10th June 2024

Weekly Index Movement

Aussie All Ords+1.8%

Stocks closed the week more than 30% above the lows carved out in October, with another week led by Tech and related names in communications services. Growth indices and the NASDAQ outperformed while small caps and value lagged. Utilities’ hot run moved into the rearview mirror as a surge in rates on Friday wiped out lots of the early week bond gains. Energy was also weak as crude oil prices plunged early in the week to reflect more OPEC+ supply following last week’s meeting.

Friday’s jobs report exceeded expectations as the US added 272,000 jobs in a single month. Wage growth also came in at +4.1%, higher than the previous +4.0% and says to me there will be no interest rate cuts in 2024.

The Fed has said previously that 3.3% wage growth is consistent with their 2% inflation target. Wage growth was 4.9% in December 2022, which means it has taken 17 months for wage growth to come down 0.8%. It is possible it will take that long again to come down to 3.3%.

Unless economic growth suddenly cools, there will be no rate cuts in 2024.

The Fed meets this week and we will get to hear Powell’s comments on this on Wednesday.

The $3Trillion Club

NVIDIA (NVDA) and Apple (AAPL) both saw their market caps rise above $3 trillion this week to join Microsoft (MSFT) in the $3+ trillion triumvirate.  The combined market cap of $9.2 trillion of these three stocks is roughly equal to the combined market cap of the smallest 350 stocks in the S&P 500.

Below is a chart from Bespoke Premium that shows how the S&P 500 would be doing this year without NVDA and the other mega-caps.  Through June 6th, the S&P 500 was up 12.5% year-to-date.  If you remove NVDA, it would be up just over 7%, while removing the “Mag-7” mega-caps would leave the index up roughly 4% YTD.

Bond Spreads Confirm Bull Market

I keep hearing negative comments calling for a huge stock market crash. But there is nothing out there that points in any way to this possibility.

Here is something new for you stock traders to confirm this.

The bond market is not like the stock market. Bond investors are inherently risk averse. They just want to get their money back and receive an income stream along the way. Stock investors are seeking more risk and want to speculate on higher stock prices over time.

Stock investors are generally positive people who are sure things will turn out ok in the end. But Bond investors are pessimistic and are often the first ones out of the door, usually well before alarm bells are ringing.

This makes looking at their markets interesting for a stock investor. The chart below compares company bonds (viewed as risky in their world) to Treasuries (risk free). Company bonds always demand a higher premium than Treasuries because investors demand a higher return due to higher risk associated with lending money to a company rather than the Government.

When the lines on this chart are high, it means investors perceive increasing risk in company bonds. This is usually due to a slowing economy.

Looking at the last 20+ years you can see bond investors started to demand higher rates in advance of a stock market peak in 2000 and 2007. They didn’t really get a chance in 2020 as the pandemic hit so quickly.

But the key thing is the spreads are low and falling right now. That tells us the bond market has very little fear of any kind of recession or economic slowdown. Given these guys spend all their time looking for signs of coming trouble, it means there is very little chance of a slowdown in the near future.

Central Bank Cuts

In a strange move this week, the ECB decided to cut interest rates by 0.25% to 3.75%. This surprised everyone, mainly because the ECB normally just follows the Fed and it highly unusual for them to be confident to go it alone.

There wasn’t really a good reason to cut rates. Their economy is growing and inflation is still high.

Markets got all excited it means the ECB are now on a cutting cycle. But markets have this wrong. I don’t think the ECB should have cut and don’t understand why they did, but it is just one cut and they can sit on this same 3.75% interest rate figure for a long time yet if they need to.

The Bank of Canada also cut and stated “it is reasonable to expect more cuts”.

But don’t get excited. You know my thoughts on this. No cuts here in Aus and in the US this year. Wage growth is too strong.

Stocks are at all time highs even as the market is winding back expectations of interest rate cuts. Which goes to show they are not that important. The future potential of AI is far more important.

Next Week

The Fed meets and gives us an interest rate decision on Wednesday. Everyone knows they will be on hold but Powell will be pushed in the press conference about when we can expect the first cut. He is quite good at giving nothing away so I doubt this event will have a significant impact on markets.


Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.