technology stocks

Prioritise quality companies. If an investor needs to take a defensive stance, it is worth turning to quality stocks, as their robust balance sheets and stable cash flows should insulate them from unforeseen downside risk. With this in mind, many of the largest technology and Internet stocks meet these criteria, while exposure to highly cyclical sectors and companies with excessive leverage should be kept to a minimum. Thus, in order to increase the resilience of your portfolios, you should focus on high quality companies, strong dividend payers and also not forget about regional diversification, as lower valuations and a weaker US dollar can also make global stock markets outside the US attractive.   The general understanding is that the market is likely to come out of the correction this year with expectations of a continued recovery in the second half of the year and a return to a bullish trend. This recovery is expected to help recoup portfolio losses from 2022.   However, there are several factors that pose risks to the market in the near future. These risks include the potential for a bear market, which could be triggered by inflation statistics such as the PCE index and strong labour market conditions. Another risk is the narrow scope of the current rally, where only some sectors have shown growth while others, including cyclical, defensive and growth sectors and assets such as bonds, have remained weak. There is also uncertainty about the timing and severity of a possible recession this year. The market is now looking at the likelihood of a moderate recession, which is already factored into current expectations and prices.   Once there is more clarity on these risk factors, portfolio allocation can be adjusted accordingly, considering both bonds and stocks, with a focus on the second half of the year and recovery of losses incurred in 2022. Two scenarios were considered for such an adjustment:   Scenario No. 1, the positive outlook, sees the market rising and breaking through significant resistance levels of 4200-4300 in the SPX index, which would lead to a rally. In this case, it would be prudent to increase long positions. Risky stocks should be held until they reach the most likely level of local recovery, and then locked in. For positions that still have potential, they should be held. The portfolio as a whole should then be rebalanced, creating a new balanced structure with a 25% allocation to cyclical assets, 35% to growth assets, 10% to protection and 30% to bonds.   Scenario #2, the negative outlook, assumes that the market continues to decline either from the current level or below 4100. In this scenario, protection should be strengthened by using inverse ETFs and reducing long positions (using stop losses) until the target stock is reached. This approach aims to minimise further drawdown until the correction is finally resolved in 2023.   The US stock market has thus experienced a strong recovery since the start of the new year, supported by a resilient technology sector, growth in the semiconductor industry due to AI development, a strong Q1 2023 reporting season, a pause in the Federal Reserve's rate hike, expectations of future rate cuts, lower inflation, a resilient economy, a smooth economic landing and a debt limit increase. While risks are still present, a focus on longer-term investment strategies can help investors benefit from the market's upward trajectory and continued recovery in 2H.  

Prior underperforming US banks rallied last week where the SPDR Banks ETF rose by 6.76%, its best weekly gain seen in 14 months. The high growth technology concentrated Nasdaq 100, the top year-to-date performer, underperformed last week, dragged down by Tesla and Netflix ex-post earnings releases. Extreme positioning, and complacency bias in Nasdaq 100 increase the risk of a medium-term bearish reversal in technology stocks.   In the past two weeks, we have seen the latest Q2 earnings releases of the major US banks; JP Morgan, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley, and one of the high-flying technology-related “Magnificent Seven”, Tesla as well as a Netflix. All the major banks beat earnings expectations except Goldman Sachs, but its disappointing earnings had been well-telegraphed by senior management in public speeches ahead of its result release. Both Tesla and Netflix have managed to beat their bottom lines too. Interestingly, their respective share price performances ex-post earnings releases move in opposite directions as compared with the US banks. Based on last week’s performance for the week ended 21 July, all the major US banks recorded positive returns; JP Morgan (+3.46%), Bank of America (+9.86%), Wells Fargo (+5.51%), Citigroup (+2.84%), Goldman Sachs (+7.90%), Morgan Stanley (+9.59%) which in turn managed to have a positive spill-over effect to the broader US banking sector where the SPDR S&P Bank exchange-traded fund (ETF) recorded a weekly gain of +6.76% over the same period, its best return since the week of 23 May 2022. In contrast, Tesla, and Netflix posted dismal weekly returns of -7.59% and -3.26% respectively as of the end of last Friday, 21 July which in turn triggered a negative feedback loop into the high growth, and technology-related broader stock indices; Nasdaq 100 (-0.90%) and iShares Semiconductor ETF (-1.44%).   & positioning were significant contributors to Nasdaq 100 & US technology stocks’ underperformance The main catalysts that contributed to the last week’s negative returns and underperformance of Nasdaq 100 and iShares Semiconductor ETF have been FOMO (“fear of missing out”), complacency, and extreme positioning based on a relative basis. The Nasdaq 100 is the top-performing major stock index so far globally with a year-to-date gain of +41% as of 21 July versus a loss of -10.8% seen in the SPDR Banking ETF over the same period. Thus, technology-related equities and the Nasdaq 100 have attracted momentum chasers, especially for fund managers or market participants who missed the earlier run-up since March 2023 and the need to beat benchmark stock indices. In addition, technology equities recorded an eight-week cumulative inflow of around US$15 billion that surpassed their cumulative peaks inflows of 2022 according to a recent BofA Global Investment Strategy research report. Also, based on recency bias behavioral traits that extrapolate current year-to-date outperformance of Nasdaq 100 into the future, for the months ahead and even next year may have led to a higher level of complacency and extreme level of relative positioning.     US Technology stocks are at risk of further medium-term downside pressure & underperformance   Fig 1:  Relative performance of Nasdaq 100 & iShares Semiconductors over SPDR Banking, put/call ratio of Nasdaq 100 as of 21 Jul 2023 (Source: TradingView, click to enlarge chart) The chart above plots the relative performance (ratio) of Nasdaq 100 ETF (QQQ) over SPDR Banking ETF (KBE), and iShares Semiconductor ETF (SOXX) over SPDR Banking ETF (KBE). Both the ratios QQQ over KBE and SOXX over KBE have reached fresh all-time levels in June 2023 and May 2023 respectively. In addition, these two ratios have hit more than two standard deviations above their respective 20-week moving averages which suggest relatively overstretched bullish positioning in the Nasdaq 100 and semiconductor stocks. The current reading seen in the options market indicates the bullish momentum of Nasdaq 100 is likely to persist as indicated by the put-call ratio of Nasdaq 100 ETF (QQQ) which measures the number of traded put options divided by call options on the long side. A falling ratio indicates more calls are being bought versus puts which suggests market participants are not afraid of a falling market and have a bullish bias that prices may continue to rise, and if a negative event arises, it can easily reverse prices to the downside due to complacency of market participants. Vice versa for a rising put-call ratio. Since 15 May 2023, the put-call ratio of Nasdaq 100 ETF (QQQ) has continued to decline and as of 17 July, it stood at 1.19 which is a nine-week low. Therefore, it will be a pivotal week ahead for Nasdaq 100 and the “Magnificent Seven” as market participants await the earnings results and guidance of Microsoft, Alphabet, Texas Instruments (out on Tuesday, 25 July), and Meta Platforms (out on Wednesday, 26 July).

China's surprise cut won't be enough.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   China surprised by cutting its one-year medium-term lending facility (MLF) rates by 15bp to 2.50% today to give a jolt to its economy that has not only completely missed the expectation of a great post-Covid recovery, but that deals with deepening property crisis, morose consumer, and investor sentiment – which is worsened by Country Garden crisis and missed payments from the finance giant Zhongzhi Enterprises. Data-wise, things looked as worrying as we expected them to look when China released its latest set of economic data today. Growth in industrial production unexpectedly dipped to 3.7%, retail sales unexpectedly fell to 2.5%, unemployment worsened, while growth in fixed investments dropped further. Foreign investment in China fell to the lowest levels since 1998, and the 13F filings showed that Big Short's Michael Burry already exited Alibaba and JD.com, just months after increasing his exposure to these Chinese tech giants. People's Bank of China's (PBoC) surprise rate cut will hardly reverse appetite for Chinese investments as meaningful fiscal stimulus becomes necessary to stop halting.       The Hang Seng remains under pressure, the Chinese yuan fell to the lowest levels against the US dollar since last November, before the post-Covid reopening, and crude oil stagnates around the $82.50pb, close to where it was yesterday morning at around the same time. Tight supply and warnings of increased risk to shipping near the Strait of Hormuz, which is a strategic waterway for oil transit for exporters like Saudi Arabia and Iraq, certainly helped tempering the China-related selloff. But the demand side is weakening and that could stall the oil rally at the actual levels, forcing a return of the barrel of US crude toward the $80pb level, as worries regarding the Chinese recovery are real, and China will have to deploy further stimulus measures to fix things and bring investors back on their side of the table. If that's the case however, oil prices could take a lift.      