Is an interest rate cut good or bad for markets?

Thoughts of the Day

It depends. While higher interest rates typically lead to lower stock markets, the market remains near all-time highs despite reduced expectations for interest rate cuts for this year (from 1.75% in January to currently 0.50%). This is due to strong economic performance and the AI boom driving the market higher. Therefore, understanding the current environment is crucial.

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Day Ahead

Advanced print for US GDP Growth Rate (expected: +2.5% in Q1’ 24, prev:+3.4% Q4’ 23)Earnings: American Airlines (AAL), Mobileye Global (MBLY), Microsoft (MSFT), Alphabet (GOOGL), Intel (INTC), Snap (SNAP)

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What Happened Yesterday

Market Movements as of New York Close 24 Apr 24

The US Treasury Yield curve steepened with the inversion falling to 0.28% as the US 2-year bond yield fell -0.01% to 4.92% while the 10-year yield rose +0.03% to 4.64%.

The US stock futures rose through the early Asian session after Tesla announced the earlier production of more affordable EV models. The S&P 500 futures rose +0.26% to a peak of 5128.75. It then started to fall -0.23% from the highs to reach 5116.25 when the New York session began.

The US stock market opened higher from Tuesday (S&P 500: +0.28%, Dow Jones: +0.13%, Nasdaq: +0.81%). It lingered higher at the opening hours before selling off as the day progressed. The selloff was partly due to Israeli strikes on Southern Lebanon (headline 1) as geopolitical tensions remain high. The S&P 500 finished +0.02% on the day (high: +0.37%, low: -0.46%), the Dow Jones lost -0.11% (high: +0.13%, low: -0.50%) while the Nasdaq gained +0.32% (high: +1.04%, low: -0.21%) after rallying more than 1% earlier in the trading session.

Meta Platforms, formerly known as Facebook, (NASDAQ: META, -15.13%) sold off in aftermarket trading despite beating earnings expectations as CEO Mark Zuckerberg spent much of the earnings call talking about Meta’s AI and metaverse – the ways in which the company is losing money. Meta’s Reality Labs posted a -$3.85 billion loss in Q1’ 24. Earnings: $4.71 vs $4.32 expected, Revenue: $36.46 billion vs $36.16 billion expected. Advertising revenue in the Asia-Pacific region increased 41% from a year earlier due to increased ad spending by Chinese retailers.

As a result, S&P 500 futures is down -0.61% while Nasdaq futures sold off -1.11% in after-market trading hours.

The crypto market sold off on a day of risk aversion.
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Headlines & Market Impact

Israeli strikes hit southern Lebanon as cross-border fire escalates

Notable Snippet: The Israeli military said artillery and fighter jet strikes had hit around 40 targets in southern Lebanon on Wednesday as the intense fighting of recent days continued to escalate, with Hezbollah firing dozens of rockets at an Israeli border village.

The Iran-backed Hezbollah and Israel have been waging their worst hostilities in nearly two decades since war erupted in Gaza last October, stirring concern about the risk of a wider and more destructive conflict between the heavily armed foes.

The Israeli military said the strikes in the area of Ayta al-Shaab, about 3 km (1.6 miles) inside the Lebanese border, had hit infrastructure including storage facilities and weapons in an area it said was used extensively by Hezbollah forces.

“There is continuous offensive action by IDF forces in all of southern Lebanon as well as in other parts of Lebanon. The operational results are very impressive,” Israeli Defence Minister Yoav Gallant said in a statement following an operational meeting at the military’s Northern Command.

He said half of Hezbollah’s commanders in southern Lebanon had been killed by Israeli forces.

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Microsoft’s AI lead puts Amazon cloud dominance on watch

Notable Snippet: Upcoming quarterly reports from U.S. tech giants may show Microsoft (MSFT.O) is closing the gap on cloud-computing market leader as more businesses switch to its services, attracted by a clutch of generative AI features that are powered by OpenAI’s technology.

The Redmond, Washington-based software giant has beaten rivals Amazon (AMZN.O) and Google-parent Alphabet (GOOGL.O) to the market with AI services including the Copilot, a set of genAI tools that work in Microsoft’s business apps, that was rolled out in November for $30 a month.

Its earnings on Thursday will be an indicator of AI adoption and could influence the movement of technology stocks as a rally in the sector eases this month amid worries that interest rates in the U.S. could stay high for longer.

Wall Street analysts expect Microsoft – which overtook Apple as the world’s most valuable firm earlier this year – to report that the billions of dollars it has invested in generative AI were attracting clients to its Azure cloud-computing service.

“Azure is benefiting from a halo effect around Microsoft’s AI strategy,” said RBC Capital Markets Rishi Jaluria, who expects Microsoft to take Amazon’s market share.

Jaluria added that cloud providers should broadly benefit from signs of stabilisation in technology spending, which has been pressured by high-interest rates and economic uncertainty.

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Biden signs Israel, Ukraine, TikTok bill into law

Notable Snippet: President Joe Biden on Wednesday signed into law measures to provide aid to Israel, Ukraine and Taiwan, as well as to compel Chinese TikTok parent company ByteDance to sell the social media platform or face a national ban.

Biden’s official approval ends a six-month saga of tense political battles on Capitol Hill that led to a deadlock on the issue of foreign aid.

TikTok has already vowed to fight the measure.

“This unconstitutional law is a TikTok ban, and we will challenge it in court,” the company wrote in a Wednesday statement on X following Biden’s signing.

“This ban would devastate seven million businesses and silence 170 million Americans,” the company added in its statement.

Despite Biden’s official support of the TikTok bill, his 2024 reelection campaign told NBC News Wednesday that it would continue using the social media platform to reach voters for at least the next year. Notably, the nine-month to one-year deadline for ByteDance allows it to maintain ownership of TikTok through the November election.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord