AIMSTAR FINANCIAL INSIGHTS – June 17, 2024

Vikki Zhao

PUBLISHED June 17, 2024, 11:30 AM EST. 6 min read.

In a day marked by significant events, including a Federal Open Market Committee (FOMC) meeting and a Consumer Price Index (CPI) report, the S&P 500 reached new heights. The CPI indicated inflation was lower than expected, fueling expectations of further interest rate cuts by the end of the year.

 

 Although the excitement was tempered by the FOMC’s dot plot revealing only one planned rate cut by year-end—less than the market’s expectation of nearly two cuts—overall, the ongoing moderation in inflation and the Fed’s readiness to lower rates are seen as positive drivers that could further boost equity markets from their current highs.

 

While the S&P 500 has soared to new records, driven by economic resilience, strength in the Technology sector, and the Fed’s dovish stance, the broader market tells a more complex story.

 

Despite the index’s ascent, many stocks are hitting new relative lows, and there’s been a rapid sector rotation, with Technology remaining a consistent performer. Over the next 12-18 months, we maintain a positive outlook on equities and see any market dips as buying opportunities. The next resistance levels are projected at 5551 and 5623, with support around the 50-day moving average of 5195.

 

Market sentiment is turning more positive: Despite limited market breadth, there has been a notable improvement in intermediate risk-on indicators in recent weeks. AimStar analyst compares the performance between equal-weight Consumer Discretionary and Staples sectors, a traditional gauge of risk sentiment, not only maintained its uptrend but also reached the higher end of its recent range, supporting a continued favorable outlook for equities.

 

This environment favors sectors with strong secular growth drivers such as artificial intelligence, decarbonization, and supply chain diversification.

 

The dominance of the Technology sector continues, yet its influence has been concentrated, with equal-weight indices trailing behind cap-weighted indices. However, a recent uptick in the equal-weight Tech index suggests a broadening within the sector, which is a positive sign for active management strategies. Particularly, the Software sector is nearing a support level compared to Semiconductors.

 

Since the Great Financial Crisis, the relative performance of these sectors has mostly moved sideways and is currently near the lower end of this range. If this support holds, investing in Software could be a strategic move to capitalize on the sector’s expansion.

 

 

Overall, while there are underlying challenges that may lead to periods of volatility, these should be seen as part of a broader upward trend in the market. AimStar analyst recommends maintaining a positive view on equities, taking advantage of any setbacks as opportunities for long-term gains.

Good News for Oracle Investors: Oracle (ORCL.US) Q4 cloud business surges, cloud computing division performs strongly, AI engine ignites future growth.

 

Good News for GameStop Investors: GameStop (GME.US) completes an at-the-market equity offering of up to 75 million shares, raising a total of $2.137 billion.

 

 

Good News for Chip Investors: Chip giant Broadcom (AVGO.US) sees a 43% surge in revenue, announces a significant “1-for-10” stock split.

 

 

Good News for Tesla Investors: Elon Musk announced shareholder approval of his $56 billion compensation package and the company’s incorporation move to Texas.

Bad News for Chinese Auto Stock Investors: Following the U.S. imposition of tariffs on electric vehicles, Turkey recently announced a presidential decision to impose an additional 40% tariff on cars imported from China. Additionally, the European Commission is planning to impose tariffs on Chinese electric vehicle exports.

 

Bad News for Virgin Galactic Investors: Virgin Galactic (NYSE:SPCE) has announced a reverse stock split effective June 14, with trading on June 17, at a ratio of 1:20. This move aims to meet the minimum share price requirement of the New York Stock Exchange. In 2024, the company’s stock price has plummeted by over 65%.

 

 

Bad News for Pfizer Investors: Pfizer (PFE.US) has announced a major setback as its gene therapy for Duchenne Muscular Dystrophy failed to meet primary and secondary endpoints in late-stage clinical trials.

FOCUS ON CANADA

 

National Bank Acquires Canadian Western for $5 Billion to Expand Western Presence

 

Reported on June 12 by AIMSTAR.CA – In a significant move to strengthen its presence in Western Canada, the National Bank of Canada announced it has reached an all-share deal valued at approximately $5 billion to acquire Canadian Western Bank. The merger, which is expected to close by the end of next year, will considerably expand National Bank’s footprint in Alberta and British Columbia, where Canadian Western primarily operates. The deal comes on the heels of recent banking consolidations, such as the Royal Bank of Canada’s acquisition of HSBC Canada. This acquisition is poised to enhance National Bank’s services across the country, adding 39 branches and a $37 billion loan portfolio from Canadian Western. The transaction, which requires approval by regulators and two-thirds of Canadian Western’s shareholders, also includes strategic investments and plans for significant cost savings.

Canadian Household Debt Ratio Improves in First Quarter of 2024

 

Statistics Canada says the amount Canadians owe relative to their income in the first quarter edged lower compared with the fourth quarter of 2023 as growth in household disposable income outpaced the growth in debt. The agency says household credit-market debt as a proportion of household disposable income was 176.4 per cent in the first three months of the year on a seasonally adjusted basis. The result compared with 178.0 per cent in the fourth quarter of 2023.

