Gold futures for June delivery closed down 2.92% on the Comex today. The metal closed at $2343.40 an ounce. The drop came on a lessening of fears that the exchange of attacks between Israel and Iran would quickly lead to a wider Middle East war. And on growing sentiment that the Federal Reserve isn’t likely to cut interest rates soon. The drop in the gold contract for June delivery was the largest since February 3, 2023 when it fell 2.8%.
I’m sure you’ve noticed. The technology sector, which led the stock market rally in 2023 and in the early days of 2024, is in a slump. The Technology Select Sector SPDR ETF (XLK) tumbled 6.27% last week and is down 7.16% in the last month. For 2024 to date, as of the close on April 19, the sector is at break even with gain of 0.19%. Quite a turnabout for a sector that is still up 30% for the last 12 months. This week brings a raft of tech earnings that could turn the sector’s trend around. Or not.
China reported faster-than-expected economic growth in the first quarter–but… Although Gross Domestic Product climbed 5.3% in the quarter–a faster rate of growth than in the first quarter of 2023 and above economist estimates, most of the good news came from the first two months of the quarter. In March growth in retail sales slumped and industrial output fell short of forecasts. That doesn’t bode well for the rest of 2024.
Apple has lost its spot as the world’s biggest mobile phone seller, IDC reported today, April 15. A steep drop in sales in China for Apple let South Korean rival Samsung retake the lead in global market share. Samsung had been the biggest seller of mobile phones for 12 years until the end of 2023, when sales of Apple’s iPhone models overtook it. Global smartphone shipments increased by 8% to 289.4m units during January-March, according to IDC. Samsung has a 20.8% market share. That beat Apple’s 17.3% share
West Texas Intermediate rose to its October 2023 highs, before pulling back, on fears that an Iranian retaliation for an Israeli attack on an Iranian consulate would lead to a wider war in the Middle East. International benchmark Brent crude surged as much as 2.7% to top $92 a barrel before retreating to close at $90.26 a barrel, up 0.58% on the day. West Texas Intermediate, the U.S. benchmark, is now up 19% in 2024. Bloomberg reports that Western intelligence assessments are looking for an Iranian attack in the next 48 hours. No one wanted to hold U.S. equities ahead of the weekend.
So why was this so important today? Important enough to send the yield on the 10-year Treasury up another 3 basis points to 4.58%.The Producer Price Index for final demand rose 0.2 percent in March, seasonally adjusted, the Bureau of Labor Statistics reported today. Final demand prices moved up 0.6% in February and 0.4% in January. On an unadjusted basis, the index for final demand increased 2.1% for the 12 months ended in March, the largest advance since rising 2.3% for the 12 months ended April 2023..The March increase in the index for final demand is attributable to a 0.3% rise in prices for final demand services. In contrast, the index for final demand goods edged down 0.1%. Look at the last set of numbers.
If, as the too hot April 10 CPI inflation argues, we’re not going to see a June 12 interest rate cut… And if investors are looking at two cuts in 2024 (at the most) instead of three… And if there’s a possibility that we won’t see the first rate cut until the November 7 Fed meeting… Then what will keep this rally from turning into a correction? Earnings look like they will have to do the job .Problem is that this quarter’s earnings look likely to disappoint. There are quarters with better earning growth forecast ahead. Will investors wait for them?
In March the Consumer Price Index inflation rate rose more than expected by economists for a third straight month, the Bureau of Labor Statistics reported this morning. That looks to the market today, and to me, like it takes an initial interest rate cut off the table for the Fed’s June 12 meeting. The all-items inflation rate rose by 0.4% in March from February. The 12-month all-items inflation rate rose at a 3.5% rate in March. The core CPI, the inflation rate more important to the Federal Reserve, rose 0.4% month-over-month in March. And at a 3.8% annual rate.
Nvidia (NVDA) doesn’t report earnings until May 22. But the report is already shaping up as critical for the stock. Analysts see the company reporting earnings of $5.13 a share for the quarter, up from just 88 cents a share in the same quarter of 2023.
But the short-term earnings numbers aren’t what’s most importance right now. Nvidia has roughly 90% share in the market for AI-accelator chips. That’s put a big target on the company’s back. No one expects Nvidia is maintain that 90% share–which is okay since the market is growing so fast. Last month, analysts at Bank of America said the market could reach anywhere between $250 billion and $500 billion over the next three to five years. That was a big jump from their earlier estimate of less than $250 billion. The question is How fast all the efforts to compete with Nvidia will eat into that market share.
Yields on the 10-year Treasury rose to the highest since November, climbing to 4.42%. That an increase in the 10-year yield of 25 basis points in the last month. The bond market looks to have given up its hope for three interest rate cuts in 2024 now to be looking now to just two moves by the Federal Reserve in 2024. Wednesday’s release of CPI inflation numbers for March will confirm or reverse that conviction
This week I expect the market to put its obsession with the Federal Reserve, inflation, and interest rates on hold, and switch to watching earnings reports for the first quarter of 2024. The first batch of earnings–the Big Banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC)–hits the wires on Friday, April 12–with Netflix (NFLX) to begin tech/momentum earnings reports on Tuesday, April 18. I think it would be an overstatement to say that the quarter’s earnings reports are make or break for this rally–the economic news is just too strong and interest rate cuts loom out there somewhere even if no one can say just when. But this quarter will provide an important data point in the “Stocks have climbed too far, too fast” vs. “This rally can run higher on a strong economy” debate. And the first set of high-profile earnings looks likely to throw some cold water on the most fevered market optimists.
The U.S. economy added 303,000 jobs last month. That was far more than than the 192,000 expected by economists.The unemployment rate dipped to 3.8%.
For today at least the stock market sees the report as “The glass is half full.” Yes, a stronger than expected labor market raises the odds that the Federal Reserve won’t begin its interest rate cuts at its June 12 meeting. But the strength in the economy is good for stocks. And if not June, then the Fed will cut in July, the thinking goes today.
