News 2024-06-28

Dow Hits 43K, Nvidia Tops Apple

The recent surge in the U.S. stock market has created a sense of optimism among investors, as major indices recorded notable gains. On Monday, all three significant stock indices posted increases, with the S&P 500 comfortably solidifying itself above the 5800 point mark. This performance comes on the backdrop of investors eagerly anticipating key earnings reports from major corporations, coupled with critical economic data that could influence market trajectories.

As the trading day wrapped up, the Dow Jones Industrial Average surged by 201.36 points, representing a 0.47% increase and closing at 43,065.22 points. The Nasdaq Composite experienced an even more impressive rise, climbing 0.87% to finish at 18,502.69. The S&P 500, also on an upward trajectory, concluded the day up by 0.77%, settling at 5,859.86 points. The market's upward momentum was especially pronounced in the technology sector, where NVIDIA hit a historic peak.

However, despite this bullish sentiment, caution remains prevalent among Federal Reserve officials regarding future interest rate cuts. Two prominent members of the Fed recently expressed their reticence in making decisive moves concerning monetary policy adjustments. Neel Kashkari, President of the Minneapolis Federal Reserve, hinted at the likelihood of moderate interest rate decreases as inflation hovers near the central bank's 2% target. This careful approach reflects an understanding that while the market may be performing well, economic indicators are nuanced and require meticulous consideration.

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Another Federal Reserve official, Governor Christopher Waller, noted that recent economic data—including unexpectedly high consumer inflation reports and robust employment statistics—suggest that economic deceleration may not unfold as anticipated. “We do not want to overreact to data, but the broad indicators imply that monetary policy should tread carefully on the pace of rate cuts,” he commented. Analysts and investors are wary, understanding that premature moves could stifle the positive momentum witnessed in recent weeks.

This week, investors are poised to monitor several pivotal economic indicators, particularly the retail sales figures for September, set to be released on Thursday. These statistics are crucial as they will shed light on consumer financial health and spending behaviors, which could heavily influence the Federal Reserve's future decisions. Predictions surrounding a potential 25 basis point rate cut have surged, with the Chicago Mercantile Exchange's FedWatch tool indicating an 84.2% probability for the upcoming November meeting. The market's inclination appears to have shifted away from expectations of a more substantial, 50 basis point reduction.

The onset of earnings season has further galvanized market activity. To date, approximately 30 companies within the S&P 500 have disclosed earnings, with average results exceeding forecasts by around 5%. This delivers a more favorable narrative compared to the previous quarter, where the earnings beat rate stood at 3%. However, the Bernstein research firm's analysis suggests that the year-over-year growth rate for earnings per share this quarter is likely “far below” that of the prior quarter. Notably, this week alone will feature earnings announcements from 41 S&P 500 constituents, including titans like Bank of America, Citigroup, Johnson & Johnson, and Netflix, which are anticipated to hold significant sway over market sentiment.

In this earnings context, the London Stock Exchange's data indicates an estimated 4.9% year-over-year growth for S&P 500 companies in the third quarter. Market analysts, such as Michael James, Managing Director of Equity Trading at Wedbush Securities, opined that the current strength in banking profits is contributing positively to market performance, highlighting JPMorgan’s role as a leading force in creating an optimistic tone for the earnings season.

Yet, while the markets hover at historical peaks, they are not without risks. Rising U.S. Treasury yields, uncertainties surrounding Federal Reserve policy easing, and escalating geopolitical tensions, particularly in the Middle East, create a volatile landscape for investors. Ross Mayfield, an investment strategist at Baird, cautioned that the prevailing market sentiments at these lofty levels could provoke volatility. However, he remains optimistic over a three to six-month horizon, betting on lowered interest rates, a soft landing for the economy, and continued profit growth.

Turning our attention to individual stock performances, the Philadelphia Semiconductor Index hit a two-month high, driven by NVIDIA breaking its previous record of market valuation, surpassing even Apple to claim the top spot in the U.S. market. Other tech growth stocks, including Alphabet (Google's parent company), Apple, Microsoft, and Tesla, saw their shares rise between 0.6% and 1.6%, while prominent companies like Amazon and Intel experienced slight declines.

On the downside, Caterpillar’s shares fell by 2% following Morgan Stanley’s decision to downgrade its assessment of the equipment manufacturer from “Equal Weight” to “Underweight.” Such downgrades underscore the sensitive nature of the market and highlight how swiftly analysts adapt to evolving company performance narratives. Boeing also saw its stock drop by 1.3%, reacting to a more significant-than-expected third-quarter loss, and the announcement of substantial layoffs affecting 17,000 employees, alongside a delay in the delivery of its new 777X aircraft.

The NASDAQ Golden Dragon China Index saw a decline marginally exceeding 2%. Key Chinese players in the U.S. market, including Alibaba (down 2.1%) and Baidu (down 4.5%), faced notable challenges, while JD.com managed to increase its value by 0.7%. This mixed performance highlights the ongoing complexities faced by Chinese firms operating within U.S. markets, as regulatory scrutiny and other operational hurdles persist.

Interestingly, B.Riley Financial witnessed an impressive 23.5% surge in its share price following the announcement that it would sell its subsidiary, Great American Group, to Oaktree Capital for approximately $386 million, showcasing the potential for significant gains through strategic adjustments in business direction.

Finally, the international oil market experienced some bearish trends, with OPEC+ revising down its global demand growth forecast for the coming years. WTI crude futures dipped by 2.29%, settling at $73.83 a barrel, while Brent crude futures fell by 2.00% to $77.46 per barrel. Likewise, international gold prices saw a slight retreat, with the October COMEX gold futures contract down by 0.37%, concluding at $2647.80 per ounce.

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