Category: Newsletter

Stocks surged despite higher than expected inflation data, driven in part by Nvidia’s 16% rise due to strong AI chip demand. Markets are split on whether the Federal Reserve will cut rates by 25 or 50 basis points. Meanwhile, gold hit a historic high of $2,600/oz. The ECB also cut interest rates for the second time this year.

US stocks concluded a volatile month in a positive mood, buoyed by core PCE data suggesting potential interest rate cuts in September and beyond. Retailers announced weak sales guidance for the year as they continue to see a shift in spending from discretionary items to essentials. Nvidia’s shares initially dropped over 8% despite strong earnings before recovering as they see a slowdown in sales growth and reduction in margins.

The Federal Reserve is expected to cut interest rates next month after more than two years of hikes aimed at controlling pandemic-driven inflation. The market reaction has been extremely bullish, with the S&P 500 adding over $4.5 trillion in market cap in three weeks, while Treasury yields fell and gold reached all-time highs. Attention is now focused on Nvidia’s upcoming earnings report due on August 28th.

US stocks experienced their best week since November 2023, rebounding sharply from a previous sell-off. Investors have taken heart from recent positive economic data and rushed back into markets. The tone is likely to remain bullish with bouts of occasional volatility.

Regular readers of our newsletter know that over the last several months we have repeatedly highlighted the fragility in the US economy, especially the contradictions between the official numbers and data gathered from other ‘real world’ sources. Accordingly, we have urged investors to be cautious about chasing high-flying names and instead focus on high-quality fixed income and gold. A couple of weeks ago, in our July 19th 2024 newsletter, we explicitly broadcast our expectation that markets are likely to correct sharply.

The events of the last couple of days have vindicated our stand.

Both the S&P 500 and Nasdaq ended the week lower, with the Nasdaq facing significant declines. Earnings reports are highlighting concerns about overhyped AI investments and potential slowdowns in consumer spending. Alphabet’s results intensified doubts about AI returns, while Southwest Airlines, UPS, and Whirlpool raised fears about consumer pullback. The US economy grew at an annualized rate of 2.8% in Q2, surpassing expectations and the previous quarter’s growth. Market expectations are firmly set on a rate cut in September 2024. Small Caps have recently outperformed Large Caps significantly, with a 13% spread over the last 12 trading days. Major tech companies, including Microsoft, Meta, Amazon, and Apple, are set to release their earnings next week, which could impact market sentiment further.

Both the S&P 500 and Nasdaq experienced their worst week since April, with the Nasdaq falling 3.6% amid concerns over potential tighter U.S. semiconductor export restrictions to China and comments from Donald Trump regarding Taiwan. The “Magnificent Seven” tech stocks saw a collective 5% decline, with semiconductor companies like Nvidia and Intel dropping nearly 9%. Additionally, CrowdStrike’s stock plummeted 20% due to a global technology outage attributed to a faulty software update, while electric vehicle stocks faced pressure from Trump’s criticism of clean energy initiatives.

US markets once again ended the week largely flat, as political developments in the US and France captured investor attention. Despite easing inflation, US Treasury yields rose due to uncertainty around the upcoming elections. The US dollar strengthened, while the Japanese yen hit a 38-year low against the dollar.

It was a relatively quiet week in the financial markets, with most indices finishing close to where they started. French President Macron dissolved the National Assembly after a far-right victory in the EU parliament elections. The Swiss National Bank cut interest rates, while the Japanese yen weakened against the US dollar. 

US stocks concluded the last trading day of May on a high note, marking the sixth positive month in the last seven for all three major indexes. The S&P 500 and Nasdaq Composite posted their best May performances since 2003, while the Dow Jones Industrial Average saw its best May since 2020.