Market Momentum Slows, But Long-Term Outlook Remains Positive: AimStar’s Take on Diversification Opportunities
Uptrend Still in Place, but Some Short-Term Caution Needed:
AimStar remain positive on the stock market over the next 12 months, supported by the Federal Reserve’s easing cycle. However, momentum is starting to slow down. We’re seeing signs such as fewer stocks making new highs and defensive sectors (like utilities and healthcare) showing strong performance, which usually signals potential market weakness. The current sentiment suggests that the market could experience a short-term pullback. Despite this, we recommend using any dips as a chance to accumulate stocks as the broader uptrend is still intact.
Rising Concerns on the Horizon:
There are a few growing concerns impacting the market. Recently, East Coast port closures and escalating tensions in the Middle East have spooked investors. These events could disrupt supply chains, particularly in the retail industry, which depends heavily on these ports. On the flip side, geopolitical risks have boosted defense stocks, as we’ve seen a breakout in the Aerospace & Defense sector.
Strong September Performance Defies Expectations, but Election Year Could Add Volatility:
September is usually a weak month for stocks, but this year, the S&P 500 posted a 2.02% gain, defying its usual negative trend. However, with the upcoming election, October might see some volatility or consolidation. Still, any market dips should be viewed as buying opportunities, as the long-term outlook for stocks remains strong.
Market Signals Remain Positive:
In the medium to long term, things are looking good for equities. Around 76% of stocks in the S&P 500 are trading above their 50-day and 200-day moving averages, which is a positive sign. Additionally, riskier sectors like consumer discretionary are outperforming defensive sectors, indicating that the market is positioning itself for more upside over the next 12-18 months.
Focus on Diversification:
For the past year and a half, concentrated bets on a few large stocks have worked well. However, the market is now broadening out, and we believe a diversified approach will be more effective. Historically, when markets become highly concentrated, it often sets the stage for more average stocks to catch up, which is good news for diversified portfolios.
*The viewpoints are attributed by Tony Yuan
US Jobs Report Forecasts Stable Growth for September
Economists expect the September jobs report to show a slight uptick in hiring, with 150,000 new nonfarm payrolls and an unemployment rate steady at 4.2%. The range of predictions varies widely, from 70,000 to 220,000 new jobs, leaving room for surprises. Analysts are particularly focused on sectors like education, government, and health care, which drove recent job gains but are now slowing. Some indicators suggest underlying weaknesses, including a rise in the underemployment rate and shrinking temporary jobs. Despite the Fed’s recent rate cut, experts believe labor market cooling may continue.
Bank of Canada to Expand Rate-Setting Council with Second External Member
The Bank of Canada will increase the size of its governing council, which sets interest rates, from six to seven members by adding a second external deputy governor. Governor Tiff Macklem announced this change to bring fresh perspectives into policy-making, emphasizing the value of external insights in handling an increasingly complex economy. Nicolas Vincent, the first external deputy governor, will have his term extended to March 2026, and the recruitment process for a second external member is underway. This move marks a notable change in the bank’s structure, aligning it closer with the Bank of England.
Asian Shipping Stocks Tumble as US Dockworkers Suspend Strike
Shipping stocks across Asia dropped sharply as US dockworkers on the East and Gulf coasts agreed to temporarily halt their strike, reducing expectations that container rates would rise due to restricted supply. Japanese companies like Kawasaki Kisen Kaisha Ltd. and Mitsui OSK Lines Ltd. saw significant declines, as did shipping firms in South Korea and Hong Kong. Analysts note that the expected support for container rates has weakened, leading short-term traders to sell off shares. However, some investors remain optimistic, citing ongoing geopolitical risks that could prevent a steep decline in freight rates.
CIBC and TD Bank Explore Risk Transfer Deals Tied to Corporate Loans as SRT Market Grows
CIBC is exploring a significant risk transfer transaction (SRT) connected to a portfolio of $4.5 billion in corporate loans. SRTs enable banks to manage regulatory capital constraints by transferring credit risk to investors while retaining the assets on their balance sheets, allowing continued lending. Investors in these transactions can earn yields over 10%. Canadian banks are increasingly adopting SRTs as the country leads in implementing Basel III reforms. This move comes as Toronto-Dominion Bank plans a similar SRT involving $3 billion in loans. Global SRT issuance is expected to hit a record $28-30 billion this year.
EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles
The European Union has approved tariffs as high as 45% on electric vehicles imported from China, citing unfair subsidies by Beijing. This decision has stirred fears of a trade conflict, with China threatening retaliatory tariffs on European goods. The tariffs, effective for five years, come amid EU efforts to reduce dependency on China. The auto industry reacted positively, with European carmakers’ stocks rising. Chinese EV manufacturers may consider relocating production to Europe to avoid tariffs. While Germany and some member states opposed the move, the EU aims to protect local industries from subsidized Chinese imports.
Iran’s Setbacks Fuel Fears of a Nuclear Push
Recent Israeli attacks have weakened Iran’s proxies, raising concerns that Tehran may consider developing nuclear weapons as a defense. Hardliners within Iran may pressure Supreme Leader Ayatollah Khamenei to prioritize nuclear arms over diplomacy with the West. Observers fear an accelerated nuclear program could escalate tensions with Israel, especially if Iran feels its conventional forces and proxies are ineffective. Israel’s potential responses could influence Iran’s next moves, and a decision to pursue nuclear weapons might provoke a regional arms race, with countries like Saudi Arabia following suit.
