Vikki Zhao
PUBLISHED September 30, 2024, 10:00 AM EST. 6 min read
The S&P 500 has recently reached new highs, continuing its upward trend and suggesting that the market’s path of least resistance remains positive. While AimStar maintain a favorable outlook for equities over the next 12 months, driven by the Fed’s easing cycle, we advise a cautious approach when accumulating stocks.
The momentum behind the breakout has been somewhat limited (as evidenced by a lack of surge in the percentage of stocks hitting 20-day highs), and rotation has pushed certain sectors into overbought territory in the short term. Additionally, several factors, such as economic conditions, employment, and the Fed’s future actions, could influence sentiment and market positioning in the weeks and months ahead.
Overall, AimStar believes the positives outweigh the negatives. Although we are still in a seasonally weak period, and the market may experience volatility leading up to the elections, key concerns persist about the economy and whether the Fed can successfully navigate a “soft landing.” Employment data will be crucial, as underlying labor trends have weakened recently. Another factor is market positioning, with the expectation of significant Fed rate cuts ahead.
However, if the economy remains strong, the Fed may not need to cut rates eight more times over the next year, especially if inflation resurfaces. These factors will likely affect investor sentiment and market behavior in the coming months. Despite this, we believe inflation is moderating, the economy is showing resilience, and the Fed is prepared to respond to any economic weakness. Lower interest rates are supportive of higher stock valuations, which AimStar analyst expect will lift equities over the next year.
Beneath the surface, there are notable sector trends. Interest-sensitive sectors such as Utilities and Real Estate have shown the most momentum recently. Despite a rise in bond yields over the past week, these sectors continue to perform well, though they are approaching overbought levels—a healthy pullback would be natural and present buying opportunities.
Meanwhile, Technology has been in a consolidation phase since mid-July following significant earlier gains. We recommend maintaining a solid allocation to this sector, as its fundamentals remain strong, although current breakouts are happening in other areas. Two previously underperforming sectors, Consumer Discretionary and Materials, have shown improvement, driven by the Fed’s pivot and China’s recent policy easing.
While these moves are noteworthy, more progress is needed before these sectors can become market leaders. Given the recent sector rotation, portfolio diversification is essential, and the upcoming earnings season will likely serve as another catalyst for market trends.
*The viewpoints are attributed by Olena Li.
Fed’s Preferred Inflation Gauge and Consumer Spending Barely Rise in August
The Federal Reserve’s favored inflation measure, the core personal consumption expenditures (PCE) price index, rose just 0.1% in August, the smallest increase in three months, signaling a cooling economy. Inflation-adjusted consumer spending also edged up by 0.1%. The data aligns with the Fed’s 2% inflation target and supports expectations for further rate cuts. Treasury yields and the dollar fell following the report. While wages saw growth, overall disposable income slowed, pointing to a gradual economic deceleration as the year progresses.
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Flat August Growth Keeps Larger Rate Cuts Likely for Bank of Canada
Canada’s economy showed no growth in August, according to preliminary data, as declines in manufacturing and transportation offset gains in oil, gas, and the public sector. This marked the third month of zero growth in six months, keeping the economy on track for just 1% annualized growth in the third quarter—well below the Bank of Canada’s 2.8% forecast. With inflation at the 2% target, markets now see a higher chance of a half-percentage-point rate cut at the next central bank meeting. Policymakers are increasingly focused on boosting growth after multiple rate cuts this year.
ECB Rate-Cut Expectations Rise as France, Spain Inflation Falls Below 2%
Inflation in France and Spain dropped below 2% in September, with prices rising just 1.5% and 1.7%, respectively, mainly due to lower energy costs. This has fueled speculation that the European Central Bank (ECB) may accelerate interest-rate cuts, with markets now pricing in an 80% chance of a quarter-point cut in October. Economists from Goldman Sachs, BNP Paribas, and Bloomberg Economics have adjusted their forecasts, now predicting a rate cut. However, the ECB has cautioned that inflation may pick up again later this year, with full stabilization expected by late 2025.
China Cuts Key Rate, Frees Up Bank Cash to Boost Growth
China’s central bank, the People’s Bank of China (PBOC), reduced the reserve requirement ratio (RRR) by 0.5 percentage points and lowered the seven-day reverse repurchase rate to 1.5% from 1.7%, as part of a major stimulus package to support the slowing economy. This move is expected to free up 1 trillion yuan ($143 billion) in long-term liquidity for banks, allowing them to lend more and invest in government bonds for infrastructure projects. The PBOC has vowed to implement further supportive policies to meet the country’s 5% growth target amid concerns about economic slowdown.
