WEEKLY | TECHNOLOGY BIFURCATION
Your weekly summary with the most important news for your investments
Last week, the Dow and Nasdaq stock indexes had a bifurcated path, reacting in different ways to the information coming from the Federal Reserve (FED) and the technological spectrum. The FED, through its minutes and verbal interventions, was cautious in expressing itself about the evolution of the monetary policy rate for the remainder of the year, generating a weekly mismatch in the Dow of -2.3%. On the other hand, Nvidia's extraordinary quarterly results and Elon Musk's ability to raise US$6 billion for the artificial intelligence (AI) division for X (Twitter) pushed the Nasdaq up +1.4%. Thus, to date, the Dow is up +3.7%, the S&P 500 +11.2% and the Nasdaq +12.7% so far in 2024. At this point there are those who are warning about the concentration of the 7 major technology companies Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla that today represent 31% of the market capitalization of the S&P 500 under the understanding that these are the companies that are leading the revolution in the field of AI. However, these companies have been demonstrating quarter after quarter that their revenues continue to grow with the structural change that has occurred with this technology, sustaining the price-earnings ratio of this market segment.
Even so, there are still those who are concerned about inflationary factors, as the price of copper and wheat have accumulated 12-month increases of +29% and 14%, respectively, elements that will play an evolutionary role in the inflation data for the second half of the year.
This week, the focus will be on the PCE inflation data to be published on Friday, where the headline figure is expected to remain at 2.7%, while the core reading, which excludes food and energy prices, will be 2.8%. On the corporate front, retail sector companies will be reporting including Best Buy, Burlington, Costco, Foot Locker, Kohl's and Ulta Beauty while on the technology side we will have HP, MongoDB and Salesforce among others giving us a glimpse of domestic demand and business investment, respectively by sector. At the end of May, we will be looking forward to the monetary policy meeting to be held on June 11 and 12, where agents do not expect any change in the monetary policy rate, currently at 5.5%.
On the other hand, there will be expectation about the presidential elections this coming Sunday in Mexico between Claudia Sheinbaum, representing the current government, and Xóchitl Gálvez, representing the opposition, where the winner will be president of the nation for the next six years.
Let's return to the macroeconomic front, where the Fed was careful to give guidance that it would still be premature to think about a downward cycle in the monetary instance rate starting with the following comment made in the minutes of its last monetary policy meeting:
However, participants assessed that monetary policy remained well positioned to respond to the evolving economic conditions and risks to the outlook. Participants discussed maintaining the current tight policy stance for longer if inflation showed no signs of moving sustainably toward 2 percent or reducing the policy tightening in the event of an unexpected weakening in labor market conditions. Several participants mentioned their willingness to tighten policy further if risks to inflation materialized such that such action would be appropriate.
Thereby opening up the possibility that perhaps the hiking cycle has not come to an end. This stance was reinforced by Fed Governor Christopher Waller who noted in a speech the previous week:
But that forecast must be validated by incoming [macroeconomic] data. The economy is dynamic, and sometimes new or revised data can significantly change the understanding of economic conditions and the outlook, which has implications for monetary policy. A single data point should not change the view on the economy, which is why changes in the outlook and the appropriate path for policy tend to emerge gradually and over time. Even if you have confidence in the forecast, incoming data can challenge that confidence. One neither wants to overreact to incoming data nor ignore it. However, absent significant weakening in the labor market, I need to see several more months of good inflation data before I feel comfortable supporting an easing in the stance of monetary policy.
This was echoed by JP Morgan Chase CEO Jamie Dimon, who pointed out flatly:
I think inflation is more persistent than people think. I think the odds are higher than people think, mainly because the huge amount of fiscal and monetary stimulus is still in the system and can continue to drive some of this liquidity.
Arguing that rates could rise “a little” more from their current level.
But these comments were countered by Nvidia's extraordinary results, with sales reaching US$26 billion and profits closing the quarter at almost US$15 billion. The share price surpassed US$1,000 per share, leading the company to manage a 10:1 split on June 7. Its CEO, Jensen Huang reiterated that demand for its products remains robust and that the introduction of its new chips powering the use of artificial intelligence should give it another discretionary jump. However, some believe that part of the stock rally is driven by the US$7 billion share buyback the company managed last quarter and not necessarily by the company's fundamentals. Even so, Elon Musk managed to raise capital for his AI division for US$6 billion by incorporating large investment funds with the aim of boosting the use of Grok (operating system) to compete directly with Microsoft's Chatgpt. On the same front, Nvidia's Huang mentioned that Tesla is considerably more advanced than the rest of the companies in terms of the use and implementation of AI, thus giving a boost to the automaker.
In conclusion, there has been a stock market bifurcation between macroeconomic fundamentals and the technology sector, which for some could already be overvalued. However, based on the level of sales, it would seem that the sector is managing to maintain its stock market valuation, justifying the stock market rally.
THIS WEEK
Monday (May 27)
Quarterly Reports
Nordic American Tankers Limited
Adamas One Corp.
Digital Brands Group, Inc.
CAE Inc
Immunovant, Inc.
Tuesday (May 28)
Quarterly Reports
Bank of Nova Scotia (The)
Woodside Energy Group Limited
Heico Corporation
CAVA Group, Inc.
Box, Inc.
Economic Reports
S&P/Case-Shiller Home Price Index monthly change report
S&P/Case-Shiller Home Price Index Annual Change Report
Speech by Fed Governor Lisa Cook
Wednesday (May 29)
Quarterly Reports
Salesforce, Inc.
Bank Of Montreal
HP Inc.
Pure Storage, Inc.
Okta, Inc.
Economic Reports
Red Book Annual Change Report
FED Richmond Manufacturing Index Report
Services Index Report, FED Richmond
Dallas Fed Services Index Report
Speech by Atlanta Fed President Raphael Bostic
Thursday (May 30)
Quarterly Reports
Costco Wholesale Corporation
Marvell Technology, Inc.
Dell Technologies Inc.
Canadian Imperial Bank of Commerce
Royal Bank Of Canada
Economic Reports
Quarterly GDP Growth Estimates Report
Quarterly GDP Price Index Estimate Report
Speech by New York Fed President John Williams
Friday (May 31)
Quarterly Reports
Hibbett, Inc.
Mesa Laboratories, Inc.
Genesco Inc.
Molecular Partners AG
OneMedNet Corp
Economic Reports
Basic Personal Consumption Expenditure Price Index Report
Basic Personal Consumption Expenditure Report
Basic Personal Consumption Income Report
Speech by Atlanta Fed President Raphael Bostic
Now you have more information about your investments. See you next week with more news.
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