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Stock indexes start the week on a mixed note. Technology stocks and in particular Nvidia continue to lead the Nasdaq higher, which closed above the 17,000 level for the first time yesterday.
Investors across the broader market seem to be treading a bit more cautiously amid a high degree of uncertainty about Federal Reserve policy as well as the US economy.
Bulls remain convinced that inflation will continue to decline and the Fed will be able to implement two or three -25 basis point rate cuts this year.
Bears are pointing to comments from Minneapolis Fed President Neel Kashkari yesterday that the Fed has not ruled out further rate hikes. Kashkari did say he believed the chances of a rate hike were low but also said he sees no more than two rate cuts being possible this year. For what its worth, the trade is now giving 43% odds of one rate cut this year and about 21% odds of no rate cut this year.
Just last week, the market gave two rate cuts this year the best odds.
Many Wall Street insiders are anxious to see upcoming May data which should help paint a more clear picture of the current trajectory of both inflation and the economy.
Remember, while inflation, job gains, and retail sales all pulled back in April, that followed a much-stronger-than expected Q1. Meaning it will take more data to determine the current trend.
There are also some worries that the slowdown in job growth and consumer spending could go too far, but it will again require more data to reveal the trend. It’s worth keeping in mind that we could be getting to a point where Wall Street stops treating “bad news” as “good news” - for example, slowing job growth is good news because it helps bring down inflation - and start to view it as a warning sign of more tumultuous waters ahead.
If/when that thinking flips, any market pullback could then be intensified due to the fact that so much money is piled onto the bulls’ side of the boat.
Several recent investor surveys have highlighted the extreme investor bullishness that has funds the most overweight stocks since January 2022, which ended up being the biggest losing year for equities since 2008. Bulls see that as an unfair comparison because the Fed was raising rates in 2022 as inflation was soaring out of control. Bulls also point out that the tech sector took a massive hit that year as the economy was transitioning out of the pandemic era and consumer spending shifted dramatically.
Bears, however, believe the real risk is that investors today, as in 2022, are “overly optimistic” about inflation pulling back while underestimating how determined the Fed is to get inflation under control. Bears also warn that two years ago, consumers had a sizable savings cushion that has since been spent down after three years of unrelenting inflation. What’s more, businesses were able to borrow at near-zero rates ahead of the Fed’s rate hikes in 2022 which allowed many to ride out the shifting economic landscape. That’s obviously not an option in 2024. Meaning the current economy may be strong but it also might be a lot less resilient in the face of a major downturn.
Today, investors will be digesting the Richmond Fed Manufacturing Index and the Fed’s Beige Book. Earnings today include Abercrombie & Fitch, Advance Auto Parts, American Eagle, Chewy, Dick’s Sporting Goods, HP, and Salesforce.
Fed’s Kashkari Wants to See More Positive Inflation Data Before a Rate Cut: The Federal Reserve should wait for significant progress on inflation before cutting interest rates, Minneapolis Federal Reserve President Neel Kashkari told CNBC on Tuesday. Asked what conditions were needed for the Fed to cut rates once or twice this year, Kashkari said:, many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back. He said the central bank could potentially even hike rates if inflation fails to come down further. I don’t think we should rule anything out at this point, Kashkari added. He does not have a vote this year on the rate-setting Federal Open Market Committee, though he does get to have input during policy discussions. He will vote next in 2026. Kashkari said he was confident the Fed would ultimately reach its 2% inflation target, but added, I’m not seeing the need to hurry and do rate cuts. I think we should take our time and get it right. Source CNBC
T-Mobile is Buying US Cellular’s wireless operations for $4.40 billion, including customers, stores, and 30% of its spectrum assets. T-Mobile will now become a long-term tenant on +2,600 more towers as it looks to expand its US coverage. The deal is expected to close in mid-2025, T-Mobile announced. T-Mobile hopes the transaction creates more choice for consumers in areas with "expensive and limited plans from AT&T and Verizon," or those with little to no broadband connectivity. It adds that the deal will provide "best-in-class connectivity to rural Americans." As of Q4 2023, the top five wireless telecommunications service providers in the United States by subscriber count were: AT&T: 241.5 million subscribers, including connected devices; Verizon: 144.8 million subscribers; T-Mobile US: 119.7 million subscribers; Dish Wireless: 7.4 million subscribers; US cellular: 4.6 million subscribers. Source MarketWatch
Wall Street is Getting More Bullish on Stocks: Nearly five months through 2024, the major stock indexes are near record highs and Wall Street doesn't think this rally is over, as the outlooks for earnings and economic growth have steadily risen throughout the year. In the past two weeks, three equity strategists tracked by Yahoo Finance have boosted their year-end targets for the S&P 500. The Street-high target has moved up to 5,600. BMO Capital Markets chief investment strategist Brian Belski noted that markets have made an important shift as this data has come in. Markets are now pricing in about two rate cuts this year, down from a peak of nearly seven to start the year. It has become clear to us that we underestimated the strength of the market momentum, particularly considering that investor expectations and Fed policy guidance have become essentially aligned vs. the significant disconnect that existed at the beginning of the year, Belski wrote in a research note on May 15. Source YahooFinance
Porsche Reveals First-Ever 911 Hybrid Sports Car: Porsche on Tuesday revealed the first-ever production hybrid version of its iconic 911 sports car, with a starting price of $164,900. The 2025 911 Carrera GTS hybrid marks a significant change to the iconic German sports car amid the automotive industry’s focus on increasing electrified vehicles and tightening fuel economy standards. Executives with the Volkswagen-controlled company have said the 911 would be the last car in its portfolio to offer an all-electric variant, if it ever does, to maintain the vehicle’s famed driving dynamics, which they say the hybrid achieves. The new 911 Carrera GTS can accelerate from 0 to 60 mph in 2.9 seconds – 0.3 seconds quicker than the prior non-hybrid GTS model – and reach a top track speed of 194 mph. It is powered by a newly developed 3.6-liter boxer hybrid engine that produces 532 horsepower and 449 foot-pounds of torque. The 911 Carrera GTS hybrid will be available as a coupe starting at $164,900. A convertible, or cabriolet, version will start at $178,200. Both are available in rear-wheel-drive and all-wheel-drive configurations. Source CNBC
Bullish Investors Are Piling Into Stock and Bond Funds: U.S.-based mutual and exchange-traded funds have drawn a net $172 billion of inflows so far this year, a marked turnaround after they collectively bled assets in each of the past two years. The flows mark a break from the risk aversion that investors had shown for much of the past two years and an embrace of the narrative that a strong U.S. economy will support financial markets. Assets in money-market funds and other cash-like products that investors favored last year have plateaued. Investors are putting their money to work in stocks and bonds instead. Flows to U.S. stock and bond funds this year are the strongest since 2021 when interest rates were near zero. Globally, the net $468 billion invested in ETFs through April is the highest on record, according to ETFGI data. Of the 10 ETFs that have taken in the most money this year, just one is a bond fund. Two track the price of bitcoin. The leader, the Vanguard S&P 500 ETF, is on pace for a banner year. Investors have added a net $37 billion in less than five months; the annual record for any ETF inflow is $50 billion. Source WSJ |
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Millions More Trees Isn’t the Climate Fix New Zealand Thought: Of all the solutions for a warming world, "plant more trees" seems pretty obvious. But in New Zealand, which tested that premise by linking incentives for forestry development with its emissions trading scheme, the results have been more controversial and less effective than climate advocates hoped. Now, after four years of frenetic planting, a prominent government watchdog has joined international agencies, industry groups and environmental advocates in calling for a radical overhaul, one that threatens a reversal of fortunes for investors in the recent forestry boom. Since 2019, the country has added 175,000 hectares (432,000 acres) of forests, almost all the fast-growing, carbon-sucking Pinus radiata pine, helping New Zealand make progress toward its 2050 net zero goal. But the new growth has subsumed the nation's farmland, the beef-and-sheep lobby says, undermining the meat-and-dairy industry. Increased waste from forestry—the logs, leaves and branches known as "slash"—more than doubled the damage of the flooding caused by last year's Cyclone Gabrielle. While those might be worthwhile trade-offs for significant long-term reductions in climate-warming CO2, the current system doesn't really achieve that either, experts say. Source Phys.org
Saudi Arabia to Raise Up To $20 Billion in Fresh Aramco Stock Sale: Saudi Arabia is likely to announce as soon as this week plans to sell $10 billion to $20 billion worth of stock in Aramco, its crown jewel and the world’s most valuable oil company, according to people familiar with the matter. The long-awaited offering, if it proceeds, would alleviate near-term pressure on the kingdom to raise funds. Saudi Arabia has a slew of mega projects including a new city and a global airline, all aimed at diversifying the economy beyond oil. Saudi Arabia currently owns more than 82% of Saudi Arabian Oil Co., known as Aramco, while the kingdom’s wealth fund—the Public Investment Fund—owns a further 16%. The stock sale, which could still be delayed or withdrawn, would be a follow-on offering. Aramco went public in 2019, raising $29.4 billion in what remains the world’s largest initial public offering. A sale of $20 billion of shares would place it near the top of record stock sales, close to the size of Alibaba’s 2014 IPO. Source WSJ
Americans Are Already Worn Out By Election Coverage: A majority of Americans say they are closely following news about the 2024 U.S. presidential election, a slightly higher share than in April 2020. At the same time, many people already say they are worn out by so much coverage of the campaign and candidates, according to a Pew Research Center survey More than half of Americans (58%) say they are following news about candidates for the 2024 presidential election very or fairly closely. Another 28% say they aren’t following it too closely, and 13% aren’t following it closely at all. The share of Americans who are closely following election news is slightly higher now than it was in April 2020 (52%). In October 2020, however, that share increased to 75%. As in past presidential elections, older adults are more likely than younger adults to say they are closely following news about the candidates. Although many Americans are following news about the 2024 presidential candidates, they are also experiencing fatigue over election coverage. About six-in-ten U.S. adults (62%) already say they are worn out by so much coverage of the campaign and candidates. Americans who are following election news closely are less likely than those who aren’t to be worn out by election coverage. Source Pew Research |
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