AIMSTAR FINANCIAL INSIGHTS – June 3, 2024

Vikki Zhao

PUBLISHED June 3, 2024, 11:30 AM EST. 6 min read.

Last Week’s highlights included:

Is a June rate cut in Canada a certainty? | North America fully transitions to “T+1” settlement | Canadians heavily invest in ETFs | Gold, silver, and copper price trends draw attention | Trump may face jail time

The S&P 500 has recently experienced consolidation just under the resistance level, demonstrating potential for further upward movement. This trend suggests that the index could realistically target the 5500-5600 range.

 

Presently, resistance is found at 5318, and a strong close above this could set the stage for reaching subsequent Fibonacci levels of 5462 and 5551. Support is crucial at the 50-day moving average, currently at 5176; failing to maintain this could lead to a retest of the 5000 level.

 

In terms of specific stocks, focus continues on the dominant “Magnificent 7” tech giants, which have sustained their leadership amid growing excitement around AI. This concentration within the tech sector implies a need for selective investment, even as these major stocks drive the market. A broader market participation is essential for a more enduring upward trend.

 

Observing bond yields and Federal Reserve expectations is also crucial due to their significant impact on market movements over the past two years. The 10-year yield has rebounded, now above its 50-day moving average, with potential to approach 4.75%.

 

AimStar analyst believes higher bond yields could pose challenges for stocks, increasing market volatility, whereas lower yields might boost the equity market. Current market expectations suggest minimal Federal Reserve rate cuts by year-end, a shift from earlier projections. Any indication of the Fed adopting a more hawkish stance could further stir market volatility.

 

 

While the outlook for equities remains generally positive in the medium to long term, the potential for increased market fluctuations advises against overly optimistic investment strategies at this time.

*This article’s viewpoints are attributed by Olena Li.

GOOD NEWS

Good news for Alibaba Health shareholders: On May 28th, the stock price of Alibaba Health (HK:0241) surged by 10% in Hong Kong stocks, briefly spiking by 15% intraday. This followed the company’s announcement of a significant increase in annual earnings, driven by improved profit margins and strong demand for medical services and pharmaceuticals on its platform.

 

Good news for Dell Technologies shareholders: In pre-market trading on May 28th, Dell Technologies (NYSE:DELL) rose by 4.63%, hitting a new all-time high last Friday with a year-to-date cumulative increase of over 120%.

 

Good news for Insmed shareholders: Insmed (NASDAQ:INSM) skyrocketed by 145% after the company announced positive results from Phase III trials of its drug for treating non-cystic fibrosis bronchiectasis.

 

 

Good news for NVIDIA shareholders: Last weekend, NVIDIA announced a new AI chip series called “Rubin,” maintaining its annual pace of releasing new generations of AI chips to address increasingly fierce competition.

BAD NEWS

Bad news for bank shareholders: The Office of the Superintendent of Financial Institutions says higher mortgage payments will lead to an increase.

 

Bad news for Dell shareholders: The company’s quarterly earnings outlook missed expectations, citing increased server spending for AI workloads as a drag on annual profit margins. Dell’s stock plunged 15% in pre-market trading on May 31.

 

 

Bad news for Buffett followers: On June 3rd, a technical issue at the NYSE caused the share price of Warren Buffett’s Berkshire Hathaway (BRK.A) to appear to have dropped nearly 100%.

Focus On Canada

 

Canadian Investors Made a Significant Move Into ETFs In April, With U.S. Stock Funds Leading The Way

 

Reported on May 22nd by AIMSTAR.CA – According to the Investment Funds Institute of Canada (IFIC), Canadians poured $5.462 billion CAD into exchange-traded funds (ETFs) in April, marking the second-largest monthly inflow in the past year, with over half of the investment flowing into U.S. stock funds. IFIC stated that as of 2024, 74% of ETF investment has flowed into stock funds. With the exception of money market funds, all ETF asset categories saw net inflows in April, while money market funds experienced net redemptions for three out of the past five months.