Global Food Prices at Risk as Brazil Faces Worst Drought on Record
Brazil is experiencing its worst-ever drought, devastating coffee, sugar, and soybean crops, and sparking fears of a global food price surge. With no rain for six months, farmers like José Orlando Cintra Filho are struggling to sustain their crops. Fires, worsened by the drought, are also threatening the Amazon rainforest. The drought has reduced Brazil’s GDP by 10% since 2012, a concerning trend for a nation that relies heavily on agriculture. As the country faces rising utility costs and limited water supply for hydropower, inflation is expected to increase, disproportionately affecting Brazil’s poorest communities.
T-Mobile Sells $561 Million in Wireless-Backed Bonds After Delay
T-Mobile US Inc. successfully sold $561.3 million in bonds backed by wireless equipment installment plans, following a delay in August due to market volatility. The three-part deal, with the highest-rated tranche offering a 4.25% coupon, was initially shelved when economic and corporate turmoil shook debt markets. Structured by Royal Bank of Canada, the transaction drew significant interest, being over three times oversubscribed. Despite the challenges in August, T-Mobile’s asset-backed bond sale highlights investor demand for essential assets like mobile devices, reflecting the critical role of mobile connectivity in today’s economy.
Meta Unveils AI Video Generator, Taking on OpenAI and Google
Meta Platforms has introduced Movie Gen, an AI tool that can generate or edit videos from a simple text prompt. Capable of creating videos up to 16 seconds long, Movie Gen represents Meta’s foray into AI video generation, competing with OpenAI’s Sora and Google DeepMind’s Veo. While currently accessible only to select employees and partners, Meta plans to integrate Movie Gen into its apps next year. However, the rollout will consider safety concerns, particularly around personalized video misuse. Meta’s commitment to AI technology aligns with CEO Mark Zuckerberg’s vision for enhanced content and user growth.
Hyundai Aims for $19 Billion Valuation in India’s Largest IPO
Hyundai Motor Co. is targeting a $19 billion valuation for its India unit’s IPO, expected to be the country’s largest. The South Korean carmaker plans to sell a 17.5% stake, potentially raising $3.3 billion, with the listing set for October 22 in Mumbai. Investors, including global and local institutions, have shown interest in the IPO. If successful, it will surpass Life Insurance Corp. of India’s record IPO and mark one of Asia’s largest offerings in recent years. So far, Indian listings have raised over $9 billion this year, doubling the amount from the same period last year.
*The viewpoints are attributed by Wallis Zeng.
Tesla Falls Further as Reported Robotaxi Delay Weighs on EV Maker
Reported on July 12 by AIMSTAR.CA – Tesla (TSLA) shares are slipping more than 1% in premarket trading after suffering the steepest losses of any S&P 500 constituent Thursday with an 8.4% plunge on a report the EV maker is postponing its robotaxi unveiling by two months. The company previously indicated it would hold an event to introduce the autonomous vehicles on Aug. 8, but Bloomberg reported the presentation has been pushed back to October. Tesla shares entered Thursday on an 11-session winning streak to move into the green for the year, fueled by its better-than-expected second quarter deliveries report, but returned into negative territory for 2024 on yesterday’s plunge.
U.S. Inflation Cools, Possible Fed Rate Cut in September
Reported on July 11 by AIMSTAR.CA – U.S. inflation slowed in June, mainly due to reduced housing costs, raising the possibility of a Federal Reserve rate cut in September. Core CPI, excluding food and energy, increased by just 0.1% from May and 3.3% year-over-year, marking the slowest rise in over three years. Overall CPI fell 0.1% from the previous month. The labor market showed mixed signals, with high jobless benefit applications but a drop in first-time filings. Traders anticipate a rate cut in September, and Fed Chair Jerome Powell emphasized that decisions will be data-driven.
July 15 – July 19 COMING UP
- Federal Reserve Chairman Jerome Powell speaks on Monday, with other Fed officials making remarks throughout the week.
- Goldman Sachs, Bank of America, and Morgan Stanley are among the major bank earnings coming this week.
- Netflix and Johnson & Johnson also report earnings this week, while Amazon hosts its annual Prime Day sales event.
- The Republican National Convention will feature remarks from presidential candidate Donald Trump.
The earnings releases for the week of October 7, 2024, will span several industries:
Monday: PepsiCo (#PEP) reports, focusing on beverages.
Tuesday: Tilray (#TLRY) and Delta Air Lines (#DAL) release earnings, covering cannabis and air travel.
Wednesday: JPMorgan Chase (#JPM) and Domino’s Pizza (#DPZ) will provide banking and consumer spending insights.
Thursday: AZZ Inc. (#AZZ) and Aehr Test Systems (#AEHR) report on industrial and semiconductor demand.
Friday: Duckhorn Portfolio (#NAPA), Wells Fargo (#WFC), and Applied Digital (#APLD) will close the week with updates in wine, banking, and technology.UNFI), will round out the week, offering insights into the consumer goods market.
Published by Vikki Zhao
October 7, 2024, 10:00 AM EST. 6 min read
AimStar Capital Group Inc. is a Canadian full-service Investment Dealer, regulated by Canadian Investment Regulatory Organization (CIRO) and a member of Canadian Investor Protection Fund (CIPF). As an independent firm, AimStar is built on a foundation of innovation, integrity, and client-centricity. They are committed to providing unbiased advice and dedicated to the client’s needs, helping them achieve their financial goals.
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