Markets await US inflation data: Towards a drastic rate cut
Global stock markets had a positive session on Monday, with a wave of buying by investors looking for bargains, following heavy losses last week. The main US indicesreturning from the worst week of 2024, they bounced back with forceThe S&P 500 gained 1.16%, snapping a five-day losing streak, while the Nasdaq 100 rose 1.3%, driven in particular by a rally in Nvidia, which rose 3.5%. Just a few days ago, Nvidia had recorded a weekly decline of 13.86%, the worst of the yearwith approximately $406 billion of market capitalization gone up in smoke.
However, despite the enthusiasm of investors, the underlying situation has not changed. Markets remain awaiting US inflation datawhich will be released tomorrow, and continue to bet on an imminent rate cut by the Federal Reserveprobably 25 basis points. There are also those who hypothesize a more decisive cut, of 50 basis points, fueling the fear that such a drastic intervention could signal a greater vulnerability of the American economy and the risk that the Fed is acting late. Yesterday’s optimism should not make us believe that concerns have vanished. Although all eleven sectors of the S&P 500 closed higher, purchase flows to defensive sectors remained present. Bond yields, moreover, remained relatively stable, a sign that investors remain cautious. The technology, industrial, financial and consumer discretionary sectors led the recovery, although they are still in negative territory since the beginning of the month.
Technology stocks, in particular, have been shining on the news that Palantir Technologies and Dell Technologies have joined the S&P 500. After the markets closed on Friday, the S&P announced changes to its basket: effective September 23, Palantir, Dell, and Erie Indemnity will replace American Airlines Group, Etsy, and Bio-Rad Laboratories. Palantir and Dell’s additions bring the number of tech additions to the S&P 500 to five since the beginning of the yearout of a total of eleven new arrivals. Despite this, the balance of power did not change much in a capitalization-weighted index dominated by Magnificent 7 stocks such as Apple, Microsoft and Nvidia.
Palantir shares jumped 14.1% in their first post-announcement session (though not their best daily gain this year), doubling their value since the start of 2024 with a 101% gain. Of thespecializing in a wide range of products, from servers to software, to cybersecurity services, has seen its shares rise nearly 40% since Januarymore than double the average performance of the S&P 500. Erie Indemnity also showed impressive results, with an increase of 51%.
It now remains to be seen whether these performances are sustainable beyond the initial enthusiasm associated with entry into the index. Looking at the stocks that have been added to the S&P 500 this year, we see that in the first post-announcement session they have recorded an average increase of 5%, with Super Micro Computer at the top with +19%. However, looking at subsequent performances, the data are less exciting, with an average decline of 6%, penalized by the heavy -64% of SMCI. In contrast, “exit stocks” (stocks that have left the index) have recorded an average increase of 15%.
Another hot topic concerns Apple, which yesterday did not have the “wow” effect that many expected. Although improvements and new products have been presented, the lack of real innovation, especially in the AI field, seems to be a weak point for a company that is trying to grow its business. Although the management is trying to diversify its sources of revenue beyond the iconic iPhone, the flop of the VR headset and the abandonment of the car project demonstrate that the road to innovation is still full of obstacles.
*Italian Market Analyst at eToro.
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