New All-Time Highs again!

Thoughts of the Day

The major US stock indices, S&P500 and Nasdaq, continue to charge to new all-time highs. It was a slow news day but that’s what happens in a bull market. Stocks can just grind higher without a real clear reason. Sure, the US ADP Employment report showed that the jobs market was not as strong as expected (+152K jobs added vs +175K expected) but the difference is just noise and within the range of revisions for this data point. 

In other news, the Bank of Canada cut interest rates by 0.25% from 5.00% to 4.75%, becoming the first of the major central banks to cut interest rates. They expressed confidence that inflation will continue to head lower towards its 2% target. The European Central Bank is likely to follow suit later today. This could be a strong indication that disinflation is going to continue in the major economies in the weeks ahead.

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Day Ahead

European Central Bank Monetary Policy Decision (Rates expected to lower to 4.25% vs 4.50% current)

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What Happened Yesterday

Market Movements as of New York Close 5 Jun 24

The Bank of Canada Monetary cut interest rates by 0.25% to 4.75% from 5.00% as expected. The central bank also indicated that additional rate cuts may be implemented if inflation continues to decline as anticipated. It expressed increased confidence that inflation is approaching the 2% target, justifying a less restrictive policy.

US ADP Employment Change showed that +152k jobs were added to the US economy in May (vs +175k expected). The data for April was revised to +188k from 192k. The labour market is showing signs of more moderation in growth. The US 2 year bond yield and 10 year bond yield fell -0.05% as a result.

The US stock market opened slightly higher from Tuesday. It then weakened slightly at open before powering higher through the rest of the New York session. The S&P 500 rose +1.18% (high: +1.19%, low: +0.12%), the Dow Jones increased +0.25% (high: +0.34%, low: -0.42%) while the Nasdaq climbed +2.04% (high: +2.04%, low: +0.61%). The S&P 500 and NASDAQ reached all-time highs of 5,354,03 and 10,035.05 respectively.

The crypto market remained within a small range yesterday despite the improvement in risk sentiment yesterday. BTC was up less than 1% and ETH rose almost 1.5%. 
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Headlines & Market Impact

Biden’s airing of Gaza ceasefire proposal pushes Netanyahu toward a deal

Notable Snippet:  When U.S. President Joe Biden publicly aired a Gaza ceasefire proposal developed by Israel and the United States and sent to Hamas, he made the announcement without seeking agreement from Israeli Prime Minister Benjamin Netanyahu, said three U.S. officials with knowledge of the matter.

The decision to announce unilaterally – an unusual step for the United States to take with a close ally – was deliberate, officials say, and narrowed the room for Israel or Hamas to back away from the deal.

“We didn’t ask permission to announce the proposal,” said a senior U.S. official, who was granted anonymity to speak freely about the negotiations.

“We informed the Israelis we were going to give a speech on the situation in Gaza. We did not go into great detail about what it was.”

For months, negotiators from the US, Egypt and Qatar have been trying to mediate an end to the conflict that has killed tens of thousands, but a deal has proven elusive.

The proposal announced Friday calls for an initial six-week ceasefire with an Israeli military withdrawal from populated areas of Gaza and the release of some hostages while “a permanent end to hostilities” is negotiated through mediators.

It seeks to build on a deal Hamas accepted earlier this year by keeping a ceasefire in place as negotiations continue, with the aim of reaching a permanent cessation of hostilities, a long-standing Hamas demand.

Biden’s announcement and his framing of the proposal as a deal “Israel has offered,” was intended to raise hopes for a ceasefire and put pressure on Netanyahu, said Jeremi Suri, a history and public affairs professor at the University of Texas at Austin.

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US services sector activity rebounds while private payrolls growth slows

Notable Snippet: The U.S. services sector snapped back into growth mode in May after a short-lived contraction in the prior month, with a measure of business activity improving by the most in three years, according to a survey published on Wednesday that may buttress the Federal Reserve’s wariness of a shift to interest rate cuts.

At the same time, a gauge of hiring among private employers showed firms last month added the fewest jobs since January and small businesses shed jobs for the first time in six months, fresh signs that a tight labour market is easing back into balance.

Together, the reports from the Institute of Supply Management and payrolls processor ADP paint a mixed picture of an economy that by and large continues to withstand the hefty rate increases imposed by the Fed, although evidence is building that growth may be ebbing.

While that may the case – overall economic output in the first quarter grew at the slowest rate in nearly two years and data so far in the current quarter on balance has been softer than expected – they are unlikely on their own to be sufficient to turn Fed officials any time soon from their central focus on containing stickier-than-anticipated inflation.

ISM said its non-manufacturing purchasing managers index rose to 53.8 last month from 49.4 in April. The reading in May, the highest since last August, topped the estimates of the 59 economists in a Reuters poll that had pegged the median expectation at 50.8, just above the 50 level that separates growth from contraction.

The report’s business activity index shot up 10.3 points, the largest rise since March 2021 and vaulting it to 61.2, the highest level since November 2022.

New orders growth reaccelerated after easing in the prior two months and a measure of services input costs eased. Employment, while improved from April’s four-month low, remained in contraction territory at 47.1.

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Nvidia hits $3 trillion market cap on back of AI boom

Notable Snippet: Nvidia shares closed up 5% to $1,224.40 on Wednesday, giving the company a market cap above $3 trillion for the first time as investors continue to clamour for a piece of the company at the heart of the boom in generative artificial intelligence.

Nvidia also passed Apple to become the second-largest public company behind Microsoft.

Nvidia’s milestone is the latest stunning mark in a run that has seen the stock soar more than 3,224% over the past five years. The company will split its stock 10-for-1 later this month.

Apple was the first U.S. company to reach a $3 trillion market cap during intraday trading in January 2022. Microsoft hit $3 trillion in market value in January 2024. Nvidia, which was founded in 1993, passed the $2 trillion valuation in February, and it only took roughly three months from there for it to pass $3 trillion.

In May, Nvidia reported first-quarter earnings that showed demand for the company’s pricey and powerful graphics processing units, or GPUs, showed no sign of a slowdown. Nvidia reported overall sales of $26 billion, more than triple what it generated a year ago. Nvidia also beat Wall Street expectations for sales and earnings and said it would report revenue of about $28 billion in the current quarter.

Nvidia’s surge in recent years has been powered by the tech industry’s need for its chips, which are used to develop and deploy big AI models such as the one at the heart of OpenAI’s ChatGPT.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord