The latest #TradewithDave lookahead w/c 25th September 2023
In the latest #TradewithDave update we look back at last week’s big events, and consider what’s happening in the week beginning 25th September.
The US Federal Reserve
Last Wednesday the Federal Reserve’s FOMC kept its key Fed Funds interest rate unchanged, as expected. This was the first FOMC meeting since July when the Fed hiked rates by 25 basis points, taking the upper limit of the Fed Funds rate to 5.50%, its highest level since January 2001. The FOMC also released its quarterly Summary of Economic Projections. This is where individual members of the committee provide their forecasts for inflation, the Fed Funds rate, GDP and unemployment for the rest of this year and beyond. The FOMC reiterated that it still expects to raise rates by a further 25 basis points before year-end. But the big news was that the majority of members only expect two 25 basis point rate cuts in 2024, rather than the four they predicted in the prior summary back in June. As the news sank in, equities began to sell off, as did bonds. The yield on the 10-year Treasury note soared on Thursday to hit 4.49%, its highest level since October 2007. Going into the weekend, investors appear jittery.
NASDAQ 100 – feeling the pain
It was the tech-heavy NASDAQ 100 which led the post-FOMC sell-off. It lost 1.5% on Wednesday and a further 1.8% in Thursday’s session. Tech stocks led the post-Covid rally from the spring of 2020, on the back of historically low interest rates and huge dollops of additional monetary and fiscal stimuli. The rally hit a brick wall in November 2021 as it became abundantly clear that the subsequent pick-up in inflation was certainly not ‘transitory’ as the Federal Reserve claimed. The ‘tech/growth’ stocks in the NASDAQ flourish in a low interest rate environment, but struggle when borrowing costs rise. Nevertheless, after a torrid time for most of last year, many tech stocks rebounded in October and carried on to make exceptional gains until late this summer. But the Fed’s renewed hawkishness has chucked a spanner in the works. The question now is how damaging this will prove to be for investor confidence going into the fourth quarter of 2023?
Check out the US Tech 100…
Strike action
Last week, US auto workers joined Hollywood’s actors and writers in taking industrial action. Unfortunately, there’s been no progress in reaching an agreement and the strikes against Ford, General Motors and Stellantis (owner of the Chrysler band) look set to widen.
Check out General Motors…
Microsoft and Activision Blizzard
But there’s been some better company news as the UK’s Competition and Markets Authority have removed their objection to Microsoft’s proposed $69 billion purchase of Activision Blizzard, the gaming company behind Call of Duty and World of Warcraft. If it goes ahead, this will be the biggest tech acquisition in history.
Check out Activision Blizzard…
🔸 Looking ahead to next week
IPO watch
The ARM IPO looked like a great success as the stock rallied 25% on its first day of trading. Last week we saw online grocery concern Instacart rally 12.3% and automated marketing data company Klaviyo end up 9% on their respective first days as public companies. This was despite shares in both companies being priced the high end of expectations. In fact, Klaviyo was up 32% at one stage. But at at the time of writing we’ve seen ARM and Instacart give up early gains and fall back towards their initial IPO prices. Could this be in line with general market wariness, or does it suggest that the new dawn for IPOs has not yet arrived?
Check out ARM…
Data-lite
This coming week is relatively light when it comes to significant data releases, although we’ll get an update on US Durable Goods on Wednesday, and Core PCE (personal consumption expenditures) on Friday. The latter is the Fed’s preferred inflation measure, and, being ‘Core’, it excludes the volatile, yet important components food and energy. Last month’s Core PCE rose by 4.24% year-on-year, up from 4.09% the previous month. It stood at 5.2% in September last year. So, while there has been an improvement, it is undoubtedly less dramatic than the decline in Headline CPI which fell from +9.1% last summer to 3% this June, before picking up to 3.7% in August. Both measures remain a long way above the Fed’s 2% inflation target, which helps explain the US central bank’s current hawkishness. On that subject, we will hear speeches from several Fed members this week, including Chairman Jerome Powell.
US stock indices
Last week the S&P 500 hit its lowest level since June this year. The upside momentum that we’ve witnessed since January appears to be fading as investors acclimatise to increased hawkishness from the US Federal Reserve. Of course, the bulls can argue that by now the Fed should be closer than ever to ending its programme of rate hikes given the fall in inflation over the past twelve months or so. But the bears will point out that the Fed is still a long way from hitting its 2% inflation target, and interest rates look like they’re destined to be ‘higher for longer’ than previously forecast.
