BentinPartner Weekly
At the same time as US stocks hit an all-time high on Tuesday on expectations the Federal Reserve would soon start cutting rates, they also extended a rotation out of megacaps into small caps, a move that had been initiated the week before on softer than expected inflation data. This led the Russell 2000 to beat the Nasdaq 100 by almost 11%, its best winning streak since 2011.
Then on Wednesday, some harsh protectionist comments of D. Trump on the need for tighter curbs on exports of advanced semiconductor technology to China dealt a severe blow to the semiconductor index which suffered its worst session in four years, losing more than $500bn market value. Remarks from D. Trump also saying that Taiwan should pay the United States for its defense also deepened the selloff in Taiwan semiconductors. Over one week, the semiconductor Index dropped 8.8%, the steepest fall since April and those who hid into ASML to avoid the pricey NVidia suffered 17.5% blow as well while AMD shed 16.5% and Micron 14.4%.
The so-called Trump trades continued throughout the week favouring small caps but also value stocks with the perspective of Trump’s “America first” doctrine leading to underperformance in European and Chinese stocks for most of the week as well. In currencies, MXN dropped as D. Trump is expected to clamp down on Mexico as the backdoor for Chinese imports to the US.
The hard tech selloff and the accompanying rotation suggested a typical half full/ half empty story with some arguing that it provided a healthy pause that refreshes and some broadening effect to the so far narrow rally seen in US large cap tech stocks (the equal weighed sp500 also outperformed meaningfully last week) with expectations running high that another good earnings season will have the AI/technology bull back on track.
Others suggested that the overall market cannot stand firm without tech stocks that are overweighing large indexes making flows to the market -in general- heavily dependent on flows into tech stocks and last week’s selloff as a sharp reversal in the hyper over-owned tech stocks and the beginning of a Bubble deflation.
On Friday, pressure intensified on tech stocks and the market in general after the “biggest outage in history” which led to “blue screens” spreading across the world with countless flight cancellations and hospitals having to cancel or interrupt operations after a failed antivirus update from Crowdstrike (one of the top performing SP500 shares so far this year which was however clipped off 14% of its value after the incident).
It was presented as an outage “not” a cyberattack. Time will tell on the exact definition and origin of this global outage but the interview of the co-founder of Crowdstrike (see interview here) who is a vocal and prolific geopolitical expert warning about the inevitability of a Chinese invasion of Taiwan (and the need to clamp down further against China) may also have given plenty of reasons to people who would oppose this view to conduct nefarious operations against Crowdstrike. The massive outage also highlights the looming threat accompanying the extreme dependency on one global provider of software services.
On the positive side last week, another expression of the Trump trade was for regional banks to rally (“I will bring interest rates down”, Trump said last week, which revived souvenirs of the pressure he successfully exerted on the Fed to cut rates while the economy least needed it. Energy also rallied strongly.
On the economic side last week, US industrial production posted a solid advance for a second month in June, helped by a pickup in factory output suggesting manufacturing could be regaining some footing. The 0.6% increase in production at factories, mines and utilities followed a revised 0.9% gain a month earlier, marking the biggest two-month advance since late 2021, Bloomberg reported. On the other hand, car repossessions rocketed higher in H1, a sign of rising consumer distress as the US Federal Reserve weighs interest rate cuts. So far in 2024, repossessions are up 23% compared with the same period last year.
Over the past week, the S&P500 dropped -2,0% (15,5% YTD) while the Nasdaq100 sold off by -4,0% (16,0% YTD). The US small cap index gained 1,7% (8,0% YTD). AAPL sold off by -2,7% (16,5%).
The Equally Weighed SP500 dropped -0,1% (6,7% YTD), outperforming the S&P500 by 1,9%. The median SP500 YTD return closed the week at 7,5%.
Cboe Volatility Index rallied 32,6% (32,7% YTD, Z-score 2,9) to 16,52.
The Eurostoxx50 sold off by -4,3% (9,4%, Z-score -2,3), underperforming the S&P500 by-2,3%.
Diversified EM equities (VWO) sold off by -3,6% (6,9%), underperforming the S&P500 by-1,7%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,5% (6,4%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,3% (-0,9%).
10Y US Treasuries underperformed with yields rising 6bps (36bps) to 4,24%. 10Y Bunds dropped -3bps (44bps) to 2,47%. 10Y Italian BTPs dropped -1bps (8bps) to 3,78%, underperforming Bunds by 2bps.
US High Yield (HY) Average Spread over Treasuries dropped -4bps (-20bps) to 3,03%. US Investment Grade Average OAS climbed 2bps (-6bps) to 0,99%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 3bps (-6bps) to 0,61%.
Gold dropped -0,4% (16,4%) while Silver sold off by -5,1% (22,8%). Major Gold Mines (GDX) sold off by -2,0% (20,6%).
Goldman Sachs Commodity Index sold off by -3,0% (2,5%, Z-score -2,6). WTI Crude sold off by -2,5% (11,8%).
Overnight in Asia…
S&P500 + 10points; Nikkei -0.8%; CSI300 0.3%
The decision of President J. Biden to exit the presidential race was followed by a wide support given to Vice-President Harris to pick up the baton. Still, Barack Obama, the leader of the Democratic Party for the last 16 years, went out of his way not to endorse Kamala, meaning the selection process is far from over.
China cut its 7days repo rate by 10 bps to 1.7%.
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