Financial Markets – Page 2 – Digital Finance Analytics (DFA) Blog

DFA Live Q&A HD Replay: Investing Now: With Damien Klassen

This is an edited version of a live discussion with Damien Klassen, Head of Investments at Nucleus Wealth and Walk The World Funds. Given the strength of the markets in recent days, and the China stimulus programme, what’s ahead, and how should you position given the level of volatility and uncertainty out there?

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Go to the Walk The World Universe at https://walktheworld.com.au/

Stars Align To Create A Bubble Dream; But Is A Nightmare Around The Corner?

This is our weekly market update where we review the market action starting in the US, then Europe, Asia, and Australia and also cover commodities and crypto along the way. This is a data packed segment, so be warned!

This week markets drove higher, pretty much across the board, thanks to the fall out from the Federal Reserve is slashing interest rates, more benign US economic data and China finally moving more determinedly to bolster growth as China’s central bank lowered interest rates and injected liquidity into the banking system, and with more fiscal measures expected to be announced before a week-long Chinese holiday starting on Oct. 1. Listed shares of Chinese companies jumped on the latest series of stimulus measures from Beijing to boost the domestic economy, including those on international markets.

As a result, we saw upswings in markets across the globe, and this despite weaker oil prices and rising conflict in the middle east. MSCI’s gauge of stocks across the globe rose 0.25%, to an intraday record high. Europe’s benchmark STOXX 600 index closed at a record high, ending up 0.5% at 528.08. China’s blue chips jumped 4.5%, bringing their weekly rise to 15.7%, the most since November 2008. Hong Kong’s Hang Seng index also gained 3.6% and was up 13% for the week, its best performance since 1998.

The Dow Jones Industrial Average rose 0.33%, to 42,313.00, the S&P 500 fell 0.13%, to 5,738.17 and the Nasdaq Composite fell 0.39%, to 18,119.59. All three major U.S. stock indexes posted a third straight week of gains. Nvidia’s 2.2 per cent decline was the reason for the S&P 500 and Nasdaq slipping on Friday, pointing to a report that China is urging local companies to stay away from its chips. The NASDAQ Golden Dragon shot to 7.236.16 while the Russell 2000 was at 220.33.

The best performer of the session on the Dow Jones Industrial Average was Chevron Corp (NYSE:CVX), which rose 2.47% while the worst performers of the session was Amazon.com Inc (NASDAQ:AMZN), which fell 1.67 and International Business Machines (NYSE:IBM) was down 1.16% to 220.84.

“It’s a bubble dream,” according to Bank of America equity strategist Michael Hartnett. His data had another $US10.9 billion flowing into US equities in the week ended September 25.

“Fed cutting into recession is negative for risk assets, but Fed cutting with no recession is positive and investors firmly of the view Fed and China is sufficient policy easing to short-circuit recession risk,” Hartnett wrote.

So in the context of overvalued stocks, markets are still betting on higher ahead, which is quite possible but before the surface there are significant cross currents and risks. So volatility will remain the watch word, and the bubble dream might yet turn to nightmare. We will see.

Damp Squib Of A Rate Cut Has Markets On Watch!

This is our weekly market update, designed to help me digest what is happening, starting in the US, probably the most consequential market in the world, then we move to Europe, Asia and end in Australia and also cover commodities and crypto on the way.

On Friday shares on Wall Street were mixed in a narrow range as investors continued to assess the outlook for US interest rates. Why 50 basis points, not 25, and was this a minor course correction, aimed at bringing a soft economic landing, or a sign the FED had left things too long and was trying to head off a lurking recession risk? And was there a hint of political here ahead of the US election? It’s really not clear. And as for that mythical R star – the level at which rate neither detract from, or add to growth, remains like the quest for the holy grail.

