high mortgage rates coupled with rising home prices could be to blame. Rate cuts could lower mortgage interest rates and relieve would-be homebuyers, creating a potential wave of demand in the coming quarters.
Following this trend, Wall Street analysts forecast EPS growth of 11.5% for Trex stock in the next 12 months, helping those at Bank of America land on a $85 a share price target. To prove these analysts right, Trex stock must rally 40% from where it trades today. Judging by the trading volume the stock just reported, this is an accepted target.
More than that, there are signs of bearish capitulation on the stock. Over the past month, short interest has declined by 5.6% for Trex stock, opening some room for bearish traders to step in and take advantage of the selloffs.
Rising Business Activity Draws Traders to Shopify Stock
The real estate sector isn’t the only one set for a potential rally in the middle of interest rate cuts; business activity could also boom in the face of more flexible and affordable financing rates. Shopify has become an attractive proposition because it connects international stores to buyers and sellers.
Knowing that a weaker dollar could trigger more international business on online platforms like Shopify, given that other buyers have more buying power with relatively stronger currencies, Wall Street analysts forecast up to 32.3% EPS growth for Shopify in the next 12 months.
Analysts at the Royal Bank of Canada leaned on these trends to place a $85 a share price target on Shopify stock, daring it to rally by as much as 22.6% from where it trades today. More than that, institutional investors have also caught onto this trend coming to Shopify.
Up to $8 billion in institutional capital has entered the company in the past 12 months, much of which came from TD Asset Management, whose allocators decided to boost their holdings by 6.9% as of August 2024. This new boost makes the asset manager’s net investment as big as $572.3 million today.