 

In contrast, after two consecutive months of positive data, mutual funds saw net redemptions again in April, with net redemptions of $2.708 billion CAD, compared to net sales of $272 million CAD and $3.221 billion CAD in March and February, respectively. This trend reverses the long-standing pattern of mutual fund net redemptions and ETF net sales. ETFs have remained a perennially popular choice compared to mutual funds, which have seen net redemptions only twice since January 2022. April’s ETF net sales were slightly lower compared to February, when net sales reached $5.479 billion CAD. The net sales for these two months are the highest since March 2023.

Year-to-date, ETF net sales are approximately 50% higher than the same period last year. Consistent with the North American market, the net assets of both fund types declined in April, with mutual funds decreasing by 2% to $2.033 trillion USD and ETFs decreasing by 0.9% to $413.6 billion USD. IFIC stated that professional funds were the largest source of mutual fund inflows. The association stated, “Over half of these inflows are directed towards non-traditional fixed income funds aimed at providing returns and alternative credit funds.” Bond funds also saw positive net sales.

 

Consumer Confidence Ticked Up in May But Canadians Are Far From Cheery

 

Reported on May 27 by AIMSTAR.CA – Confidence has been on a downward slope since the Bank of Canada began hiking interest rates more than two years ago, as today’s chart from Bank of Montreal economist Shelly Kaushik shows. Sentiment on future finances improved in May but it was mixed on current finances, said Kaushik. The Conference Board of Canada highlighted two risks to optimism in coming months. An early start to wildfire season could dampen spirits in the western provinces, and uncertainty over Bank of Canada interest rate cuts.

 

Scotiabank Earnings Beat Expectations as Provisions For Bad Loans Top $1 Billion

Reported on May 28 by AIMSTAR.CA – Scotiabank’s performance in the second fiscal quarter slightly exceeded expectations, primarily driven by growth in its wealth management business. Adjusted earnings per share stood at $1.58, slightly above analysts’ average expectations, yet still down 2.6% from the same period last year to $2.11 billion. Provisions for bad loans topped $1 billion, impacting profits. The bank saw profit growth in both its wealth management and capital markets businesses, but credit losses nearly doubled in the retail division, dampening profits in that sector. Scotiabank maintained its dividend unchanged and continued its discount on the DRIP. Despite a strong capital position, analysts do not anticipate significant stock outperformance.

 

RBC Warns: S&P 500 May Drop Below 5000 Amid Persistent High Inflation

Reported on May 28 by AIMSTAR.CA – RBC Capital Markets analysts caution that if macroeconomic pressures, particularly high inflation, persist, the S&P 500 could fall below the critical 5000 mark. In their report, they emphasize that prolonged inflationary pressures and a lack of expected interest rate cuts by the Federal Reserve could lead to a decrease in the market’s current price-to-earnings ratio. While RBC’s base model forecasts the S&P 500 to trade around 5100 to 5300 by the end of 2024, under stress test scenarios with no Fed rate cuts and higher-than-expected inflation, the index could dip to 4900-5100. In the most severe scenario, where inflation exceeds 3% and the 10-year yield rises to 5.5%, fair value for the S&P 500 could be around 4500. Additionally, RBC observes that small caps, as measured by the Russell 2000, have been struggling compared to large caps, despite a brief rally driven by Fed rate cut optimism in early May.

 

CIBC Exceeds Expectations with Lower-than-Expected Credit Loss Provisions

Reported on May 30 by AIMSTAR.CA – The Canadian Imperial Bank of Commerce (CIBC) surpassed analysts’ estimates with its fiscal second-quarter earnings, posting an adjusted per-share income of $1.75, beating the average estimate of $1.65 forecasted by analysts in a Bloomberg survey. The Toronto-based lender allocated $514 million for possible loan losses through April, which was less than the anticipated $567 million. Meanwhile, CIBC’s overall net income rose by 3.6% to $1.75 billion. This performance contrasts with other banks like Bank of Montreal and Toronto-Dominion Bank, which reported higher provisions for loan losses exceeding $1 billion each during the same period.