One top Federal Reserve policymaker signalled a willingness to cut rates at a fast pace. Federal Reserve governor Christopher Waller told CNBC that “inflation is running softer than I thought”. He’s now estimating that the Fed’s favoured gauge of inflation — the personal consumption expenditures price index — has risen over the last three months at an annualised rate of less than 1.8 per cent, which is below the Fed’s target of 2 per cent.

But separately, Federal Reserve governor Michelle Bowman said she was concerned this week’s 50-basis-point rate cut was “premature”, countering expectations of another similar move anytime soon. “I believe that moving at a measured pace toward a more neutral policy stance will ensure further progress in bringing inflation down to our 2 per cent target.” Bowman dissented at this week’s meeting, the sole policymaker to do so, voting for a quarter of a percentage point reduction instead.

We know the FED will continue to be data dependent and next week’s US data highlight will arrive on Friday with August’s PCE report.

Gold’s reaction to the most-dovish Fed decision in years proved lackluster. Futures were last at 2647.20, up 1.39% across the week. Plenty of traders thought gold would surge after an outsized rate cut birthing a new cutting cycle. And with top Fed officials projecting many more cuts, it is going to be big. Gold did rally initially on that revelation, but quickly reversed into a larger intraday loss. Fed rate cuts are bullish for gold, but speculators’ gold-futures positioning is overextended.

Australian shares scaled another record high on Friday, tracking a global wave of optimism that the US Federal Reserve will deliver a much-hoped-for soft landing for the world’s largest economy. The S&P/ASX 200 Index added 0.2 per cent to 8209.5, the highest closing level in its history. It climbed to an intraday peak of 8246.2 – setting a record for the sixth straight session. On the week, it gained 1.3 per cent.

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The Rate Cut Dance Begins; But You’re Not Invited!

To the surprise of no one the Federal Reserve cut its benchmark interest rate on Wednesday as signalled in my earlier post, and they went for the more aggressive half percentage point. The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years. Governor Michelle Bowman dissented in favor of a smaller, quarter-point cut — the first dissent by a governor since 2005 and the first dissent from any member of the FOMC since 2022.

The impact of the first cut from the FED echoed through global markets. But remember that the FED shift lower to 4.75% to 5% probably won’t impact the Bank of England’s latest rate decision, which will most likely be a hold, following last month’s cuts.

So far as Australia is concerned, the new FED rates are still significantly higher than the RBA’s weak 4.35%, and inflation in Australia is running much hotter as a result. The data flows in Australia also suggests no reason for the RBA to cut anytime soon, as for example the the unemployment rate was steady at 4.2 per cent in August, according to seasonally adjusted data released today by the Australian Bureau of Statistics.

And another data point from the ABS showed that Australia’s population grew by 2.3 per cent to 27.1 million people in March 2024. Our population at 31 March 2024 was 27.1 million people, having grown by 615,300 people over the previous year. Net overseas migration drove 83 per cent of this population growth, while births and deaths, known as natural increase, made up the other 17 per cent.

I don’t thing the FED’s move based on inflation at 2.2% there has much relevance in the short term in Australia. Were it not for the massive flood of migrants and the job creation programmes funded by state and federal government, we would probably be in a recession, and rate cuts would already be in play. But the brutal truth is Government policy is keeping rates higher for longer.

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Go to the Walk The World Universe at https://walktheworld.com.au/

Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, whilst covering commodities and crypto on the way. I do this to keep track of what is going on in today’s complex markets, so expect lots of data not superficial waffle. You have been warned. If that’s not for you, then look elsewhere for more cute cats!

We are, it seems, at the pointy end of the FED’s decision to cut rates when they meet next week as US shares rallied on renewed expectations that they could opt for a half percentage point cut. Futures have it as 50/50 for a half or quarter point cut, but everyone is now expecting the first of several ahead.

While the renewed hopes for a bigger cut were boosting large cap indexes on Friday the optimism seemed most evident in the Russell 2000 small cap index (RUT), which rose 2.5% on the day and 4.4% for the week. Smaller companies are more sensitive to rate changes as they depend more on borrowed money and floating rate loans.

The Dow Jones Industrial Average rose 0.72%, to 41,393.78, the S&P 500 gained 0.54%, to 5,626.02 and is just 1% shy of its July record while the Nasdaq Composite gained 0.65%, to 17,681.55. The potential for a large rate cut helped drive utilities, materials and industrials higher. Twenty-four of the Dow’s 30 components were higher; Techs mostly lagged.

All three major U.S. benchmark indexes ended close to roughly two-week highs and logged solid weekly gains. For the week the S&P 500 rose 4.02% and the Nasdaq climbed 5.95%, with both marking their biggest weekly percentage gains since early November. The Dow added 2.60% for the week.

European stocks rounded off the week on a positive note, supported by technology, real estate and mining shares, while investors shifted their focus to the U.S. Federal Reserve ahead of a long-awaited monetary easing at its meeting next week. Technology and real estate gave the market its biggest boost, followed by miners that advanced 1.3%, as copper prices hit a two-week high on buying ahead of a Chinese holiday and amid stimulus hopes.

Australian shares extended gains on Friday, but stopped short of a closing high as a drag in banks offset a strong push in mining stocks as commodity prices rose. The benchmark S&P/ASX 200 ended up 0.3 per cent to 8099.9, bringing weekly gains to 1.1 per cent.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

DFA Live Q&A HD Replay: Investing Now: With Damien Klassen

This is an edited version of a live discussion with Head of Investments At Walk The World Funds And Nucleus Wealth, Damien Klassen as we review the past volatile month and talk about what is ahead for the markets.

Original show here with chat: https://youtube.com/live/SSvtwrLRNEw

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.

Markets Gain Ground Despite Choppy Trading!

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia. And let me say this is a calm and methodical summary, not a shouty content light thing which might be all the rage on some social media, but which for me does not cut the mustard, as I use this to help me understand what is really going on.

Well riotous August ended with global stocks edging higher in choppy trading on Friday, making it the fourth consecutive month of gains. MSCI’s world share index rose 0.77%, for a 2.40% monthly gain. This despite some questions over AI leading to a broadening of interest in other sectors, a bout of heavy selling in early August, and more support for gold as a safe haven. All this despite U.S. economic data that helped the dollar snap a weeks-long losing streak. US markets will be closed on September 2 for the Labor Day holiday so we can expect rudderless trading on Monday.

The S&P 500 ended the final session of the week higher, with a late spike, as the latest batch of data pointed to an ever-resilient US consumer, potentially slowing the pace of rate cuts. The benchmark S&P 500 closed August with a 2.3 per cent gain for the month. It’s now up 18.4 per cent so far this year and is within 0.4 per cent of the all-time high it set in July.

In Europe the Stoxx index closed up 0.09% after touching a record intraday high while Britain’s FTSE index hit over a three-month high on Friday, clocking gains for the topsy-turvy month, with real estate shares in the lead as interest rate-cut hopes held firm, while energy shares tumbled on demand concerns, capping intra-day gains. It still registered its second straight monthly gain and third consecutive weekly advance.

In Asia, Asian stocks rose on Friday as technology stocks recovered from Nvidia-induced losses, while month-end bargain buying saw Chinese shares rebound from more-than six-month lows. But most regional markets were still headed for a loss in August, as they struggled to recover from debilitating losses clocked at the beginning of the month.

The Australian share market finished near a record high on Friday, as higher oil prices and a final flurry of better than expected results from earnings season helped secure the benchmark’s third straight week of gains.

But once again, more questions than answers.

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Go to the Walk The World Universe at https://walktheworld.com.au/

Rate Cuts Incoming: But Be Careful What You Wish For!

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, while covering commodities and crypto on the way.

Weird though it seems, a short speech given by an elderly gentleman in a valley and wilderness recreation area in western Wyoming had the markets on edge all week, following the fall then rise of markets this past few weeks. The mini-stroke that roiled global markets a few weeks ago is a fading memory, with the market resuming its steady march higher; the S&P 500 is now up 19 per cent for the year, and almost 37 per cent from last November, when the current bull market rally really got going.

