Equity and bond markets can, at certain times, and this is currently the case, send contradictory signals. We have already been able to explain this in our weekly posts. While the S&P 500 crossed the symbolic and historic threshold of 5,000 points at Friday's close and the Nasdaq Composite index is already showing a performance since the start of the year greater than 6%, the interest rate market Interest has already retraced the December decline (+40 bps on the US 10-year since its lows at the end of last year and +50 bps increase for the Bund over the same period).
Who said technology stocks were rate sensitive? Lunar… not so much. Indeed, if we compare the S&P 500 Equal Weight (+0.65% YTD) and the S&P 500 (+5.38% YTD), the gap is notable! The progressions of the Nasdaq Composite (+6.75% YTD) or even the “Magnificent 7”, like Nvidia (+45% YTD), allow us to better understand what is at stake. The American technology sector has, in a way, become the “safe haven sector” at the start of 2024, confirming a trend already observed last year. Be careful, however, of the risk of a cold shower on the euphoria linked to the “Tech/Artificial Intelligence” theme! Lunar, you said? What do we think of the crazy fundraising of almost $7,000 billion expected by Sam Altman of OpenAI? This is enough to support general market sentiment on Tech…
As for the movement on rates, if the drop observed at the end of 2023 was clearly exaggerated, investors are starting to understand that their forecasts for key rate cuts were too optimistic, what's more by anticipating a first intervention by central bankers in March. As indicated in our meeting on Monday January 8, the soft landing scenario is hardly compatible with the last phase of disinflation (i.e. the transition from 3% to 2%). Indeed, while American growth for this year continues to be revised upwards (1.6% currently compared to 1% at the start of November 2023) and some forecasters even anticipate GDP growth slightly lower than that of last year. (2.5%), the fall in inflation could reach a plateau due to the recovery in consumption, linked to the return of the increase in real wages. Last week, bankers urged investors to exercise caution and the FED's pivot expected next May could be delayed with such resistance in the economy. The publication this Tuesday of the CPI US index as well as the comments from FED officials will therefore be worth following closely.
Finally, the Chinese market will be closed this week due to the Lunar New Year celebrations, after a notable rebound last week (+4.65% on the CSI 300 since the start of the month). It is difficult to plan for the short term on this market as the successive measures taken by the Chinese authorities seem insufficient in the face of sulking investors. If the latest measures to date (e.g. announcements of expanded intervention by the state fund Huijuin Investment, sweeping away at the CSRC, very strict rules to reduce the volumes of short sales, etc.) seem to have allowed the Chinese stock markets to regain some color , let's remain cautious because if the sun (measures by the authorities) has met the moon (market sentiment and flow), as the “Singing Madman” reminded us, “the moon is not there and the sun is waiting... ".
One thing is at least certain, Donald Trump ultimately “reassures” us by the consistency of his behavior, with his electoral declarations on customs barriers against Chinese products and on the “bad students” of NATO who would be left behind. abandonment as “bad payers”. Happy New Year of the Wood Dragon!
To access the full Monday Meeting with our market views and the chart of the week, please click on the button below.