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

Rotation To A “Tech-Wreck” Replay?

My Saturday show highlighted the start of the rotation from tech stocks to the broader market, as exemplified in the trends in the NASDAQ and the Small Caps 2000. This trend has continued, and on Wednesday it went into overdrive as the world’s largest technology companies got hammered as concern about tighter US restrictions on chip sales to China spurred a selloff in the industry that has led the bull market in stocks.

I was around for the dot-com bubble, a stock market bubble that ballooned during the late-1990s and peaked on Friday, March 10, 2000. This period of market growth coincided with the widespread adoption of the World Wide Web and the Internet, resulting in a dispensation of available venture capital and the rapid growth of valuations in new dot-com startups.

One common theme is “its different this time”. You cannot apply normal valuation rules, they do not apply. Well, of course the recent AI trends have been driven by confidence of a new business era, and people again are talking about new rules, despite the fact that companies like NVIDA have sold the lions share of their cards to established and cashed up big tech companies like Microsoft, and others in a weird feedback loop. The real benefits of AI for normal downstream businesses are still to come.

So are we seeing the start of another tech-wreck? I think its too soon to tell.

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Digital Finance Analytics (DFA) Blog

Rotation To A “Tech-Wreck” Replay?

00:00 / 00:09:37

Our Economic Update For July!

This is my quick economic summary for July, where I look over the recent data highlight some of the key questions ahead.

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Digital Finance Analytics (DFA) Blog

Our Economic Update For July!

00:00 / 00:12:03

Oil Up, And Bitcoin Down On Independence Day!

The US markets are closed Thursday, on July 4th, but there were a couple of significant developments across Oil and Bitcoin nevertheless this week.

Firstly, Bitcoin The world’s biggest cryptocurrency took little support from weakness in the dollar, which fell amid increased bets on interest rate cuts by the Federal Reserve, as the Bitcoin price fell sharply to a two-month low on Thursday, breaking past a key support level thanks to uncertainty over several points of selling pressure, chiefly defunct exchange Mt Gox, saw traders remain averse towards the token. Broader crypto prices also followed Bitcoin lower.

Elsewhere, Oil prices fell from two-month highs in Asian trade on Thursday, as traders collected some profits from a strong run-up this week, while soft U.S. economic data raised some concerns over long-term demand.

But prices were still relatively buoyant after a substantially bigger-than-expected drawdown in U.S. inventories, while persistent conflict in the Middle East also kept a risk premium in play.

While the volatility in Bitcoin might be considered a side-show, the recent moves higher in Oil are more significant, and if held, will translate into higher prices and inflation down the road. The current geo-political uncertainties and electoral uncertainties are haunting markets, even though the NASDAQ hit another high. Something will need to give, eventually.

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Digital Finance Analytics (DFA) Blog

Oil Up, And Bitcoin Down On Independence Day!

00:00 / 00:07:19

Oil Up, And Bitcoin Down On Independence Day!

The US markets are closed Thursday, on July 4th, but there were a couple of significant developments across Oil and Bitcoin nevertheless this week.

But prices were still relatively buoyant after a substantially bigger-than-expected drawdown in U.S. inventories, while persistent conflict in the Middle East also kept a risk premium in play.

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More Signals For An OZ Rate Hike Incoming?

The New Deputy Governor at the RBA said last week, that when it comes to a rate decision, they look at many different measures, apart from the recently released monthly series which showed a lift to 4% last time around in May.

So now, in May, so before any tax cuts or other Government help has hit, Australian retail sales rose by more than expected with spending largely driven by discounts in the face of elevated borrowing costs, an outcome that further strengthens the case for an interest rate hike this year.

As a result, yields on policy-sensitive two-year bonds rose to 4.289% as rates traders boosted the odds for an interest rate hike this year. Stocks pared gains, with the ASX 200 closing still in the green, at 7,739.90.

Australian retail turnover rose 0.6 per cent in May 2024, according to seasonally adjusted figures released today by the Australian Bureau of Statistics (ABS), making it the biggest increase in four months, The outcome, which was double the pace that analysts forecast, follows a 0.1% gain in April and a 0.4 per cent fall in March 2024.

