Vikki Zhao
PUBLISHED June 10, 2024, 11:30 AM EST. 6 min read.
Last Week’s highlights included： Canada Announces Rate Cut | GIC Rates Plummet | U.S. Non-Farm Payrolls Better Than Expected | Gold Prices Plunge and Copper Prices Soar
The market is reaching new highs, but there are subtler shifts occurring underneath. The economy is showing signs of strain from persistently high interest rates. The revised Q1 GDP growth rate is down to 1.3%, attributed to decreased consumer spending, and real consumption in April dipped by 0.1% month-over-month.
However, the overall economic picture remains robust, evidenced by a resilient May ISM Services index reading of 53.8.
Despite these solid indicators, the economic softness is leading to less broad-based market participation. For instance, only 47% of S&P 500 stocks are trading above their 50-day moving average, even as the index itself reaches new highs.
Meanwhile, sectors like regional banks and industrials are hitting new relative lows, with consumer discretionary lagging significantly this year. Although cyclical sectors are weakening, defensive sectors like health care and consumer staples are also underperforming, suggesting a lack of a clear shift towards defensive investing.
This scenario points to diminishing internal market momentum and underscores the importance of careful stock selection. It also highlights how performance has been disproportionately driven by the technology sector, which has regained its leading position due to its strong fundamentals. Most stocks, however, are still exhibiting strength and maintaining an upward trend.
Looking at the broader economic landscape, expect fluctuations in market prices. While lower inflation may eventually stabilize, it could bring economic challenges and thus, increased stock market volatility.
Yet, there’s a positive outlook for investors, as the Federal Reserve has shown readiness to address significant economic downturns, as demonstrated during last year’s March banking crisis. The market has been heavily influenced by Fed policies over the past fifteen years and might find reassurance in potential rate reductions.
In conclusion, while there are emerging signs of slowing market momentum, the overall trend remains upward. Aimstar’s analyst suggests that to maintain a positive outlook towards equities but be prepared for possible downturns and use them as opportunities for long-term investment.
Key upcoming economic data to monitor next Wednesday’s May CPI, and the FOMC announcement. The market anticipates continued normalization in the labor market and a slowing of core inflation to 0.3% month-over-month.
Sustaining this rate is crucial for reaching the Fed’s annual inflation target of 2-2.5%. Watch how these data points impact the 10-year Treasury yield, which is currently at a critical technical juncture and has shown an inverse relationship with equities in recent years.
GOOD NEWS
Good news for NVIDIA shareholders: NVIDIA (NVDA.US) will begin trading with a 10-to-1 stock split ratio starting June 10. Driven by strong earnings and guidance, the stock has risen over 27% since the announcement of the split.
Good news for Rivian shareholders: Rivian (RIVN.US) is redesigning its flagship R1 pickup and SUV using NVIDIA (NVDA.US) chips, claiming a tenfold increase in performance.
Good news for Lululemon shareholders: Lululemon (LULU.US) reported Q1 revenue of $2.21 billion, up 10% year-over-year and better than the market expectation of $2.19 billion, with net profits of $321 million, an increase of 11%.
Good news for Quantum Song shareholders: Quantum Song (QSG.US) announced its Q3 earnings, targeting the silver economy and reporting a 48.4% year-over-year increase in paid subscribers.
Good news for Apple shareholders: Apple (AAPL.US) hold its WWDC 2024 Global Developers Conference on June 10, where the company will introduce a set of artificial intelligence features called Apple Intelligence.
BAD NEWS
Bad news for gold investors: Last week, the decline in gold prices widened further, with spot gold prices plummeting by about 2.5% or $60, falling below the $2320 mark. Gold futures also saw a significant drop, falling more than 2% to $2336.10.
Bad news for GameStop shareholders: On June 11, GameStop (GME.US) reported its first-quarter results, with a significant decrease in sales and a loss. As a result, the stock price turned from positive to negative in pre-market trading.
Bad news for Target investors: Recently, the Biden administration in the United States plans to close the immigrant and refugee resettlement center (Family Residential Center) located in Dilley, Texas. This decision has had a significant impact on Target Hospitality Corp (NASDAQ) which provides related services, with a drop of 40%.
Focus On Canada
Bank of Canada Cuts Interest Rate to 4.75% to Combat Inflation
Reported June 5 by AIMSTAR.CA – The Bank of Canada announced on Wednesday a reduction in its overnight rate by 25 basis points to 4.75%, marking the first rate cut since the historic hiking cycle began in March 2022. This pivotal move in the battle against inflation was underscored by Governor Tiff Macklem’s statement that further rate cuts might be possible if inflation continues to ease towards the 2% target. With Canada’s annual inflation rate now at 2.7%, slowed economic growth, and an unemployment rate rising to 6.1%, the central bank was compelled to act to lower borrowing costs. This rate cut positions the Bank of Canada as the first major central bank in the Western world to reduce rates.
Global Central Banks Gradually Cut Interest Rates, GIC Investors May Consider Shifting to Bonds for Better Returns
Reported June 6 by AIMSTAR.CA – Following rate cuts of 25 basis points by the Bank of Canada and the European Central Bank on June 5 and June 6 respectively, major central banks around the world have begun adjusting their monetary policies. Tony Yuan, Head of Products and Strategy at AimStar Capital, noted that these macroeconomic changes have prompted a strategic reassessment and adjustment in wealth management and investment allocations. In a lower interest rate environment, Tony advises gradually shifting cash to bonds to enhance portfolio returns without significantly increasing volatility. He emphasized the importance of bonds in asset allocation, especially given their higher yield and potential for price appreciation during economic downturns, and the necessity of maintaining structured investment plans to achieve long-term investment goals despite future economic uncertainties. The company encourages investors to build comprehensive and stable portfolios to protect wealth and optimize returns in a dynamic market environment.