The US Federal Reserve
Last Wednesday the Federal Reserve’s FOMC kept its key Fed Funds interest rate unchanged, as expected. This was the first FOMC meeting since July when the Fed hiked rates by 25 basis points, taking the upper limit of the Fed Funds rate to 5.50%, its highest level since January 2001. The FOMC also released its quarterly Summary of Economic Projections. This is where individual members of the committee provide their forecasts for inflation, the Fed Funds rate, GDP and unemployment for the rest of this year and beyond. The FOMC reiterated that it still expects to raise rates by a further 25 basis points before year-end. But the big news was that the majority of members only expect two 25 basis point rate cuts in 2024, rather than the four they predicted in the prior summary back in June. As the news sank in, equities began to sell off, as did bonds. The yield on the 10-year Treasury note soared on Thursday to hit 4.49%, its highest level since October 2007. Going into the weekend, investors appear jittery.
NASDAQ 100 – feeling the pain
It was the tech-heavy NASDAQ 100 which led the post-FOMC sell-off. It lost 1.5% on Wednesday and a further 1.8% in Thursday’s session. Tech stocks led the post-Covid rally from the spring of 2020, on the back of historically low interest rates and huge dollops of additional monetary and fiscal stimuli. The rally hit a brick wall in November 2021 as it became abundantly clear that the subsequent pick-up in inflation was certainly not ‘transitory’ as the Federal Reserve claimed. The ‘tech/growth’ stocks in the NASDAQ flourish in a low interest rate environment, but struggle when borrowing costs rise. Nevertheless, after a torrid time for most of last year, many tech stocks rebounded in October and carried on to make exceptional gains until late this summer. But the Fed’s renewed hawkishness has chucked a spanner in the works. The question now is how damaging this will prove to be for investor confidence going into the fourth quarter of 2023?
Check out the US Tech 100…
Strike action
Last week, US auto workers joined Hollywood’s actors and writers in taking industrial action. Unfortunately, there’s been no progress in reaching an agreement and the strikes against Ford, General Motors and Stellantis (owner of the Chrysler band) look set to widen.
Check out General Motors…
Microsoft and Activision Blizzard
But there’s been some better company news as the UK’s Competition and Markets Authority have removed their objection to Microsoft’s proposed $69 billion purchase of Activision Blizzard, the gaming company behind Call of Duty and World of Warcraft. If it goes ahead, this will be the biggest tech acquisition in history.
Check out Activision Blizzard…
🔸 Looking ahead to next week
IPO watch
The ARM IPO looked like a great success as the stock rallied 25% on its first day of trading. Last week we saw online grocery concern Instacart rally 12.3% and automated marketing data company Klaviyo end up 9% on their respective first days as public companies. This was despite shares in both companies being priced the high end of expectations. In fact, Klaviyo was up 32% at one stage. But at at the time of writing we’ve seen ARM and Instacart give up early gains and fall back towards their initial IPO prices. Could this be in line with general market wariness, or does it suggest that the new dawn for IPOs has not yet arrived?
Check out ARM…
Data-lite
This coming week is relatively light when it comes to significant data releases, although we’ll get an update on US Durable Goods on Wednesday, and Core PCE (personal consumption expenditures) on Friday. The latter is the Fed’s preferred inflation measure, and, being ‘Core’, it excludes the volatile, yet important components food and energy. Last month’s Core PCE rose by 4.24% year-on-year, up from 4.09% the previous month. It stood at 5.2% in September last year. So, while there has been an improvement, it is undoubtedly less dramatic than the decline in Headline CPI which fell from +9.1% last summer to 3% this June, before picking up to 3.7% in August. Both measures remain a long way above the Fed’s 2% inflation target, which helps explain the US central bank’s current hawkishness. On that subject, we will hear speeches from several Fed members this week, including Chairman Jerome Powell.
US stock indices
Last week the S&P 500 hit its lowest level since June this year. The upside momentum that we’ve witnessed since January appears to be fading as investors acclimatise to increased hawkishness from the US Federal Reserve. Of course, the bulls can argue that by now the Fed should be closer than ever to ending its programme of rate hikes given the fall in inflation over the past twelve months or so. But the bears will point out that the Fed is still a long way from hitting its 2% inflation target, and interest rates look like they’re destined to be ‘higher for longer’ than previously forecast.