AIMSTAR FINANCIAL INSIGHTS – April 29, 2024

Your Weekly Guide to Financial Insights and Market Trends

Vikki Zhao and Olena Li

PUBLISHED Mon, April 29, 2024, 11:30 AM EST. 6 min read.

Over the past week, despite growing concerns over the Federal Reserve maintaining high interest rates for an extended period, the rebound in the stock market was triggered by strong earnings reports from tech companies, leading to a resurgence in US stocks. The Nasdaq Composite Index surged by over 4%, while the S&P 500 Index rose by nearly 3%.

On the domestic front in Canada, attention remains focused on whether there will be an interest rate cut in June, potentially sparking a downward trajectory for the Canadian dollar, alongside plans for electric vehicle manufacturing in Canada. Internationally, the US passed a bill to ban TikTok, Tesla’s stock price soared, and the luxury goods market reported dismal financial results.

Looking ahead to the coming week, the Federal Reserve’s interest rate decision, April non-farm payroll report, as well as earnings reports from major tech giants Apple (AAPL.US) and Amazon (AMZN.US), will all test the recent optimism in the market.

Equities have been retreating at the start of the second quarter. The primary driver behind this downturn is persistent inflation, which has led to revised expectations for the Federal Reserve’s actions and resulted in rising bond yields. This raises the question: Are we just seeing a typical market correction, or is this indicative of a larger issue?

AimStar analyst believe it’s the former. The market had surged by 28% over the past five months, so a period of consolidation is to be expected. Economic strength continues to underpin market trends, and we maintain that inflation will decrease, though the process may be uneven.

From a contrarian perspective, the recent increase in market fear is a positive sign, considering sentiment was extremely optimistic at the recent peaks. The equity put/call ratio, a measure of market fear, has spiked to levels typically associated with significant market bottoms.

Furthermore, only 28% of stocks are currently above their 50-day moving averages, a figure similar to past conditions that preceded market rallies. Also, 57% of stocks have hit new 4-week lows, a range that historically suggests potential market bottoms in an ongoing uptrend.

These indicators hint at the possibility of a market rebound after a period of overselling, and recent days have shown some recovery.

From last week’s market activity, which saw advancers outnumbering decliners four-to-one, resulting in a 1.2% increase in the S&P 500, supports the idea of a rebound from oversold conditions.

However, market pullbacks typically unfold over time, suggesting that this consolidation phase might not be over yet. The S&P 500 is approaching its first resistance level around 5120, the 50-day moving average, with subsequent resistance at 5264, the recent highs.

The key support levels to watch are 4953, the recent lows, and around 4800, a significant breakout point earlier in the year. Despite recent market dips, the broader trend appears robust, with historical data favoring a likely increase in the market over the next year.

Without swift changes in inflation or Federal Reserve policies, the stock market may enter a more stable trading range in the near term. However, such pullbacks are typical in markets, help correct overextensions, and can present new opportunities.

Looking ahead, key data points include the Personal Consumption Expenditures (PCE) index on April 26 and the Employee Cost Index on April 30, ahead of the Federal Open Market Committee (FOMC) announcement on May 1. The first quarter earnings season and bond yields will also be significant factors, along with market technicals as this data emerges.

GOOD NEWS

Good news for SenseTime shareholders: Hong Kong shares of Chinese AI technology company SenseTime (HK:80020) surged 30% after the company released SenseNova 5.0, a large generative AI model.

Good news for Microsoft shareholders: Microsoft (NASDAQ: MSFT) announced strong financial results on the 25th, helping the S&P 500 index achieve its largest weekly gain since last November.

Good news for Hermès shareholders: Hermes (OTC:HESAY) (EPA:HRMS) released its first-quarter revenue report on Thursday (25th), with strong sales growth, but the French stock price still fell 2%.

Good news for Alphabet shareholders: Alphabet (GOOGL.US)’s Q1 performance exceeded expectations. It paid dividends for the first time and repurchased US$70 billion in shares. The stock once rose by more than 16% after the market closed on April 26.

Good short-term news for Tesla Inc. shareholders: Despite missing revenue, earnings and car delivery expectations by a mile, the company’s share price rose after chief executive Elon Musk promised a low-cost (and lower-profit) electric vehicle will be in showrooms sometime next year. The stock is still down about 60 per cent from its high.

Good news for Tesla and Baidu shareholders: Tesla (NASDAQ: TSLA) surged over 6% and Baidu (NASDAQ: BIDU) rose nearly 5% in pre-market trading on Monday (29th). According to sources, Tesla is set to deploy its Full-Self Driving (FSD) autonomous driving service in the Chinese market based on lane-level navigation and maps provided by Baidu.

BAD NEWS

Bad news for shareholders of Kering Group: The first quarter financial report of global luxury goods giant Kering Group (PPRUY.US) was officially released, and its performance fell year-on-year. Its stock price once again fell sharply by 8.58%, and has fallen since March 19. 26.59%. Kering Group’s core brand Gucci’s revenue was 2.1 billion euros, and same-store sales fell by 18%.

Bad news for tech stock shareholders: Before the US stock market opened on the 25th, Meta Platforms Inc (NASDAQ: META) fell by 14%, dragging down most of the leading tech stocks, with Google (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN) both dropping over 2%. Earlier, Meta released revenue outlook, expecting second-quarter revenue to be between $36.5 billion and $39 billion, lower than expected, and subsequently received target price downgrades from multiple investment banks.

Bad news for gold investors: The rising price of gold over the past few months has confounded industry watchers, but it turns out that it might be highly leveraged Chinese investors who are responsible for the latest increase. That could make things messy for long-haul gold bulls if the gains prove brittle.

Bad news for rate-cut fans: Gross domestic product growth in the United States sharply slowed to a 1.6 per cent annualized rate, which would be good news for those wanting the U.S. Federal Reserve to cut interest rates, but a closely watched measure of underlying inflation advanced at a greater-than-expected 3.7 per cent. “This report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting,” says Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Loonie’s Dive: A Barrier to Bank of Canada Rate Cut?

Market anticipation of a Bank of Canada rate cut is rising, but the Canadian dollar’s performance is crucial. Expectations are for the Bank of Canada to act before the Federal Reserve, pressuring the loonie, which saw a 1.7% drop against the US dollar. Weak retail sales data intensified speculation of a rate cut, further dimming the loonie’s outlook amid diverging central bank policies. While the Bank of Canada is expected to cut rates in June or July, uncertainties linger over the Fed’s timeline. Bank of America’s revised forecasts suggest a deeper loonie decline, heightening inflation risks. While short-term loonie weakness may be tolerated, prolonged depreciation could trigger inflation concerns and impact the Bank of Canada’s strategy.


Weak Retail Sales Signal Potential Bank of Canada Rate Cut

Economists pointed to slumping retail sales as further evidence supporting a potential interest rate cut by the Bank of Canada in June. Retail sales dipped 0.1% in February, falling short of expectations for a slight increase. Coupled with January’s 0.3% decline and an anticipated flat performance in March, the first quarter is poised to be the slowest in nearly a year. Katherine Judge from the Canadian Imperial Bank of Commerce highlighted the bleak consumer landscape, reinforcing expectations for a June rate cut. Following the release of the data, yields on two-year Canadian government bonds dropped, and the Canadian dollar fell to 72.9 US cents, indicating increased market speculation on a June rate cut. Bank of Montreal senior economist Robert Kavcic suggested that unless inflation alters the scenario, a June rate cut remains plausible. The consumer price index report on May 21 will provide further clarity just ahead of the Bank of Canada’s rate decision on June 5.


Canada’s Housing Supply Deficit Sunk To New Depths In The First Quarter Of 2024

Canada’s working-age population surged by 300,000 in the quarter, yet housing starts remained stagnant at 61,000 units, reports National Bank of Canada economist Stéfane Marion. With just one housing start for every 4.9 new entrants to the workforce, compared to the historical ratio of 1.8, a significant housing supply deficit persists. Marion emphasizes the unprecedented nature of this deficit, attributing Ottawa’s keen focus on rectifying the imbalance. However, he warns that resolving the issue may take years, implying continued housing cost inflation for Canadian households.


Volkswagen Canada Plans to Produce Future EV Batteries at St. Thomas Plant

The Canadian Volkswagen Group Plans to Manufacture Solid-State Batteries at its Gigafactory in St. Thomas, Ontario. Solid-state batteries, considered the future of battery technology, will reduce charging time, increase driving range, and maintain safety standards. The factory is expected to commence production in 2027, injecting new momentum into Volkswagen’s investment in the electric vehicle sector.