Original interview: AimStar Viewpoints | Bank of Canada Cuts Rates, Where Next for GIC Investors?
Canada’s Unemployment Rate Rises to 6.2%, More Workers Forced to Part-Time
Reported June 7 by AIMSTAR.CA – Despite adding 27,000 jobs in May, Canada’s unemployment rate has risen to 6.2%. Full-time employment fell by 36,000 while part-time jobs increased by 62,000, indicating that more workers are being forced into part-time roles due to the unavailability of full-time positions. Statistics Canada reports that the percentage of those forced to work part-time rose from 15.4% last year to 18.2%. This cooling sign in the job market could prompt the Bank of Canada to consider another rate cut at its next meeting in July.
Focus On International
U.S. Non-Farm Employment Surges, Dampening Rate Cut Expectations
Reported on June 7 by AIMSTAR.CA – The U.S. Bureau of Labor Statistics released new employment data last Friday showing a significant increase of 272,000 non-farm jobs in the U.S. last month, surpassing all economists’ forecasts. The unemployment rate rose to 4% from 3.9%, the first increase to this level in over two years. The unexpected rise in the unemployment rate alongside robust job growth and accelerated wage increases presents a mixed picture of the labor market. However, this has undoubtedly dampened market expectations for a rate cut, with calls for a July rate cut nearly eliminated. Prior expectations of two to three rate cuts this year cooled significantly after the non-farm data release, with most traders now betting on just one rate cut by the Fed in December. Due to these revised expectations, U.S. stocks may face significant short-term pressure.
Bank of America Merrill Lynch: Bullish on Copper Reaching $12,000
Reported on June 10 by AIMSTAR.CA – Following Goldman Sachs and Citibank, Wall Street giant Bank of America Merrill Lynch has also voiced a strong bullish outlook on copper prices. Analysts, including Jason Fairclough, released a detailed industry report predicting that copper prices could reach $12,000 per ton by 2026, a more than 20% increase from current levels, closely aligning with Citibank’s forecast. Goldman Sachs believes that copper prices could reach this level by the end of the year. The report highlights the surging demand for copper due to energy transition, growth in India’s demand, and the rise of AI and data center constructions, forecasting that the global supply-demand gap will double by 2026 to 743,000 tons.
Gold Prices Plummet, Future Trends Uncertain
Reported on June 10 by AIMSTAR.CA – Compared to the rise in copper prices, gold experienced a significant drop last week (June 3-7), plummeting nearly $100 in a single day to a monthly low of $2286.68 per ounce on Friday, marking the largest single-day drop in three and a half years (since November 9, 2020, when it fell 4.53%). The drastic fall was triggered by the unexpectedly strong U.S. non-farm report and China’s decision not to increase its gold holdings. Additionally, with the Fed’s decision approaching next week, market fears of hawkish Fed expectations prompted further sell-offs in gold.
High Inflation Drives Comprehensive Cost Increase, U.S. Housing Costs Soar Nearly 30% Since Pandemic
Reported on June 10 by AIMSTAR.CA – Since 2020, the cost of owning a home in the U.S. has increased by 26% due to rising expenses across the economy, including taxes, insurance, and utilities. Personal finance website Bankrate found that in March, the average annual expenditure for owning and maintaining a typical single-family home (excluding mortgage payments) totaled $18,118. This amount represents an increase of $1,510 per month compared to the onset of pandemic lockdowns four years ago. This calculation is based on the median sale price of $436,291 in March from U.S. online real estate broker Redfin.
Warren Buffett Invests Over $150 Million to Increase Stake in Occidental Petroleum
Reported on June 10 by AIMSTAR.CA – Regulatory filings reveal that Berkshire Hathaway (BRK.A.US)(BRK.B.US) has increased its shares in Occidental Petroleum (OXY.US) by more than $150 million in the past week. According to documents filed with the SEC last Friday, from June 5 to June 7, the company purchased over 2.5 million shares of Occidental Petroleum in three separate transactions, totaling over $150 million. Berkshire now holds more than 250 million shares in the energy company.
U.S. major stock indices recorded gains this week, with the Dow Jones Industrial Average up 0.29%, the S&P 500 increasing by 1.32%, and the Nasdaq Composite rising by 2.38%. Investors experienced a rollercoaster week as U.S. job market indicators for April, including JOLTs job openings and ADP employment data, came in below expectations, signaling a cooling job market which initially boosted market sentiment. However, the surprisingly strong non-farm payroll data released on Friday exceeded expectations and dampened investors’ bets on a Federal Reserve rate cut this year.
Key events to watch this week (June 10 to June 14):
June 10: Revised annualized Q1 GDP figures from Japan, May inflation expectations from the New York Federal Reserve, and June Sentix Investor Confidence Index for the Eurozone.
June 11: OPEC publishes its monthly oil market report, unemployment data for May from the UK, and the May NFIB Small Business Optimism Index from the U.S.
June 12: May CPI data from the U.S., May CPI data from Germany, the EIA publishes its monthly short-term energy outlook, the IEA releases its monthly oil market report, and April manufacturing/industrial production data from the UK.
June 13: The Federal Reserve announces its rate decision and summary of economic projections, Fed Chair Jerome Powell holds a press conference on monetary policy, and May PPI data from the U.S.
June 14: The Bank of Japan announces its rate decision, May CPI data from France, and U.S. one-year inflation rate expectations for June.
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