The three major US stock indexes all hit historic highs last week, with the Dow Jones index reaching the 40000 point integer mark for the first time. Whether the US stock market can continue its strength is worth paying attention to.
The Federal Reserve will release the minutes of its monetary policy meeting on Thursday this week, and several senior Federal Reserve officials will also give speeches on the economic outlook. Although it is not realistic for the Federal Reserve to cut interest rates in the short term, the market still hopes that there will be surprises in the number of rate cuts this year.
How will the US stock market go after reaching a new high?
Last week, US technology stocks continued to lead the market in gains, with all three major stock indices reaching historic highs. The leader in the artificial intelligence sector, Nvidia, surpassed the overall index with a 9.22% increase. After reaching a new high, how the US stock market will perform in the future has attracted a lot of attention.
Analysts from Huafu Securities believe that the market is relatively optimistic about the 2024 profit expectations of the US stock market, and the valuation level exceeds the average of the past 10 years. Among them, the healthcare, TMT, and financial sectors have the highest expected growth rate per share; In addition, the average of most industries exceeds the central level of the past decade, and the quantiles of valuation for pharmaceuticals, information technology, materials, and industry are relatively high. Looking ahead, analysts are not pessimistic about the US stock market, but in the short term, they need to be wary of the risk of interest rate cuts being pushed back.
Analysts believe that the expectation of interest rate cuts has once again heated up, and the overall earnings of the US stock market in the first quarter have exceeded market expectations. Since May, the US stock market has rebounded significantly and reached a new historical high; The US economy has strong resilience, and the EPS end of the US stock market may continue to provide support. The overall outlook for the US stock market is not pessimistic. However, in the short term, in the context of time required to reduce inflation, interest rate cuts may not meet market expectations overnight. We need to be cautious of the risk of further delay in interest rate cuts, which may cause some disturbance to the valuation of US stocks.
The most noteworthy thing this week is that Nvidia is about to release its latest quarterly report.
Wall Street analysts generally predict that Nvidia's revenue is expected to reach $24.6 billion in the first quarter ending in April, a more than double year-on-year growth. By the end of the fiscal year in January 2025, quarterly sales are expected to exceed the $30 billion mark; Expected net profit for the same period is 13.86 billion US dollars, with a year-on-year increase of over 500%.
Analysis suggests that this financial report should focus on three points: first, will Nvidia's performance continue to exceed expectations, and what is the trend of profit margins? Next is the production capacity of Nvidia's latest Blackwell architecture, and finally, whether the demand growth rate will slow down as GB200 and the previous generation chips are replaced.
How far the bull market in the US stock market can go will depend on whether technology stocks represented by Nvidia can continue to outperform expectations.
When will the Federal Reserve cut interest rates?
This week, several Federal Reserve officials will give speeches on the economic outlook. Including FOMC Permanent Voting Committee, New York Fed Chairman Williams, 2024 FOMC Voting Committee Bostek and Mester, and 2025 FOMC Voting Committee Collins, the market is paying attention to their statements regarding interest rate cuts.
In addition, at 02:00 Beijing time on Thursday, the Federal Reserve will release meeting minutes. At the previous monetary policy meeting, the Federal Reserve continued to maintain its benchmark interest rate unchanged. Federal Reserve Chairman Powell stated after the meeting that due to persistent price pressure, interest rates may remain high for a longer period of time. Subsequently, he stated in another public occasion that although the price level is better than expected, the Federal Reserve may still maintain the current interest rate level.
Subsequently, multiple Federal Reserve officials also expressed the same view and pointed out the need for more evidence to prove that inflation is continuing to move towards the Federal Reserve's 2% target.
The US Bureau of Labor Statistics released data last Wednesday showing that the US CPI in April increased by 3.4% year-on-year, a slight decrease from the previous value of 3.5%; After excluding food and energy costs, the month on month growth rate of core CPI in April decreased from 0.4% in March to 0.3%, marking the first decline in six months and remaining unchanged from the expected 0.3%.
Prices remain stable, causing the market to once again discuss when to lower interest rates. Wall Street analysts say that this CPI data has opened the door for the Federal Reserve to cut interest rates, and it is widely believed that the April inflation data, even if it cannot make the Federal Reserve cut interest rates in July, is enough to start cutting interest rates from September.
Morgan Stanley pointed out in its latest report that the latest price data has helped the market price back to expectations of two interest rate cuts this year. The market still underestimates the number of rate cuts this year, but the Federal Reserve needs more evidence to start cutting rates. Da Mo believes that the economic data for April will shift from a "positive surprise" to a "negative surprise", starting with the employment data in April, followed by the retail report. The CPI inflation data did not show a particularly surprising decrease, but a data that meets expectations is a huge comfort for the financial markets.
Federal Reserve executives' agenda for this week (organized by Chen Xiachang)
Multiple countries will release macro data
In addition to the high attention paid to interest rates and price levels in the United States, multiple countries and regions such as India, Germany, France, and the eurozone will release important macro data this week, as well as pay attention to the interest rate meetings of central banks such as New Zealand and South Korea as the global interest rate cutting cycle begins.
Macro data of major countries (organized by Chen Xiachang)
This week, Japan will release its April Consumer Price Index (CPI). Preliminary data released earlier showed that in the first quarter of 2024, Japan's economy contracted more than expected, indicating that inflation caused by the weak yen is damaging consumer demand. Institutions predict that due to last year's high base, overall inflation in April is expected to fall back to 2.3%, but pressure remains in the coming months. Considering the concern that the Bank of Japan may further raise interest rates and reduce bond purchases, investors are expected to focus on the auction of 10-year inflation indexed Japanese treasury bond and 40 year Japanese treasury bond by the Ministry of Finance.
Even though Japan raises interest rates, the high interest rates of the Federal Reserve still put the yen in a passive position. The decision of the Federal Reserve not to cut interest rates has had a profound impact on the global economy. Central banks of various countries need to balance the complex relationship between inflation, economic growth, and currency value when formulating monetary policies.
For central banks in other regions around the world, the uncertainty of the Federal Reserve's interest rates poses challenges for central bank decisions. The European Central Bank plans to cut interest rates for the first time at its June meeting, while the Bank of England may need more time to turn to rate cuts. The Bank of Canada stated that in the absence of clearer signals from the Federal Reserve, its rate cuts will be limited in magnitude and speed.
CPT Markets analysts believe that the strengthening of the US dollar against other currencies has kept the US dollar in a strong position. The prospect of sustained high US interest rates makes investing in US securities more attractive, leading to an appreciation of the US dollar. This is particularly difficult for developing economies, especially those with US dollar denominated debt, as the depreciation of their domestic currency makes the cost of debt repayment higher. Some countries such as Indonesia and India have had to take measures to address currency weakness.
In this context, central banks of various countries need to closely monitor international economic dynamics and the monetary policy decisions of the Federal Reserve, and flexibly adjust their monetary policies to adapt to changes in the global economic environment. At the same time, it is also necessary to strengthen the structural adjustment and reform of the domestic economy to enhance economic resilience and risk resistance. Only in this way can countries achieve stable growth and common prosperity in the global economic landscape.
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