Let’s continue to count. 37. Yesterday was the 37th time the S&P 500 hit a record since the beginning of this year. The index rallied past the 5600 level to close the session above this mark for the first time, while the Nasdaq 100 flirted with the 20700 mark, a fresh record as well, as technology mega caps continued to push the indices to uncharted territories thanks to a combination of encouraging semiannual testimony that the Federal Reserve (Fed) President Jerome Powell delivered to US Senators this week and promising industry news.
KaPow!
Powell didn’t say much more in the second day of his semiannual testimony than he did in the first day. He didn’t give a clear time target for starting to cut the rates, but he said this week that inflation is no longer the only risk to the US economy, that the softening jobs market becomes something that the Fed policymakers are increasingly watching and that inflation doesn’t necessarily need to sink below the 2% for the Fed to start cutting the rates.
This does not mean that inflation is no longer a worry, it just means that it is one of the worries. Today’s CPI update from the US will be very closely watched and determine the market mood, but investors will likely be less upset if they see any bump or blip in inflation as long as other economic data including growth and jobs continue to show further weakness.
Powell’s encouraging words – and strong bond sales in the US this week – kept the US yields under pressure so far this week following a dive posterior to last Friday’s soft jobs data. The US 2-year yield consolidates a touch above the 4.60% mark, while it had been seen solid support around 4.70% since May, the US 10-year yield hovers around 4.30% as the US Dollar Index is getting comfortably below its 50-DMA ahead of today’s CPI data from the US.
The latest CPI update is expected to show a softer headline inflation in the US compared to the last month – with a fall from 3.3% to 3.1% on a yearly basis penciled in by analysts despite a clear rise in gasoline prices, and a steady core inflation at 3.4%. A set of data above expectations could slow down the doves and call for a correction in both equity and bond markets into the weekend.
Figures in line, or ideally softer-than-expected - if also combined with soft weekly jobless claims - should keep the Fed doves in charge of the market, further boost appetite for bonds, pressure yields and the US dollar to the downside and give further support to the equity rally.
Inside Tech
Yesterday’s rally was again triggered by the US megacaps. Semiconductors rallied on news that ‘demand for AI boomed so much that it spurred $3.5bn of export chips and related equipment from Taiwan last month – this is a 422% surge from a year ago’ (Bloomberg). Reportedly, the US was the biggest destination for Taiwanese shipments – Taiwan being home to TSM, Taiwan Semiconductor Manufacturing (NYSE:TSM), the biggest supplier of companies like Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA) - with more than 74% of total shipments ending there.
TSM spiked to a fresh record in Taiwan today after announcing that its Q2 sales grew at the fastest pace since 2022 and that its revenue for June will reach $6.4bn (which means a 40% growth rather than 35% expected by the market). As such, Nvidia gained more than 2.5% yesterday on the expectation that a part of the revenue will be reflected in better-than-expected results for Nvidia as well, while AMD (NASDAQ:AMD) jumped nearly 4%. The latest news comes to defy those who expect earnings slowdown from the leaders of the AI rally.
Elsewhere, Apple rallied nearly 1.9% to a fresh record on news that it will ship 90 million iPhone 16 in the H2 of the year, targeting a 10% growth in shipments compared to the previous model – partly thanks to its incentive to integrate AI tools into its devices and partly thanks to weak comparison to 2023 results. All that's left is to hope that the magic of AI works.
Elsewhere, Japan’s tech-heavy Nikkei index also advanced to a fresh high this week, as the yen remained under pressure despite a broadly softish US dollar. The European equities gained some color following French political shakes, while iShares MSCI China ETF consolidates losses after having stepped into the medium-term bearish consolidation zone two weeks ago - China is fully missing out the global stock rally and its AI giants remain extremely cheap – and undesired.
US Crude Rebounds
US crude jumped after tipping a toe below the $81pb yesterday as the latest EIA data showed a 3.4-mio barrel fall in US oil inventories last week and as OPEC revised its global economic growth forecast slightly higher to 2.9%. A soft set of US inflation data could back a further rebound.