AIMSTAR FINANCIAL INSIGHTS – May 27, 2024

Vikki Zhao

 

PUBLISHED May 27, 2024, 11:30 AM EST. 6 min read.

S&P 500 hits new high | Nvidia surges | Canada anticipates interest rate cut in June | AimStar training program launches | Metal market plummets | Hedge funds massively sell off U.S. stocks

 

The S&P 500 has reached new all-time highs following last week’s CPI report for April, suggesting a potential increase to between 5500 and 5600. Recent economic indicators like the weaker-than-expected retail sales in April and ongoing low inflation seem to support a continued cautious approach from the Federal Reserve, which is helping to maintain the upward trend in the market.

 

This trend aligns with our positive outlook for equities over the next 12 months. The economy remains robust, supported by fiscal stimulus and a tight labor market, which are contributing to a better earnings environment. Meanwhile, inflation appears to be on a gradual decline, and AimStar analyst anticipate future rate cuts by the Fed.

 

This scenario is likely to reduce bond yields and increase valuation multiples. It’s also crucial to recognize that the recent gains in equities come after a two-year bear market, and this strength could signal the start of a new bull market. Historically, bull markets have seen much larger gains over longer periods.

 

However, it’s important to remain cautious. There’s still significant uncertainty among investors regarding the speed of disinflation and the Fed’s timeline. Leading economic indicators are not strong and suggest potential challenges ahead. Moreover, market sentiment is often swayed by monthly government data, which can be subject to significant revisions. The journey toward normalized inflation levels is expected to be uneven.

 

AimStar analyst advise monitoring bond yields closely as they have inversely affected equities in recent times and serve as an important indicator of inflation and Fed expectations. The U.S. 10-year Treasury yield decreased following last week’s CPI announcement but remained above its 200-day moving average. A further decrease could boost the equity market, while an increase might pose a challenge.

 

One concerning aspect is the market’s narrow leadership. Despite the S&P 500 reaching new highs, the equal-weighted version of the index has not, and fewer stocks are performing above their 50-day moving average compared to previous peaks. The recent gains have been predominantly in mega-cap technology and defensive sectors, indicating limited market participation in the rally. This suggests some weaknesses in the market’s overall health and calls for a cautious approach to new investments.

 

 

 

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

GOOD NEWS

Good news for NVIDIA shareholders: The company’s first-quarter performance surged once again, with its stock price rising by 2.66% in after-hours trading on Wednesday following the earnings report, trading around $974.72. NVIDIA’s stock has gained 91% year-to-date, outperforming the cumulative 11.17% rise of the Nasdaq 100 over the same period.

 

Good news for fossil fuel fans: Shell PLC shareholders approved the company’s new energy transition plan with weaker carbon-emissions targets, while rejecting a resolution asking it to align itself with the goals of the Paris Climate Agreement.

 

Good news for rate-cut fans: Canada’s annual core inflation rate eased for a fourth straight month, bolstering a case for policymakers to begin an easing cycle in the coming months, but a slight increase in the monthly pace may keep a June interest rate cut from being a slam dunk.

 

 

Good news for fixed-income fans: A comparison of high-grade U.S. debt and the S&P 500 shows that credit is trading at the biggest value gap with equities in more than 20 years. “For the first time in years, you are now getting paid to be invested in quality credit,” says strategist Raphael Thuin.

Bad news for bank shareholders: The Office of the Superintendent of Financial Institutions says higher mortgage payments will lead to an increase in residential mortgage loans falling into arrears or defaults, noting that 76 per cent of the outstanding mortgages as of February 2024 will be coming up for renewal by the end of 2026.

 

Bad news for Loblaw Cos. Ltd. shareholders: The boycott of Canada’s largest grocery chain may finally be having some effect. Loblaw shares are down about 0.8 per cent this week.

 

 

Bad news for Intuit shareholders: Intuit’s second-quarter performance guidance is weak, with the number of users utilizing its TurboTax free service, declining by approximately 1 million year-over-year.

Focus On Canada

 

AimStar Capital Launches Innovative Investment Advisor Training Program

Reported on May 23 AIMSTAR.CA – AimStar Capital Group Inc., a IIROC-certified brokerage in Canada, has unveiled a pioneering investment advisor training program. Recognizing the complexities of the securities market and the need for top-notch expertise, AimStar aims to elevate service quality by providing in-depth training and practical experience sharing for registered advisors. The program, involving top experts from major asset management firms, will enhance professionalism and compliance standards, ensuring more efficient and compliant financial solutions for clients.

Read the full article: https://aimstar.ca/aimstar-capital-launches-new-investment-advisor-training-program-for-2024/

 

*The author of this article: Vikki Zhao

 

Canada’s Largest Pension Fund Halves Renminbi Exposure in Two Years Amidst Risk Concerns

 

Reported on May 23 AIMSTAR.CA – Canada Pension Plan Investment Board’s exposure to investments in yuan has fallen by half in just two years, as the money manager pulls back in the world’s second-largest economy because of higher risks. Canada’s biggest pension fund held five per cent of its assets in Chinese currency as of March 31, according to its annual report released Wednesday, down from 10 per cent in 2022.

Alberta Emerges as Top Choice for Interprovincial Migration

Reported on May 23 AIMSTAR.CA – Alberta has become the preferred destination for interprovincial migrants, surpassing British Columbia, according to Statistics Canada. The report highlights significant net gains in most of Alberta’s major cities, with Calgary and Edmonton leading the trend. Meanwhile, Ontario continues to experience a net loss in its large cities for the second consecutive year, with Vancouver witnessing its highest loss in over two decades. Analysts attribute this migration pattern to factors like job opportunities and housing affordability. The report underscores the importance of understanding demographic shifts for effective urban planning and resource allocation.

