May 29, 2024
CURRENCIES
Key Highlights:
- Nvidia’s stock surged by 7% overnight, boosting its market cap to over $2.8 trillion, making it the third-largest company globally.
- The rally places Nvidia close to Apple ($2.9 trillion) and Microsoft ($3.2 trillion).
- Nvidia’s AI chips are crucial for advanced AI applications, driving high demand and significant stock price increases.
- Since surpassing the $500 mark at the start of 2024, Nvidia has seen rapid gains, recovering quickly from a late-March/early-April dip.
- Nvidia holds a 7.2% weighting in the Nasdaq 100, and its recent rally pushed the tech index to a new high.
US Dollar and Inflation:
- The US dollar is stable as traders await Friday’s Core PCE inflation data.
- US inflation remains high, impacting rate cut expectations for 2024, now with only one 25 basis point cut anticipated.
- Minneapolis Fed Reserve President Neel Kashkari stated that the central bank should wait for several months of positive inflation data before considering rate cuts, emphasizing the Fed’s focus on reducing inflation.
US Dollar Index:
- The US Dollar Index shows a slight downside bias.
- Initial support levels are 104.44 (200-dsma) and 104.37 (38.2% Fibonacci Retracement).
STOCK MARKET
Key Highlights:
- The stock market’s most critical driver, earnings outlook, continues to improve.
- S&P 500 earnings grew 6% in Q1 2024 compared to the previous year, with a 10% growth excluding Bristol Myers-Squibb’s poor performance.
- Future earnings estimates are rising: 2024 earnings growth forecast increased to 11.4% from 10.9% (as of April 5), and 2025 estimates up to 14.2% from 11.6%.
Strategist Insights:
- Jonathan Golub, UBS Investment Bank: Raised year-end S&P 500 target to 5,600 from 5,400 due to stronger earnings.
- Second-quarter earnings estimates are robust, supporting further market upside.
Earnings Growth:
- S&P 500 earnings show resilience and growth across various sectors.
- “Mega-Cap Growth and Tech” stocks grew about 39% year-over-year, maintaining strong performance.
- Earnings for Cyclicals and Defensives grew 7.5% in Q1 2024, indicating healthy growth.
Sector Performance:
- Nvidia contributed 37% to the S&P 500’s earnings growth over the past year, expected to drop to 9% over the next 12 months.
- Broader market participation expected with contributions from power, commodities, and utilities.
Market Dynamics:
- Cost-cutting has driven recent earnings growth; however, increased demand and revenue growth are anticipated to take over.
- Industrial sector companies signal a recovery in demand for the second half of the year, expected to improve operating leverage and margins.
Investor Trends:
- Charles Schwab’s Kevin Gordon emphasizes that revenue beats outperformed earnings beats in Q1 2024, indicating market preference for genuine demand-driven growth over cost-cutting.
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