Elsewhere, Argentina devaluated its currency by 18% to 350 per dollar and hiked its interest rates by 21 percentage points to 118% after populist Javier Milei won the presidential primary, while the dollar ruble traded past the 100 mark for the first time since Russia invaded Ukraine and the Indian rupee traded near record, as well. So all that helped the US dollar index shortly trade above its 200-DMA yesterday, a day before the release of the FOMC minutes which could hint that most Federal Reserve officials were certainly happy with the progress on inflation, but not yet convinced that the war against inflation is won just yet. And given the rebound in global energy and food prices, the Fed officials' careful approach to inflation looks like it makes sense. That's certainly why the US 2-year yield continued its advance toward the 5% mark yesterday, even though the latest survey from New York Fed showed that inflation expectations recorded a sharp drop to 3.6% for the next twelve months and fell to 2.9% for the next three years. The same survey showed that the mean unemployment expectation fell by 1 percentage point, giving support to goldilocks or to the soft landing scenario. Goldman now expects the Fed to cut rates in the Q2 of next year. It also said it expects core PCE to have fallen below 3% by that time.       Today, investors will focus on the US Empire manufacturing index and the retail sales data, and earnings from Home Depot will also hit the wire. While expectation for Empire manufacturing points at a negative number, consensus for July retail sales is a slight acceleration on a monthly basis. Any improvement on the US data is poised to further back the pricing of soft landing and give a further boost to both the US dollar and the US stocks.  The S&P500 recovered yesterday, as Nasdaq 100 advanced more than 1% with technology stocks leading the rebound. Nvidia was one of the best performers with a 7% jump after a Morgan Stanley analyst reiterated his $500 per share price target yesterday. But Tesla didn't benefit from the tech rally of yesterday and closed the session below $240 per share after cutting its car prices in China, yet again.    

Amazing Nvidia.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Nvidia announced STUNNING results when it released its Q2 earnings yesterday after the bell. The company reported $13.5bn sales last quarter, well above its $11bn projection, and said that it expects $16bn sales for next quarter, up from $12.6bn forecast last quarter. And oh, earnings jumped to $2.70 per share, versus $2.09 expected by analysts, and the most-loved chipmaker of the year approved $25bn in share buybacks. There is nothing an investor could ask more. The market expectations were sky-high, the results went to the moon, the forecasts for this quarter are as stunning, and the company is expected to earn around $30bn in FY2024 because Nvidia is not and will not be concerned about the industry-wide slump in chips demand, thanks to a decent surge in demand for AI processors in data centers. Magic is happening for Nvidia. So, the stock price jumped 10% in the afterhours trading to flirt with $518 per share, and Nvidia news has a boosting effect on technology stocks, if nothing by confirming that all the talk around the AI-craze was not empty, after all. Nasdaq futures are up by around 1.23% this morning, the S&P500 futures are also in the positive, and further good news is that the yields are down from Europe to US, on meagre PMI numbers released yesterday. And that is the perfect combo for the tech stocks – which have, so far this year, been – unquestionably - the best place to be in the S&P500 this year.    

The introduction of ChatGPT and Nvidia's recent share price jump have put stocks related to artificial intelligence (AI) on investors' radars. Earnings growth expectations are high and this article aims to highlight ways to get exposure to AI in a diversified way.   On 25 May, Nvidia shares closed 24% higher. In percentage terms, it was not the biggest rise by a listed company ever, but in terms of market capitalisation it was. The company became $185bn more valuable in a single trading day. An extraordinarily strong outlook for revenue and earnings, well above analysts' consensus estimates, fuelled the rally. The company's leading position as a supplier of GPU chips has put the company in a position to reap maximum gains from increased investments into AI research and deployment. Nvidia’s outlook confirmed that the AI hype was real and it put AI on the map like never before. What is artificial intelligence? Artificial intelligence (AI) is the simulation or approximation of human intelligence by machines. It is the ability of a system to correctly interpret external data, learn from this data, and use these lessons to achieve specific goals or tasks. AI basically has two forms: weak and strong. Weak AI is concerned with research and the development of applications in limited subfields in which behaviours are possible that appear intelligent but are not truly intelligent. Examples include chess computers, chatbots and search engines. Strong AI deals with research related to creating a computer or software that can reason and solve problems as well as possibly having self-awareness. ChatGPT and generative AI tools are potentially closer to the strong form of AI. In a nutshell, business processes can be automated and optimised using AI. For example, complex petrochemical companies like Dow Chemical or DuPont de Nemours can use AI to determine when and where maintenance is needed. We also see AI in the form of high-performance surgical robots and it can support doctors in making the right diagnoses, thereby improving treatment plans. However, there are many