We should highlight that with population growth of around 600,000 in the past year, and inflation running circa 4%, we should absolutely be expecting to see retail turnover lifting, as people pay more the things they buy, and more people buy them.

All up, to me while there is a better tone to this numbers, many consumers remain under intense pressure, while strong population growth is working its “magic” in cushioning retailers from the worst impacts and are allowing them to retain and build margin. Other data suggests more vehicle sales slowed into the financial year end. The tax cuts might well given a further boost to sales, but potentially also to inflation.

The ASX Rate tracker is now seeing a high of 4.47% in November, and back to 4.35% in June next year. The bottom line is I think markets are correct in reading this as a reinforcing sign that rates may need to go higher to snuff out inflation. But is not definitive, yet as there is more data water to go under the bridge.

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Digital Finance Analytics (DFA) Blog

More Signals For An OZ Rate Hike Incoming?

00:00 / 00:11:53

Markets Calm Before The Storm, As The AI Wave Wains?

This is weekly market update, starting in the US, Europe, then Asia and then the US, as I get my thoughts organised!

This week, punctuated by a Wednesday US holiday, saw markets taking a breather following recent volatility and record highs. The Nasdaq had hit record highs on Thursday, boosted by strong gains in tech, and indications of a gradual easing in the labor market and inflation levels.

But on Friday, in New York, the S&P 500 closing modestly lower thanks to the quarterly expiration of about $US5.5 trillion of options during the quarterly “triple witching” in which derivatives contracts tied to equities, index options and futures mature. Around 18 billion shares changed hands on US exchanges, which is 55 per cent above the three-month average volume. The options’ expiration coincided with index rebalancing as well.

Remember that S&P 500 is up 14.6% this year, but most of the broader index’s gains have been concentrated in the information technology and communications sectors – up 28.2% and 24.3%, respectively. The rest of the market has been more subdued: the next best performing sector, utilities, is only up 9.5% year-to-date. More than 7% of stocks are down this year. So the huge price gains, including Nvidia’s 155% year-to-date run, have stirred worries that the tech rally might be overheated.

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Digital Finance Analytics (DFA) Blog

Markets Calm Before The Storm, As The AI Wave Wains?

00:00 / 00:23:10

The Investor’s Dilemma: Hang In Or Jump Out?

This is our weekly market update, is the best way I have found to organize my thoughts for the week and to track what’s going on. We start in the US, crosses to Europe, then Asia, and Australia, and we also cover commodities and crypto.

In the US, the Nasdaq eked out a fifth straight record closing high on Friday following gains in Adobe and other technology-related shares, while the S&P 500 and Dow ended slightly lower. The Dow Jones Industrial Average fell 0.15%, to 38,589.16. The S&P 500 lost 0.04%, at 5,431.6 and the Nasdaq Composite added 21.32 points, or 0.12%, at 17,688.88.

For the week, the Dow was down 0.5%, the S&P 500 rose 1.6% and the Nasdaq was up 3.2%. So the S&P 500 ended its four-day run of record closing highs, but still climbed more than 1% for the week. The S&P 500 technology sector rose 0.5%, hitting another record high close. The communication services sector rose 0.6%, leading gains among sectors.

Adobe shares jumped 14.5% a day after the company raised its annual revenue forecast on more demand for its artificial intelligence-powered software. But the Russell small-cap index fell 1.6%, adding to recent losses, while the S&P 500 industrials sector was down 1%.

The big issue this week was the Feds post decision press conference, with investors still trying to gauge how soon the Federal Reserve might be able to cut interest rates following Wednesday’s cooler-than-expected CPI report and the Fed’s revised dot plot, which lowered rate-cut expectations this year from three to one.

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The Investor’s Dilemma: Hang In Or Jump Out?

00:00 / 00:28:01

The Fed’s “High For Longer” Ripple Effect

Wednesday was it turned out, a game in two halves, with a slightly better than expected CPI read in the morning, before the Fed’s no change decision later, but impacted by a more hawkish stance in the subsequent press conference. Risk-on assets had rallied after the CPI report showed the US core consumer price index fell to the lowest in more than three years. But later, the Federal Reserve penciled in just one quarter point interest-rate cut this year, down from three seen in March.

The CPI core goods inflation was in negative territory, but the news was not all as good. Remember that to account for the ongoing questions over measuring shelter prices, Chair Jerome Powell and his colleagues chose to focus on the so-called supercore of services excluding housing, a measure particularly influenced by wages. The good news is that both indexes fell last month — a bit. The bad news is that they’re still far too high for comfort and continue to make it hard to cut rates.

And The FED decided to hold rates, but played the data dependent, higher for longer card, again.

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Digital Finance Analytics (DFA) Blog

The Fed’s “High For Longer” Ripple Effect

00:00 / 00:18:26

Macro Versus Company Returns; What’s Driving The Chaotic Markets?

This is our regular weekly market update.

The roller coaster ride continued again this week on the markets, as traders were dazzled by strong corporate results from NVIDA underscoring the power of the AI super cycle on one hand, and by really mixed data signals on the other thanks to a raft of better-than-expected purchasing managers’ index (PMI) data from across the northern hemisphere, while rates higher for longer came back into focus, with hope of rate cuts being squeezed further.

The economic data points to a strong economy and inflation that won’t go away. Couple yesterday’s PMI data with a slew of Fed speakers this week and the Fed minutes, which suggested the central bank could keep rates high for longer than expected, as well as a string of warnings on inflation from Federal Reserve officials, investors have realized that either the Fed has no idea what it is doing when it comes to inflation and the path of monetary policy or investors are starting to sense that the Fed rate hiking cycle may not be over. Financial markets now fully price just one quarter-point interest rate cut from the Federal Reserve this year – compared to the six built into futures prices at the start of 2024.

European equities have traded lower at the end of the week, tracking weakness in Asia and also Wall Street as increasing anxiety over sticky U.S. inflation and high interest rates battered sentiment towards risk-driven assets.

China was hit with a wave of negative sentiment this week as a trade war with the U.S. appeared to have escalated.

A Wall Street sell-off rattled Australian capital markets on Friday as bond yields rose and investors trimmed rate cut bets, sending technology, retail and banking sector shares sharply lower.

So standing back, signs of the consensus belief in a soft landing, interest rate cuts and resilient growth in earnings are everywhere. There’s the grind higher in share market indices despite rich valuations and non-existent risk premiums (the difference between earnings yields and bond yields).

It’s worth remembering the words of an eternal bull in the late, great Charlie Munger, who urged investors to “invert, always invert”. “Turn a situation or problem upside down. Look at it backwards. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there?”

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Digital Finance Analytics (DFA) Blog

Macro Versus Company Returns; What’s Driving The Chaotic Markets?

00:00 / 00:23:52

The Bulls Are Running Again; For Now…

This is our weekly market update. After recent wobbles on concerns of higher rates for longer, the Bulls have been stomping through the markets this week. Data dependency is a marvellous thing because each shiny new data point has the potential to swing the market violently. Some might well be detecting signs of weakness below the surface, suggesting further reversals ahead.

The blue-chip Dow Jones Industrial Average passed the 40,000 level for the first time ever earlier in the week, and record highs have also been seen by major indices in Europe and Asia as investors took advantage of expectations of lower interest rates globally. These markets have remained relatively resilient even as U.S. macro data have shown signs of softening, with the PMI and ISM surveys declining in April, labour-market data worsening, consumer confidence dropping and the housing market deteriorating again.

The bulls of the ASX are running again this week in a classic “bad news is good news” rally. Lingering concerns that sticky inflation could force the Federal Reserve or the Reserve Bank to raise rates have suddenly been extinguished. For all that worry about higher-for-longer rates exposing cracks in the local economy – the weakening consumer spending we’re seeing, the rising corporate insolvencies, weakening consumer and business sentiment – the ASX 200 has quietly added 4 per cent within two weeks, and is now up 3.3 per cent this year. Since October 2022, it has gained 22 per cent.

Never mind that valuations look stretched and equity risk premiums on both sides of the Pacific (the difference between the equity market’s earnings yield and the 10-year bond yields) are almost non-existent. Local investors continue to plough into their market darlings in the firm belief that rate cuts are coming.

The latest edition of our finance and property news digest with a distinctively Australian flavour.

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Digital Finance Analytics (DFA) Blog

The Bulls Are Running Again; For Now…

00:00 / 00:25:49