Even Nvidia can't save the market! U.S. data "thunderbolt from the blue" Wall Street "broken heart"

Finance Associated Press

2024-05-24 09:19Published on the official account of Cailianpress, a subsidiary of Shanghai Poster Industry Group

Finance Associated Press, May 24 (edited by Xiaoxiang) At the beginning of this week, all Wall Street people were extremely looking forward to the earnings report of Nvidia, which is known as "the most important stock on the planet", which can bring new guidance to the trend of U.S. stocks. However, as this week came to an end, people suddenly discovered that the real "protagonist" of the US market this week was not Nvidia's "leather knife show......

Nvidia's performance has been nothing short of outstanding — the company's revenue, profits, and Q2 guidance have exceeded market expectations, and its stock price has risen significantly after the earnings release — soaring 9.3% in a single day on Thursday to hit a record high, but all this has not saved the U.S. stock market from falling sharply for two consecutive days on Wednesday and Thursday.

In an embarrassing comparison, while the market capitalization of Nvidia surged by $230 billion on Thursday, the total market value of U.S. stocks still fell by about $500 billion on the day.

At the end of the overnight close, the S&P 500 was down 0.7%. The Nasdaq Composite fell 0.4%. The Dow Jones Industrial Average fell about 600 points, or 1.5%, the biggest one-day percentage drop since the Silicon Valley Bank crisis in March 2023. This is the second consecutive day that the three major indexes have fallen, and among the seven major U.S. stocks, only Nvidia rose on Thursday......

So, what is it that makes the "most important stock on the planet" fail to save the US stock market?

The spearhead of Wall Street is once again pointing to the hot U.S. economic data like a "bolt from the blue", as well as the "broken" Fed interest rate cut expectations in the market......

U.S. data "Bolt from the Blue"

As we mentioned in yesterday's report, the Fed's latest meeting minutes released on Wednesday "poked a big shot" – although Fed Chair Jerome Powell vowed at his post-meeting press conference that the Fed's next move is unlikely to be to raise interest rates. However, the newly disclosed details of the meeting minutes reveal that Powell's "dovish" statement at that time may have largely overshadowed the voices of hawkish officials.

The hawkish minutes showed that "many" Fed officials questioned whether policy would be restrictive enough to bring inflation down to target, with several mentioning a willingness to tighten policy further if necessary.

After the release of the Fed minutes, the market's expectations for the Fed to cut interest rates twice this year quickly cooled. And all of this has intensified with the release of a new series of hot US data on Thursday......

In fact, the US financial market on Thursday proved once again the lethality of the current "good data" on Wall Street: against the backdrop of still sticky inflation, US business activity accelerated, which reinforced the expectation that the Federal Reserve will continue to keep interest rates high for a long time, causing stocks and bonds to fall.

Data released by S&P Global on the same day showed that the S&P Global US Composite PMI rose more than 3 points to 54.4 in May, the highest level since April 2022. Among them, the manufacturing PMI hit a two-month high and broke through the 50 mark, and the service PMI hit a 12-month high.

A PMI reading above 50 indicates an expansion in industry activity. And Thursday's data was higher than all economists surveyed had expected. The climb in this PMI indicator indicates that overall economic activity in the United States is still accelerating significantly after entering the middle of the second quarter. This reversed a decline in some of the previous economic indicators, with the most recent data showing sluggish retail sales and a decline in manufacturing output in April, which at one point indicated that the overheating of the US economy had eased at the start of the quarter.

Looking at the breakdown, the most worrying of the PMI indicators overnight may be that it indicates that the downward momentum of prices in the United States will continue to be repeated, with factory input prices rising at the fastest pace since November 2022 and service providers paying and receiving prices also increasing. In the composite PMI data, a measure of input prices rose to the second highest level since September last year.

Chris Williamson, chief corporate economist at S&P Global Market Intelligence, said in a statement, "Interestingly, the main driver of inflation is now coming from manufacturing rather than services, which means that cost and selling price inflation has risen in both sectors by pre-pandemic standards, suggesting that the last mile to achieve the Fed's 2% target still seems out of reach." ”

Williamson also noted that the US composite PMI hit its highest value in 25 months and clearly "will worry the Fed."

In addition to the PMI, the latest weekly job market indicators released on Thursday also performed well. According to the data, the number of initial claims for unemployment benefits in the United States fell by 8,000 to 215,000 in the week to May 18, the largest consecutive decline since September last year, and the market expected 220,000.

Wall Street's "broken heart"

For most of the year, market expectations for the Fed's rate cuts this year have actually cooled. The rare turnaround has come in recent weeks, where some economic indicators reflecting the start of the second quarter have shown signs of decline, and inflation data has also come down in a welcome setback.

However, just when people were expecting the Fed to cut interest rates in September, the Fed minutes and the latest PMI data this week played a big joke on traders, which also made the Fed's interest rate cut expectations that had not been easy to improve in the market "broken" again......

The latest pricing in interest rate markets showed traders now expect the Fed to cut rates by just 35 basis points this year following the release of a number of hot sets of U.S. economic data on Thursday, a figure that is further down from the previous session's 40 basis points. In terms of number of times, this indicates that the market's benchmark estimate has gone from two rate cuts to one rate cut.

At the same time, traders have pushed back the timing of the Fed's first rate cut from November to December.

In the bond market, U.S. Treasury yields of all maturities also surged overnight due to the impact of the Fed's interest rate cut expectations. By the end of the New York session, the 2-year Treasury yield was up 7.2 basis points at 4.952%, the 5-year Treasury yield was up 6.8 basis points at 4.537%, the 10-year Treasury yield was up 5.5 basis points at 4.483%, and the 30-year Treasury yield was up 4.4 basis points at 4.585%.

Ellis Phifer, managing director of fixed income capital markets at Raymond James, said, "The S&P PMI measure has never really had a big impact on the market before, but all of a sudden [Thursday] it made a splash. The only thing I can think of is that the manufacturing sector is picking up a bit more strongly than the market expects. ”

Phifer added, "I suspect that the market has been lacking in dynamism and that there has not been much reaction to initial jobless claims. But when you combine a better-than-expected jobless benefits report with the PMI, the quiet market will make waves. ”

In the foreign exchange market, the ICE U.S. Dollar Index, which tracks a basket of six major currencies including the euro, also rose above the 105 mark on Thursday, continuing to hit a one-week high. Marc Chandler, chief market strategist at Bannockburn Global Forex LLC, said, "The FX market is still reacting to strong US economic data in the expected way, and I think there is some upside for the US dollar." ”

It is worth mentioning that Fed officials also released a "hawkish voice" to the outside world again on Thursday. Atlanta Fed President Bostic said overnight that monetary policy is not as effective at slowing economic growth as in previous cycles, so it is more necessary to keep interest rates higher for a long time to curb inflation. While Bostic believes the Fed will start cutting rates by the end of the year, it is unlikely to do so before the fourth quarter.

The next FOMC meeting will be held on June 11-12.

Regarding the current market situation and the key indicators to face next, Vail Hartman, U.S. rates strategist at Bank of Montreal Capital Markets, said, "Overall, we are in consolidation mode, waiting for key information to come out, and the next big data is the core personal consumption expenditures (PCE) price index next week, but I think the market has a pretty good judgment about the new PCE, given the earlier consumer price index (CPI) and other inflation data." The next important indicator after PCE will be the May non-farm payrolls report, which will be released on June 7. ”

(Finance Associated Press Xiaoxiang)

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