Market Opportunities in Focus

BY Janne Muta

|February 13, 2024

Here's a brief overview of last week's key market themes and what you should closely monitor this week.

US economy

In January 2024, the US ISM Services PMI rose to 53.4 last week, indicating strong sector growth driven by new orders, employment, and supplier deliveries despite inflation and geopolitical concerns.

At the same time, the consensus among Federal Reserve officials suggests a cautious approach to interest rate cuts, with no rush to reduce rates in the near term despite market speculation.

As echoed by Richmond Fed President Barkin and others, the Fed's stance underscores a strategy of waiting for more definite signs of economic normalisation and a secure downward path for inflation before considering rate adjustments.

High interest rates create risks in the US property market. Deutsche Bank quadrupled its provisions for US commercial real estate losses, reflecting refinancing risks. Deutsche Pfandbriedbank's bonds faced pressure due to this exposure.

US Treasury Secretary Yellen acknowledged concerns but deemed them manageable, despite market scepticism, as evidenced by declines in banking sector indices in both the US and Europe.

Stock indices

The S&P 500, Nasdaq and Dow Jones have moved to record highs this year with the S&P surpassing 5000 for the first time. The rally has been driven by positive inflation revisions and sector gains, especially in small-caps, consumer discretionary, and technology. This has, however, raised debates on stock valuations.

The S&P 500's price/earnings ratio suggests stocks are pricier than their 10-year average, reflecting high market confidence despite potential risks. Earnings projections for the S&P 500 companies show optimism, with an 11% rise anticipated. Valuation models indicate stocks may be expensive.

US stocks

The best-performing TIOmarkets technology stock CFDs last week were highlighted by notable rallies in TSM, Nvidia, and Applied Materials, driven by the burgeoning artificial intelligence (AI) sector.

TSM's surge was propelled by renewed optimism in AI demand and strategic global expansions, despite geopolitical tensions with China. This optimism, coupled with an impressive financial outlook indicating a 10% revenue increase for 2024, underscored TSMC's dominance in AI chip production.

Nvidia's stock also saw a significant rise of 12.75%, spurred by its forecast of strong revenue growth from AI chips, which led to a near $300 billion market capitalization increase. This surge not only solidified Nvidia’s position as the most valuable chipmaker globally but also reflected widespread enthusiasm for AI technology.

Applied Materials experienced a 12.01% increase due to strong institutional demand, or "Big Money", indicating a positive performance outlook based on robust sales growth and earnings over the past three years. This rally was further supported by the company's leadership in semiconductor manufacturing equipment, appealing to major chipmakers like TSMC, Intel, and Samsung.

These developments underscore the tech industry's rapid evolution, driven by AI's transformative potential and strategic investments in response to global demand shifts.

Gold and Oil

Gold losing ground as rising US Treasury yields, which diminish its attractiveness compared to yielding assets divert investor funds elsewhere.

The US CPI data due today is in the focus as market participants look for further insights into potential Federal Reserve interest rate decisions. Higher yields and expectations that interest rates will remain elevated could further pressure gold prices possibly pushing the price of the yellow metal down to 1975. Alternatively, a move to 2023 could be likely.

Nothing much has changed in the factors impacting the oil market. Last week, geopolitical tensions and fears of a wider Israel-Palestinian conflict, alongside potential Middle East supply disruptions, pushed oil prices up by 6%.

The strikes' end and increased U.S. oil and natural gas rigs, signalling potential output growth, relieved some supply worries. However, attacks on commercial ships by Iran-aligned Houthi militants in Yemen continue to threaten Red Sea shipping routes.

Trading Opportunities in Focus

  • The USD could remain strong as the US economy showed resilience with the ISM Services PMI reaching 53.4, suggesting strong sector growth amid inflation and geopolitical challenges. However, the Federal Reserve maintains a cautious stance on interest rate cuts, prioritising clear signs of economic stabilisation and controlled inflation.
  • The S&P 500, Nasdaq, and Dow Jones hit record highs in 2024, driven by sector gains and optimistic inflation revisions. Despite concerns over high valuations, the market's confidence remains bolstered by positive earnings projections, though some models suggest stocks may be overpriced. Technically the indices are currently in an uptrend.
  • TIOmarkets' technology stock CFDs like TSM, Nvidia, and Applied Materials experienced significant rallies, attributed to the AI sector's growth and strategic expansions. These stocks' performance highlights the tech industry's rapid evolution and the increasing global demand for AI technology.
  • Gold prices face downward pressure from rising US Treasury yields and anticipation of Federal Reserve interest rate decisions. Meanwhile, oil prices increased due to geopolitical tensions and potential supply disruptions, though recovery signs and ongoing threats in Red Sea shipping routes present a complex outlook.

How are you going to trade the markets today?

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Janne Muta

Janne Muta is a seasoned market analyst and trading educator with a M.Sc. in Finance. His strategies integrate macroeconomics with technical analysis and he shares his knowledge with the trading community.

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