US Stock Futures Rise as PCE Inflation Hits ‘Sweet Spot’
US stock futures edged higher after the Fed’s preferred inflation gauge, the core PCE price index, showed a modest 0.1% rise in August. This cooling inflation boosted expectations for more Fed rate cuts. S&P 500 futures gained 0.2%, with Treasury yields falling to 3.76%. Analysts view the data as supportive of a soft landing for the US economy, as consumer spending and inflation remain stable. Meanwhile, European stocks rallied, driven by lower-than-expected inflation in France and Spain, increasing hopes for ECB rate cuts. Oil steadied, while gold and cryptocurrencies posted gains.
Oil Heads for Significant Weekly Loss Amid Supply Prospects from Saudi Arabia, Libya
Oil prices steadied after a sharp two-day decline, with Brent crude set for a weekly drop of over 4% and West Texas Intermediate below $68 per barrel. The market is reacting to expectations of increased output from OPEC members Saudi Arabia and Libya. Despite tensions in the Middle East, investors are focused on potential higher production, alongside concerns over China’s economic outlook. OPEC+ remains committed to balancing supply without overwhelming the market, though oil futures have experienced heightened volatility this week as geopolitical risks persist.
Apple Investors Unfazed by Tepid Demand for AI-Powered iPhone 16
Despite lukewarm initial demand for the iPhone 16, Apple shares have continued their upward trend, reflecting investor confidence in the company’s long-term growth. While pre-orders and lead times for the new AI-powered model have been cautious, Apple’s stock remains 40% above its April lows and just 3% below its all-time high. Analysts note that while the iPhone 16’s upgrade cycle hasn’t yet materialized, Apple’s predictable earnings, strong cash flow, and massive stock buybacks make it a safe haven for investors. However, the stock’s high valuation may expose it to risks if growth doesn’t accelerate as expected.
Canadians Seek ‘Human Connection’ as AI Expands in Banking
As AI takes over routine banking tasks, many Canadians express a desire for more personalized relationships with their financial institutions. A survey by Meridian Credit Union Ltd. revealed that 61% of respondents feel their bank doesn’t know them personally, while 46% want a closer, more human connection. Despite the convenience of AI, 87% prefer speaking with a real person for their banking needs, especially when dealing with complex financial matters. Gen Z, often seen as tech-savvy, is also concerned, with 56% worried about losing human interaction and 81% preferring human assistance for serious financial issues.
Meta Fined €91 Million by Irish Regulator Over Password Breach
Meta Platforms Inc.’s Irish branch has been fined €91 million ($102 million) by Ireland’s Data Protection Commission (DPC) following an investigation into the company’s storage of user passwords in plaintext without encryption. The issue, discovered during a 2019 security review, involved Meta storing passwords on its internal systems without proper cryptographic protection. While Meta reported no evidence of misuse, the DPC found multiple infringements of the GDPR. This fine follows a record €1.2 billion fine last year for Meta’s transfer of user data to the U.S., highlighting the EU’s ongoing tech privacy crackdown.
Canada’s Benchmark Stock Index Closes Above 24,000 for First Time
The S&P/TSX Composite Index, Canada’s main stock market benchmark, surpassed 24,000 points for the first time on Thursday, closing at 24,033.83. The 0.5% rally was driven by rising base metal prices following China’s stimulus plans, benefiting mining stocks. Gold miners also gained as bullion prices hit record highs amid expectations of continued Federal Reserve rate cuts. The index is up 15% year-to-date, rebounding from last year’s 16% drop. With Canada’s financial and materials sectors comprising over 45% of the index, strategists expect the rally to continue, despite economic and labor market challenges.
*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 September 30, 2024, will cover multiple industries, including travel, retail, food, apparel, and consumer goods:
Monday: Carnival (#CCL), a cruise line operator, will report earnings, with investors focusing on its performance amid the recovery in travel demand.
Tuesday: Sportswear giant Nike (#NKE) and HR services provider Paychex (#PAYX) will release earnings, providing insights into global consumer trends and the labor market.
Wednesday: Levi Strauss (#LEVI), a leading apparel brand, and Lamb Weston (#LW), a frozen foods company, will report earnings, highlighting the state of fashion retail and food supply chains.
Thursday: McCormick & Company (#MKC), known for its spices, and Acuity Brands (#AYI), a lighting solutions provider, will release earnings, shedding light on demand in the food and building lighting sectors.
Friday: Constellation Brands (#STZ), a beverage giant, along with Conagra Brands (#CAG) and United Natural Foods (#UNFI), will round out the week, offering insights into the consumer goods market.
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