 

Royal Bank of Canada’s Acquisition of HSBC Leads to Rare Dip in Foreign Investment

 

Reported on May 31 by AIMSTAR.CA – Canada witnessed its first decline in foreign direct investment in fourteen years, following Royal Bank of Canada’s acquisition of HSBC Holdings PLC’s Canadian division. According to Statistics Canada, foreign investors pulled out $6.2 billion in the first quarter, marking the first such outflow since 2010. This decline was primarily due to a significant $11.1 billion divestment in assets through mergers and acquisitions. Notably, in March, Royal Bank finalized its purchase of HSBC’s Canadian operations for over $13 billion, impacting the current account as a sale of assets from foreign to Canadian investors.

 

Focus On International

 

T+1 Settlement Rule Implemented in North American Markets

Reported on May 28th by AIMSTAR.CA – As of May 27, 2024, Canadian and U.S. securities markets have transitioned to a T+1 settlement cycle, reducing the settlement period from two days to one. This change, aimed at increasing market efficiency and reducing risk, affects stocks, bonds, and ETFs, with mutual funds varying by issuer.

 

AimStar Capital’s clients will benefit from quicker access to funds post-sale and must ensure timely funding for purchases to avoid penalties. This strategic alignment with U.S. markets enhances efficiency and reduces transactional risks. For a deeper understanding of how this change affects your investments, click here to read the full article.

 

Gold, Silver, Copper: End of the Rally or Temporary Pause Before Further Upside?

Reported by AIMSTAR.CA on May 28th – In recent weeks, gold, silver, and copper have been the focal points of the commodity market, with prices breaking records as investor interest remains high. This week, silver prices showed strength, with spot silver surging over 4% on May 28th to $31.60 per ounce, reaching a high of $31.85 per ounce intra-day. With increased industrial demand and shifting investor sentiment, silver may emerge as a noteworthy precious metal in the future. In contrast to silver’s surge, following gold’s record high on May 20th and subsequent pullback, copper prices also quieted down after reaching historic highs last week.

Does this pause signal the end of the rally or a potential price adjustment, or is it merely a temporary consolidation before further upside for gold, silver, and copper prices? click here to read the full article.

 

Historic Moment in U.S. History: Trump Found Guilty

 

Reported on May 31 by AIMSTAR.CA – After two days of deliberation, a jury has found Donald Trump guilty on all 34 counts of falsifying business records in the hush money trial, marking him as the first U.S. president ever to be convicted. With sentencing scheduled for July 11, this conviction sets Trump on an uncertain legal and political path as he is set to face Joe Biden as the Republican presidential candidate in November. The New York Times reports that Trump could receive probation and is certain to appeal the verdict, suggesting that the hush money case could take years to fully resolve.

This week, attention is focused on Friday’s non-farm payroll report to gauge the future direction of U.S. interest rates. The European Central Bank is set to hold a rate-setting meeting, with a rate cut seemingly assured, indicating a divergence in the interest rate paths between the Eurozone and the U.S. Meanwhile, OPEC has decided to cut production, and the Bank of Canada will also hold a rate-setting meeting. China will release its highly anticipated import and export data.

 

On June 5, the Bank of Canada is scheduled to hold its rate-setting meeting, with a 25 basis point rate cut expected. Data released last Friday showed that Canada’s economic expansion in the first quarter was slower than expected.

 

On June 6, the European Central Bank will hold its rate-setting meeting, with a rate cut firmly on the agenda, making it the first major central bank to lower rates in this cycle.

 

On June 7, the U.S. will release the highly anticipated non-farm employment report, with the labor market expected to remain strong.

 

On June 7, China will publish May’s import and export data. In April, China’s export growth turned positive, rising from -7.5% to 1.5%. Import growth also rebounded significantly, from -1.9% to 8.4%.

 

 

On June 2, at last Sunday’s OPEC+ ministerial meeting, it was reported that OPEC+ had reached a preliminary agreement to extend its production cut policy until 2025, with a gradual phasing out of voluntary additional cuts starting at the end of September. Goldman Sachs believes that the outcome of the OPEC+ meeting is bearish for the market, and Brent crude prices could fall below the $75-$90 range..

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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