 

In other words, there was $1.76 in credit-market debt for every dollar of household disposable income in the first quarter of 2024. Meanwhile, the household debt-service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, was 14.91 per cent in the first quarter of 2024 compared with 14.98 per cent in the fourth quarter of 2023. The move came as household disposable income rose 1.9 per cent, while debt payments increased 1.4 per cent.

Canada must embrace AI or face ‘major loss of prosperity’: Desjardins

 

Reported on June 14 by AIMSTAR.CA – Canada has the potential to be a global leader in an AI-driven economy but must accelerate adoption to avoid a “major loss of prosperity,” according to a Desjardins Group report. Despite a strong AI research ecosystem, Canadian businesses lag behind the U.S. and China in adopting AI technologies. Desjardins economists highlight the transformative potential of AI for productivity and growth but warn that slow adoption risks widening prosperity gaps. They recommend increased digitization, improved computing capacity, support for AI startups, and workforce training to stay competitive. Collaborative efforts between public and private sectors are essential for AI integration.

FOCUS ON INTERNATIONAL

 

Apple Ushers in AI Era, ChatGPT to Integrate into iPhone Later

 

Reported on June 10 by AIMSTAR.CA – Apple’s annual Worldwide Developers Conference (WWDC24) kicked off last Monday. During the keynote, Apple announced updates to the operating systems across its product lines. As expected, artificial intelligence was a major focus of this year’s conference. Over 40 minutes of the nearly 105-minute keynote were dedicated to introducing Apple Intelligence. The highly anticipated OpenAI chatbot, ChatGPT, is confirmed to be integrated into Apple’s new generation of operating systems, including iOS 18. Apple Intelligence utilizes large language models to understand and generate language and images, simplifying and accelerating daily tasks across applications based on the user’s context. It can run on dedicated Apple chip servers as well as locally on Apple devices, choosing the correct operating method based on different task loads.

 

Academic Economists Forecast: Fed Likely to Cut Rates Only Once This Year!

 

Reported on June 11 by AIMSTAR.CA – A recent survey of academic economists indicates that the Federal Reserve may only cut interest rates once this year, as persistent inflation forces an adjustment to the “rate cut schedule.” Of the 39 scholars surveyed, more than half believe the Fed will only reduce rates by 25 basis points this year. Nearly a quarter predict the Fed will not cut rates at all. The survey was conducted in the last week of May, with the Fed set to announce its rate decision this Thursday. Respondents expect the rate setters to revise their predictions for rate cuts this year down from three to two or fewer. Economists have also revised their forecasts for PCE inflation from 2.5% in the March survey to 2.8%. Additionally, the expectation for a soft landing of the U.S. economy has increased, with 52% of respondents now believing that the U.S. economy will not enter a recession until 2026 or later, up from 46% in March.

 

U.S. Inflation Eases in May, Markets Respond Positively

 

Reported on June 12 by AIMSTAR.CA –  The U.S. Consumer Price Index (CPI) remained stable in May, showing a year-over-year increase of only 3.3%, marking a slowdown from April’s 0.3% monthly and 3.4% annual gains, according to the latest Bureau of Labor Statistics data. This is the lowest monthly headline CPI since July 2022. Core CPI, which excludes food and gas prices, also saw a minimal increase of 0.2% from the previous month. The data, which came below economist expectations, led to a rise in markets and a drop in the 10-year Treasury yield. This cooling of inflation arrives just ahead of the Federal Reserve’s policy decision and could influence future rate adjustments, with the market now seeing a higher likelihood of rate cuts by September.

U.S. PPI Report Further Confirms Easing Inflation Pressures

Reported on June 13 by AIMSTAR.CA – U.S. Producer Price Index (PPI) unexpectedly fell in May, marking the largest decline in seven months and further confirming that inflation pressures are easing. Data released by the U.S. Bureau of Labor Statistics on Thursday showed that the PPI for final demand decreased by 0.2% from the previous month and was up 2.2% from the same period last year. The PPI report comes after data for May also indicated a general cooling of the economy. Since last July, Federal Reserve officials have maintained the benchmark interest rate at the highest level in over two decades. Wednesday’s Fed dot plot indicated that they expect only one rate cut this year, as they wait for further progress on inflation.

 

Shanghai allows Tesla to carry out Full Self-Driving pilot

 

Reported on June 14 by AIMSTAR.CA – Shanghai has permitted 10 Tesla vehicles to test the company’s advanced Full Self- Driving (FSD) software, paving the way for its rollout in China. This could help Tesla compete with local rivals and intensify the market for driver assistance features. Tesla has offered a limited version of FSD in China for four years. The approval follows Elon Musk’s visit to Beijing and plans to register FSD with Chinese authorities. Tesla also began building a Megapack battery factory in Shanghai and signed a contract with Shanghai Lingang for local commercialization.

AimStar Capital Group Inc. is an independent full-service investment dealer with the Investment Industry Regulatory Organization of Canada (IIROC), specializing in providing Investment advisory and tailored wealth management services to individual investors, family trusts, and institutional investors. If you have any inquiries regarding personal financial services, investment portfolio adjustments, or private wealth management, please email us at info@aimstar.ca. We are committed to assisting you and ensuring the security of your privacy. Additionally, the AimStar expert team is available to provide one-on-one financial advisory services. We look forward to navigating your financial future together.

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