 

Bank of Canada Reduces Net Loss to $934 Million in Q1 2024

Reported on May 24 AIMSTAR.CA – The Bank of Canada saw its net loss narrow to $934 million in the first quarter of 2024, down from $1.51 billion in the same period last year. These losses, largely attributed to decisions made during the COVID-19 pandemic, include early quantitative easing measures to stimulate Canada’s economy. As the central bank faced higher interest expenses amidst rising overnight rates, its income from fixed-rate bonds remained unchanged, resulting in reduced profitability. However, experts anticipate a turnaround with ongoing quantitative tightening measures and policy rate cuts, expecting the bank to resume generating net income in the future.

 

Ontario To Speed Up Alcohol Expansion

Reported on May 24 AIMSTAR.CA – Ontario’s government has announced an accelerated expansion of alcohol sales across the province, with licensed grocery stores now set to offer ready-to-drink cocktails and larger pack sizes starting August 1 this year. This move, part of Premier Doug Ford’s commitment made late last year, aims to allow convenience stores and all grocery outlets to sell beer, wine, cider, and ready-to-drink cocktails by 2026. Additionally, up to $225 million in public funds will be allocated to The Beer Store to facilitate necessary investments for a smooth transition in the market.

 

Electric Vehicle Sales Surpass Charging Stations in Canada, Posing Challenges

 

Reported on May 27 AIMSTAR.CA – The surge in electric vehicle (EV) sales in Canada is outpacing the growth of charging infrastructure, creating a significant hurdle. Last year witnessed a remarkable 49% increase in new EV registrations, totaling at least 180,000 vehicles on the road, as reported by BMI, a Fitch Solutions Inc. market research company. However, with only 28,188 charging points across the country, the ratio of EVs to public charging stations stands at approximately 20 to one, double the global average of 10. This disparity underscores the urgent need for Canada to rapidly accelerate the deployment of charging infrastructure to support the burgeoning EV market.

Focus On International

 

Fed Concerns Trigger Metals Market Plunge: Gold Falls Below $2400, Copper Prices Also Under Pressure

 

Reported on May 23 AIMSTAR.CA – Gold prices continued to decline on Thursday, breaching the $2400 mark, while copper prices also faced challenges. This downward trend was primarily driven by concerns from the Federal Reserve about inflation and fears of a high-interest-rate environment. Gold prices fluctuated near historic highs but failed to stabilize in the face of prospects for long-term high-interest rates. Meanwhile, copper prices suffered a double blow from profit-taking and concerns about the Chinese economy, leading to panic in the market.

 

SEC Greenlights Ethereum ETFs as Existing Applications Await Approval

Reported on May 24 AIMSTAR.CA – The U.S. Securities and Exchange Commission (SEC) revised rules on Thursday, paving the way for the establishment of exchange-traded funds (ETFs) tied to Ethereum. This decision marks significant progress towards the eventual approval of Ethereum spot ETFs. Now, pending acceptance of applications by fund management companies, Ethereum spot ETFs are set to be approved for listing. Existing applicants include VanEck, ARK, and seven other issuers. Rumors of SEC approval boosted Ethereum performance this week, with the cryptocurrency rising 20% in the last seven days.

 

Goldman Sachs Report Indicates Massive Hedge Fund Sell-Off in U.S. Stocks, Industrials and Information Technology Hit Hard

Reported on May 27 AIMSTAR.CA – According to a report released by Goldman Sachs’ bulk trading division, hedge funds have been significantly reducing their holdings of U.S. stocks for the week ending May 24, reversing a trend of net purchases for five consecutive weeks. This move is a response to recent signs of economic recovery and the Federal Reserve’s steadfast hawkish policy stance, indicating a prolonged high-interest-rate environment. The report notes widespread outflows across both macro products and individual stocks, with macro products experiencing net sales for the first time in six weeks and individual stocks witnessing net sales for three consecutive weeks, reaching a new high for the year. All eleven sectors of U.S. stocks saw sell-offs, with industrials, information technology, and finance being hit particularly hard, with industrials seeing net outflows for ten consecutive trading days.

 

Asian Stocks Rise, Shanghai Composite and Hang Seng Rebound by 1%

 

Reported on May 27 AIMSTAR.CA – Most Asian stocks rose on Monday, recovering some lost ground from last week, although markets remained cautious awaiting further clues on U.S. inflation and interest rate policy outlook. Strong gains in the U.S. stock market on Friday, led by tech stocks, buoyed sentiment, with the Nasdaq Composite closing at a historic high, and other regional markets followed suit. Both the China A50 and the Shanghai Composite Index saw significant jumps. Data released on Monday showed steady month-on-month growth in China’s industrial profits for April, indicating a steady improvement in China’s industrial situation. However, optimism about stimulus measures has cooled, restraining gains in the Chinese stock market. Additionally, U.S. and UK financial markets were closed for the holiday.

This week, the favored inflation gauge by the Federal Reserve, the Personal Consumption Expenditures (PCE) Price Index, is set to be released on Friday, May 31st. Market participants need to closely monitor this data to seek clues about the direction of interest rates for the remainder of the year.

 

The Eurozone will unveil CPI data, with the European Central Bank signaling a rate cut in June. Japan is also due to release inflation data on Friday, May 31st.

 

China will announce official Manufacturing and Non-Manufacturing PMI indices on Friday, May 31st.

 

 

Additionally, oil prices saw a slight increase on Monday, with the market awaiting the OPEC+ meeting.

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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