Of course we are talking about FED Chair Jerome Powell, and his speech at Jackson Hole as part of the Central Bankers’ summer love-in on Friday. Just four minutes and 50 seconds into his speech, he gave the market what it wanted to hear.

“The time has come for policy to adjust,” the Federal Reserve chairman said in his long-awaited speech at the Fed’s annual Jackson Hole symposium.

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

As always, the markets heard what they wanted to hear, and acted accordingly, Wall Street leapt higher and bond yields fell.

At the close in NYSE, the Dow Jones Industrial Average added 1.14% to hit a new 1-month high, while the S&P 500 index climbed 1.15%, and the NASDAQ Composite index climbed 1.45%.

But while the rate cut signal is now clear, should markets rally? You may want to reflect on this. In the first 200 days following the first rate cut, equities typically decline by 23 per cent on average. The start of the rate cycle signals the beginning of a deterioration in growth and profits.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Return To Plan A (For Now) Says The Market As New Data Swings!

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, while also covering the action in commodities and crypto along the ways.

My analogy of traders on a boat, running from one side of the deck to the other still holds, as the recession iceberg melts away for now, and an immaculate US soft landing is back in vogue. The change in sentiment was driven by a flurry of data which showed US economic resilience, and this drove stocks to their best week this year, coupled with dip buyers stepping in after the recent rout. So, Wall Street posted its best seven-day run in almost two years while the VIX slid back to 14.80.

Of course, traders have struggled to forecast where the economy is headed – and the recession fears that helped drive the recent pullback could resurface again just as quickly as they faded. On top of that, the US elections and geopolitical tensions are adding other elements of uncertainty.

But beneath the surface, there are some reassuring signals. Specifically, the latest jobs data was better than previous ones, the CPI data showed a drift in the right direction, along with producer prices, consumer sentiment improved with the August University of Michigan consumer sentiment survey reading of 67.8, up from July’s 66.4. and retail sales were up. Just don’t mention the poor construction data with weak July housing starts and building permits data. Central bankers are being quote, data dependent, so no surprise then when new data arrives traders change tack.

Federal Reserve Bank of Chicago President on Friday told National Public Radio that the U.S. economy is not showing signs of overheating, so central bank officials should be wary of keeping restrictive policy in place longer than necessary. “You don’t want to tighten any longer than you have to,” Goolsbee said. “And the reason you’d want to tighten is if you’re afraid the economy is overheating, and this is not what an overheating economy looks like to me.”

Note also the earlier selloff hit a relatively small slice of the market, with nowhere near the breadth of the routs set off by the Fed’s rate hikes, the pandemic and other pivotal events. And while valuations are at risk of another recalibration if the economy does wind up sputtering, the S&P 500 during the recent retreat held above a threshold that – to technical analysts, at least – telegraphs investors’ continued confidence.

The Dow ended up 0.24%, the S&P 500 rose to around 5,555 up 0.2% For the year, the S&P 500 is up more than 16% and is within about 2% from its July all-time closing high. The NASDAQ rose 0.2%. Most megacaps gained, with Nvidia leading the charge, up 1.4% and has bounced more than 20%, while the Philadelphia SE Semiconductor index has gained more than 14% from recent lows. Small-cap shares, which had been strong performers in July, have also recovered from recent lows, with the Russell 2000 up nearly 5%. Nike had its longest winning streak in more than eight years and up 0.88% on the day though Applied Materials sank 1.86% after a sales forecast that disappointed investors looking for a bigger payoff from artificial intelligence spending. If you are an AI fan, like Wedbush, then the outlook looks rosy, saying the tech sector is on the brink of substantial growth, underpinned by the expanding influence of AI. Just remember Cisco, though. The firm emphasized the foundational role of cloud and AI technologies in the ongoing “4th Industrial Revolution.”

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/