Vikki Zhao
PUBLISHED September 16, 2024, 10:00 AM EST. 6 min read
Worst Weekly S&P 500 Performance Since March ’23: Following a strong rally from early August lows, the S&P 500 lost momentum just below previous highs. A mix of volatility in AI/Tech, rotation into underperforming sectors, softer economic data, and entering a traditionally slower period, resulted in the S&P 500’s worst weekly drop (-4.25%) since March ’23, breaking below its 50-day moving average.
Despite this, AimStar analyst believe the August lows are more likely to hold due to the underlying strength in the recent rally. However, ongoing market choppiness may continue as investors digest weaker macroeconomic data and sector rotations amid the Fed’s plans to start a rate cut cycle.
Technical Outlook Suggests Upside: Overall, AimStar analyst maintains a positive outlook on equities, viewing recent weakness as a potential buying opportunity, and expect stock prices to trend higher over the next 12 months. The S&P 500 is holding support around 5410, with further downside potentially bringing it to 5324. Resistance is near 5560, with a previous high at 5670.
Upcoming FOMC Decision: Today’s inflation data came in relatively contained, although slightly higher on a month-over-month basis. The Fed is poised to begin easing rates next week, with a market consensus of a 25-basis point cut. Expectations point to four 25 bps cuts by year-end, and at least 10 by the end of 2025. However, these estimates are data-dependent and could lead to further interest rate and equity market volatility.
September: A Historically Weak Month for Equities: Since the start of September, the S&P 500 has fallen 3.83%, entering a period that is historically the weakest month for equities, with an average decline of 2.31% over the past decade and lower trading 70% of the time. Election years have typically seen choppy trading before a late-year rally. Given various factors (softening economic data, FOMC decision, interest rates, elections), AimStar analyst expect elevated volatility during this traditionally sluggish period.
Importance of Diversification: Over the past year and a half, concentrating investments in a narrow group of Tech-centric companies has been an effective strategy. However, AimStar emphasize the importance of diversification. The recent rotation into lagging sectors and broadening market participation support an active management approach. While maintaining exposure to Tech, including the “Magnificent 7” stocks, as they remain fundamentally strong, we recommend avoiding complacency and considering high-quality names that have lagged during periods of market concentration.
*The viewpoints are attributed by Olena Li.
US Labour Market Growth Slows, Sparking Fed Rate Debate
Non-farm payrolls rose by 142,000, below market expectations, with job losses in manufacturing, retail, and information technology sectors weighing on overall growth. The manufacturing sector experienced the largest decline, driven by reduced orders and shrinking backlogs. Despite discussions of a potential Federal Reserve rate cut, a slight rise in producer prices in August, led by a rebound in services, has diminished the odds of a 50 basis points cut to below 15%.
Global Labor Markets Face Challenges Amid Economic Pressures
The global labor market is under strain, with Europe’s automotive industry in turmoil, and Germany facing sharp declines in industrial output. Sweden debates the environmental impact of aviation tax cuts, while China’s service sector growth lags expectations. Japan grapples with social security and defense budget pressures. Meanwhile, Brazil’s economy is booming on strong consumer spending, and central banks worldwide are adjusting interest rates in response to shifting economic conditions.
US Mortgage Rates Drop to Lowest Level Since February 2023, Awaiting Fed Rate Decision
In the US, the average 30-year fixed mortgage rate fell to 6.2%, its lowest since February 2023, down from 7.18% a year ago. However, high home prices and limited supply have kept potential buyers hesitant. Refinancing applications increased, but many homeowners still hold sub-5% interest mortgages. Market participants are closely watching the Federal Reserve’s upcoming decision, with expectations of a rate cut due to slowing inflation and a cooling job market. The US pending home sales index also declined, reflecting continued weakness in the housing market.
Canadian Banks Prioritize Organic Growth Over US Acquisitions Amid Economic Uncertainty
Canadian banks, including RBC, CIBC, and BMO, are shifting focus towards organic growth rather than pursuing acquisitions in the U.S., despite the ongoing economic uncertainties. Recent financial results revealed rising credit losses in the U.S., prompting some banks to reconsider their expansion strategies. RBC’s CEO Dave McKay emphasized the importance of prudent decision-making in acquisitions, highlighting the successful purchase of HSBC Canada which significantly boosted RBC’s earnings. Meanwhile, CIBC and BMO continue to weigh their options, prioritizing efficient capital utilization and long-term profitability over rapid expansion.
RBC’s Dave McKay Urges Canada to Strengthen Economic Ties with U.S.
