The bears are confused

Thoughts of the Day

We have been expecting the market to relentlessly climb the wall of worry, and Nasdaq demonstrated that in style by soaring to new all-time highs, defying market expectations. The market did try to briefly dipped (1% from the highs) when a Fed official pushed back against market’s expectations of a March interest rate cut. However, the selling did not last as investors bought the dip, showcasing the market’s resilience. The market is trending, join the trend or step aside.

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The US University of Michigan Consumer Sentiment data will be released.

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What Happened Yesterday

Market Movements as of New York Close 18 Jan 24
  • The Japanese CPI showed that prices rose +2.6% Year-on-Year in December, the lowest figure since July, falling from +2.8% in November. The core index rose +2.3% YoY as expected, down from +2.5% in November. The JPY weakened in reaction to the data print with the USDJPY rising +0.19% to 148.31 from 148 because weaker inflation data gives the Bank of Japan more justification to keep printing money and stick to its negative interest rate policy.
  • The ECB Monetary Policy Meeting Minutes emphasised the need for the ECB to remain data-dependent for its monetary policy trajectory. It also stated that it is too early to be confident that the inflation battle has been won and that caution was warranted, as inflation would probably pick up in the near-term.
  • The US Treasury Yield curve inversion narrowed to 0.20% as the US 2-year bond yield remained at 4.34% while the 10-year yield rose +0.04% to 4.14%. 
  • The US stock futures traded within a range through the Asian and early London trading sessions. However, stock futures started to swing higher through the mid London trading session due to an outlook upgrade on Apple stock (+3.26% on the day) by Bank of America with more than 20% upside going forward. The S&P 500 futures were up +0.38% on the day before the New York session began.
  • The US stock market opened higher from Tuesday. It then traded slightly lower before the stock market started to rally hard due to optimism over the tech sector. Consequently, the S&P 500 rose +0.88% on the day (high: +0.98%, low: +0.03%), the Dow Jones gained +0.47% (high: +0.69%, low: -0.39%) while the Nasdaq spiked +1.47% (high: +1.56%, low: +0.49%). The Nasdaq is currently trading at all time highs. The S&P 500 and the Dow Jones Index are currently -0.45% (4802.40) and -0.98% (37,825.27) away from all time highs respectively.
  • The crypto market continues to fall as the market continues to sell on the news of the Bitcoin ETFs approval after the fact.
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Headlines & Market Impact

Fed’s Raphael Bostic expects rate cuts to happen in the third quarter

Notable Snippet: Bostic, a voting member this year on the rate-setting Federal Open Market Committee, asserted that the goal ahead is to calibrate policy to be not so restrictive as to choke off growth while still acting as a bulwark against persistently elevated prices.

However, he said a “golden path” scenario of tamping down inflation while promoting solid growth and healthy employment is getting closer than many Fed officials had expected.

“Because I’m data dependent, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and thus moved up my projected time to begin normalising the federal funds rate to the third quarter of this year from the fourth quarter,” Bostic said in prepared remarks for a speech to business leaders in Atlanta.

While the remarks help illuminate a timeline for rate cuts, they also serve as a reminder that Fed officials and market participants have different expectations about policy easing.

Bostic said he’s not dead set against cutting earlier than the third quarter, implying a move in July at the earliest, but said the bar will be high.

“If we continue to see a further accumulation of downside surprises in the data, it’s possible for me to get comfortable enough to advocate normalisation sooner than the third quarter,” he said. “But the evidence would need to be convincing.”

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US weekly jobless claims at 16-month low; homebuilding takes breather

Notable Snippet: The number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 1-1/2 years, suggesting job growth likely remained solid in January.

The unexpected decline in initial claims reported by the Labor Department on Thursday added to strong retail sales growth in December in painting an upbeat picture of the economy, and could make it difficult for the Federal Reserve to start cutting interest rates in March as financial markets anticipate.

“The labour market remains strong and reinforces our view that the Fed is likely to hold rates at current levels until the middle of 2024,” said Eugenio Aleman, chief economist at Raymond James.

Initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 187,000 for the week ended Jan. 13, the lowest level since September 2022. Economists polled by Reuters had forecast 207,000 claims for the latest week.

The claims data covered the period during which the government surveyed employers for the nonfarm payrolls component of January’s employment report.

Claims fell between the December and January survey period, suggesting that strong job growth persisted this month. The economy added 216,000 jobs in December.

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Nvidia and AMD shares hit record highs on AI chip surge

Notable Snippet: AMD and Nvidia hit all-time highs on Thursday as investors continue to clamour for shares of the companies building chips that power artificial intelligence.

AMD shares rose over 1% during trading on Thursday to reach its highest-ever closing price, $162.67, while Nvidia, rose just under 2% to $571.07. Both companies have notched double-digit percentage gains to start the year after an explosive 2023 in which AMD shares popped 127.6% and Nvidia stock rocketed 238.8%.

The record valuations reflect continued investor interest and hunger for companies that design and sell graphics processors for artificial intelligence. GPUs were originally designed to play computer games. But they’re also essential for training and deploying intricate AI models like OpenAI’s GPT, leading to a massive surge in sales for the chips.

Investors are increasingly bullish on AMD, the second-largest standalone GPU maker. The company announced last year a new chip that could compete with Nvidia’s H100, which is currently the standard for AI applications.

Analysts also see AMD improving its AI software, eliminating one major reason why Nvidia chips were preferred over AMD’s.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord