03 Jun 3rd June 2024
Weekly Index Movement
| S&P500 | -0.5% |
| Nasdaq | -1.5% |
| Aussie All Ords | -0.4% |
After five straight weeks of gain, markets took a breather last week, which is no surprise when you consider that the S&P500 has seen 23 weeks of gains in the last 30. There have only been a handful of other periods with so many winning weeks in a 30 week span. When you look at the other occurrences, none of them ever marked a significant high, so there is no reason to think the bull market is over.
But it might be over for Salesforce (CRM). That stock dropped 20% on earnings which is the worst day it has had in over 20 years. Dell (DELL) joined Salesforce with an 18% drop on earnings.
One positive aspect of this week’s trading was the performance of the semis. As shown below, the Philadelphia Semiconductor Index (SOX) traded up to a new record high this week. We think of semiconductors as the “transports of the 21st century” as they are essential in nearly every aspect of the global economy, so for that reason, the fact that the group is hitting new highs and outperforming the broader market bodes well for the economy and the market.
As last week marked the end of May, I thought we could take a look at how things went during the month.
Broadly speaking, May repaired the damage left by April and leaves us with some positive momentum going into June. Most sectors/geographies are making money in 2024 despite higher interest rates, and we expect this trend to continue. Big Tech remains the dominant source of US large cap returns, almost to the same degree as last year.
Interest rates declined in May, but not until the very end of the month. Prior to last Wednesday, it looked very much like yields were going to break out to new 2024 highs. Yet despite this, US indexes made new all time highs.
The questions of 1) when the Fed will cut rates and 2) when long term yields will begin to trend permanently lower have not been answered and yet stocks have rallied in 2024. That seeming contradiction is easily explained: we are in a classic mid-cycle market. The US/global economy are doing well enough to push corporate earnings higher. I expect this dynamic to continue over the balance of the year.
The Nasdaq beat every other major average in May, up +6.9%. This was due to both leaders (Nvidia) and laggards (Apple).
The 7 US Big Tech stocks contributed an aggregate 2.2 percentage points to the S&P 500’s 0.4 percent return for May. Without them, the index would have looked a lot more like the equal-weight S&P (-2.1 percent in May) or the Russell 2000 (-2.6 pct).
Natural gas, copper, and silver prices all extended their April gains into May. Silver and copper are now showing better YTD gains than global equities. This confirms the equity bull market is sustainable and based on economic expansion.
Headlines that caught my eye last week
Nvidia announced the next generation of its artificial intelligence processors on Sunday in a surprise move less than three months after its most recent launch. At the Computex conference in Taipei, the chipmaker’s chief executive Jensen Huang unveiled “Rubin”, the successor to its “Blackwell” chips for data centres, which are currently in production after being announced in March. The unexpected move to reveal its next wave of products before Blackwell has even started shipping to customers shows how the world’s most valuable chipmaker is racing to entrench its dominance of AI processors, which has propelled it into the ranks of the world’s most valuable companies.
OPEC+ on Sunday agreed to extend all production curbs into next year, a deal that likely signals oil prices will remain elevated through the U.S. presidential election. The agreement comes on the same day the group’s kingpin, Saudi Arabia, launched a giant sale of shares in its national oil champion that will yield billions to help fund the kingdom’s economic transformation (good news for my oil stocks)
The US economy grew at a slower pace in the first quarter than initially reported, primarily reflecting softer consumer spending on goods. Gross domestic product rose 1.3% annualized in the first three months of the year, below the previous estimate of 1.6%, Bureau of Economic Analysis figures published Thursday showed. The economy’s main growth engine — personal spending — advanced 2.0%, versus the previous estimate of 2.5%. (slowing growth is good as it reduces inflation pressure)
The staggering electricity demand needed to power next-generation technology is forcing the US to rely on yesterday’s fuel source: coal. Retirement dates for the country’s ageing fleet of coal-fired power plants are being pushed back as concerns over grid reliability and expectations of soaring electricity demand force operators to keep capacity online… The International Energy Agency estimates the AI application ChatGPT uses nearly 10 times as much electricity as Google Search. (great news for my coal stocks)
Trump got convicted on all 34 counts of falsifying business records. He will be the first US president convicted of a criminal offence. His sentencing will occur on July 11th and each count could bring a maximum jail term of 4 years. That won’t happen and no doubt an appeal will be launched and will be tied up in the system for months if not years. After conviction, Trumps campaign claimed they had received $53million in small donations. Amazing as it sounds, this conviction could even help his re-election campaign.
PCE Inflation came in at +2.5%, the same as last month and less than the +2.7% expected. The Fed still won’t cut rates this year though. But as explained above, it doesn’t matter as earnings are growing.
Next Week
Things should be fairly boring and quiet. There are no significant earnings and all we have on the economic front is payrolls on Friday and ISM Manufacturing PMI data.
Warning
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.