RBC CEO Dave McKay warned that Canada is on the “wrong path” and must better align with the U.S. to boost productivity and economic growth. Speaking in Toronto, McKay cited concerns from senior U.S. officials that Canada is not generating enough economic value. He emphasized that Canada must improve regulatory processes, particularly in natural resources and energy sectors, and create a more competitive tax system to incentivize business growth. McKay also highlighted rising youth unemployment and called for stronger cooperation between government and businesses to meet U.S. needs and drive economic progress.
TD Bank Fined $28 Million for Sharing Inaccurate U.S. Consumer Data
Toronto-Dominion (TD) Bank will pay nearly US$28 million in fines and restitution following a Consumer Financial Protection Bureau (CFPB) investigation. The probe revealed that TD shared inaccurate information on U.S. consumers, including details about personal bankruptcies and fraudulently opened accounts, with reporting agencies. TD agreed to pay US$7.76 million to affected consumers and a US$20 million civil penalty. The bank is also facing additional probes for anti-money laundering lapses, which could result in over US$3 billion in fines. CFPB Director Rohit Chopra criticized TD for prioritizing growth over fair customer treatment.
ECB Cuts Interest Rate to 3.5%, Warns of Slower Eurozone Growth
The European Central Bank (ECB) reduced its deposit interest rate by 0.25 percentage points to 3.5%, following a drop in eurozone inflation to 2.2% in August. This is the ECB’s second rate cut this year, aimed at addressing slowing economic growth across the eurozone. The ECB revised its GDP growth forecast for 2023 down to 0.8%, while also lowering expectations for 2025 and 2026. Despite inflation easing, wages continue to rise. ECB President Christine Lagarde emphasized that future rate decisions will be made “meeting by meeting,” with no pre-commitments on additional cuts. Financial markets anticipate further rate reductions later this year.
PDD’s Status as Top China Growth Stock in Jeopardy After 30% Drop
PDD Holdings Inc., owner of the Temu platform and Pinduoduo, is facing investor concerns after a 30% drop in its US-listed shares, following disappointing sales results and growing competitive pressures. Analysts have cut PDD’s price target by 24%, raising doubts about its growth outlook and shareholder returns. Rivals like Alibaba are catching up with PDD’s low-price strategy, while geopolitical risks, including US scrutiny of Chinese-sourced products, pose further challenges. PDD has lost over $80 billion in market value since May, with founder Colin Huang losing his position as China’s richest person.
Oracle Projects $104 Billion Revenue by Fiscal 2029, Driven by Cloud Expansion
Oracle Corp. forecasted annual revenue of at least $104 billion by fiscal 2029, fueled by its cloud infrastructure business. Executive Vice President Doug Kehring shared the optimistic outlook at Oracle’s annual financial analysts’ briefing. The company also raised its fiscal 2026 sales projection to $66 billion, exceeding analysts’ expectations of $64.5 billion. Oracle is expanding its cloud infrastructure to compete with giants like Amazon, Microsoft, and Google, and has found success with generative AI workloads. Oracle shares surged 5% in extended trading, continuing its 53% rally year-to-date.
Rent Inflation Poses Challenge for Fed’s Rate Decisions
As the Federal Reserve prepares to meet and discuss interest rates, rising rent costs are a central concern. While inflation data for August showed improvements in energy, car, and food prices, shelter costs rose 0.5%, the biggest driver of overall inflation. Economists blame a housing shortage and slower-than-expected declines in rent inflation for the persistence of higher costs. This issue complicates the Fed’s ability to make large rate cuts, with housing affordability at its lowest in decades. Both Vice President Kamala Harris and former President Donald Trump have proposed housing policies, but these will take time to address the market imbalance.
*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.
This week (September 16), earnings reports will focus on several industries, including shipping, real estate, cannabis, restaurants, biotechnology, telecommunications, research, food production, technology services, and construction:
Monday: Shipping giant FedEx (#FDX) will release its latest earnings report, with the market focusing on its performance in global logistics and delivery services.
Tuesday: Real estate developer Lennar (#LEN) and cannabis company High Tide (#HITI) will announce their earnings, providing insight into the housing market and cannabis retail sectors.
Wednesday: Restaurant chain Darden Restaurants (#DRI) and biotechnology firm ImmunoPrecise Antibodies (#IPA) will release their earnings reports.
Thursday: Telecommunications equipment provider RF Industries (#RFIL) and research and analytics company FactSet Research Systems (#FDS) will announce their quarterly results.
Friday: Food producer General Mills (#GIS), technology services company Endava (#DAVA), and construction materials distributor Ferguson (#FERG) will release their earnings reports.
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