Canada’s New Industrial Strategy: Honda EV Deal Shifts Focus

Honda Motor Co. Ltd.’s recent announcement of a $15-billion electric-vehicle manufacturing complex in Ontario marks a pivotal moment in Canada’s industrial strategy for the energy transition. Departing from past policies, the federal government introduced new tax credits covering the entire electric-vehicle supply chain, including midstream components like cathode material production. While critics argue the combined $5 billion support falls short of previous incentives, Honda views it as a stable investment. The move signals a shift towards prioritizing midstream and upstream segments of the battery supply chain, essential for future innovation and competitiveness. Despite some skepticism, the investment is poised to create jobs and revitalize Canada’s auto industry, aligning with the government’s long-term vision for sustainable growth.


US Senate Passes Bill to Ban TikTok

The US Senate has passed a bill to ban TikTok, requiring its parent company, ByteDance, to divest its US operations within 9 to 12 months. Failure to comply would result in TikTok’s prohibition from operating in the US. This follows a prior approval by the House of Representatives, with the bill included in a larger proposal for providing military aid to Ukraine. The bill now awaits President Biden’s signature. Despite TikTok’s 170 million US users, concerns over its Chinese ownership persist, despite assurances of data storage in Oracle’s US cloud and no data sharing with China. Reports suggest TikTok is preparing to seek relief from US courts.


Tesla Stock Surges Pre-market, Maintains Low-Cost Car Plans

Tesla’s stock surged 12% pre-market on Wednesday (April 24), despite weaker-than-expected first-quarter performance. In a recent earnings call, Tesla announced plans to introduce “more affordable” electric vehicles, aiming to produce them before the previously announced 2025 timeline. This move comes amid challenging market conditions, including low demand and intense competition, offering Tesla a strategic advantage. Earlier reports suggesting Tesla abandoned plans for a low-cost Model 2 had initially led to a drop in the company’s stock price.


Luxury Giants Kering Group and LVMH Face Declining Trends

Luxury giants Kering Group and LVMH faced significant declines in their first-quarter earnings. Kering Group reported a 10% drop in revenue, attributed largely to a sharp decline in sales of its Gucci brand. Similarly, LVMH experienced a 2% decrease in revenue, despite a 3% organic growth. Both companies saw challenges in their fashion and leather goods divisions, indicating broader economic uncertainties impacting the luxury goods market.

  • Statistics Canada will release February GDP figures showing a 0.4% rise, driven by mining, manufacturing, finance, and insurance, but offset by declines in utilities.
  • Loblaw Cos. Ltd. will announce its first-quarter earnings amid criticism over grocery prices and its expansion of discount stores.
  • Gildan Activewear Inc. and Parkland Corp. will report quarterly results amidst shareholder discontent, including a board dispute and calls for strategic reviews.
  • Air Canada‘s first-quarter results will indicate post-pandemic travel demand following strong revenue in 2023.
  • Amazon and Apple set for earnings reports; focus on cost-cutting and iPhone sales respectively.
  • The Federal Reserve’s monetary policy meeting is scheduled for Wednesday this week. Market expectations are that the Fed will maintain interest rates at their more than 20-year highs of 5.25% to 5.50%.
  • The United States will release its monthly non-farm payrolls report on Friday, testing the resilience of the US labor market once again.
  • The US will also publish ADP private sector employment data, JOLTs job vacancies report, and other employment data, providing clearer guidance for market expectations.
  • China’s official Manufacturing Purchasing Managers’ Index (PMI) for April will be released on Tuesday, followed by Caixin’s China Manufacturing PMI on the same day, with both data points eagerly anticipated to exceed expectations.
  • The Eurozone will release inflation and economic growth data on Tuesday, which could further strengthen market expectations for an interest rate cut by the European Central Bank in June.

The most anticipated earnings releases for the week of April 29, 2024 are Amazon #AMZN, AMD #AMD, Apple #AAPL, Supermicro #SMCI, SoFi #SOFI, PayPal #PYPL, Coinbase #COIN, Eli Lilly #LLY, Block #SQ, and Pfizer #PFE.

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