more applications. For instance, AI can help detect fraud, but it can also recommend music (Spotify) and movies (Netflix) based on your previous interests and ratings. In short, AI is everywhere in our daily lives and it is likely that AI will be an integral part of almost every sector in the future. This offers opportunities for investors looking to capitalise on the growing demand for AI technologies and applications. Investing in a new technology The sector is expected to see high growth. In the report 'Global artificial intelligence market size 2021-2030', research firm Statista has calculated that the market will grow from $100bn in 2021 to $1.8trn in 2030, equivalent to a 38% annualised growth rate. One should note that this is just one forecast, projecting growth rates for a new technology that we have never observed before. One way to get exposure to AI is through the 'Magnificent Seven' - Amazon, Alphabet (Google), Apple, Meta, Microsoft, Nvidia, and Tesla. These companies all play a key role in the development and application of AI, but it is worth remembering that the key driver of their earnings is still not AI. Investors should also recognise that investing in individual stocks is generally riskier than diversified investing through a mutual fund or ETF. There are two UCITS ETFs tracking AI-related stocks that are well-diversified and have acceptable costs: the L&G Artificial Intelligence UCITS ETF and the WisdomTree Artificial Intelligence UCITS ETF. Both ETFs score, at minimum, three out of five globes on Morningstar’s Sustainability Rating. However, neither of these ETFs have an overall score yet from Morningstar. The AI ETF from L&G currently holds 68 well-known and lesser-known positions such as Alphabet (Google), Global Unichip, Nvidia and Shopify, while WisdomTree's ETF holds 62 stocks. These include Blackberry, C3.AI, Nvidia and Upstart. Running costs are 0.49% (L&G) and 0.40% (WisdomTree) per year, respectively. Both ETFs are traded on several exchanges with euro and dollar denominations available. The primary objective of L&G's ETF is to track the performance of the ROBO Global® Artificial Intelligence Index TR, while the WisdomTree ETF tracks the Nasdaq CTA Artificial Intelligence NTR Index. So far, both ETFs have done what they are supposed to do: closely tracking the benchmark, excluding costs. The dividend yield is between 0.25% and 0.75% annually for both ETFs and is automatically reinvested in both cases, as both ETFs are accumulating. The underlying dividend yield across these stocks is naturally low because this sector has very high equity valuations and many of these companies are reinvesting their cash flows into growth. The key risks to consider when investing in AI-related stocks are naturally the market risk itself, but also the elevated equity valuation for this sector, which could be triggered should interest rates rise further. Growth expectations are very high for these companies, which means that the upcoming Q2 earnings season poses a key test of those expectations. . Most of the AI-related companies are US-based and thus there is a considerable USD risk in this theme. Additional information on the risks, historical returns, costs and currency spreads of L&G's ETF can be found here; for WisdomTree's ETF, use this link. The AI theme has undoubtedly been the biggest surprise this year in global equity markets, and in this article we have highlighted different ways to get exposure to this new technology, which is likely seeing some of the most optimistic expectations for the future since the early days of the internet.

A bright spot If there is one bright spot in Britain with all this, it is the FTSE100. First, the rising energy prices are good for the energy-rich FTSE100. Second, softer sterling makes these companies more affordable for international investors, who should of course think of hedging their sterling exposure, and third, more than 80% of the FTSE100 companies' revenues come from oversees, which means that when they convert their shiny dollar revenues back to a morose sterling, well, they can't really complain with a stronger dollar. Consequently, if a more dovish BoE is bad for sterling, the combination of a hawkish Fed and a dovish BoE and a pitiless OPEC is certainly good for the FTSE100. The index has been left behind the S&P500 this year, as the tech rally is what propelled the American index to the skies, but that technology wind is now turning direction. The FTSE 100 broke its February to September downtrending trend to the upside and is fundamentally and technically poised to gain further positive traction, whereas, the S&P500 is heaving a rough month, with technology stocks set for their worse performance this year, under the pressure of rising US yields, which make their valuations look even more expensive.   Interestingly, the US 2-year yield peaked at 5.20% after the Fed's hawkish pause this week and is back headed toward the 5% mark, but the gap between the US 2-year yield and the top range of the Fed funds rate is around 40bp, which is a big gap, and even if the Fed decided not to hike rates, this gap should narrow, in theory. If it does not, it means that bond traders are betting against the Fed's hawkishness and think that the melting savings, the loosening jobs market, tightening bank lending conditions and strikes, and restart of student loan repayments and a potential government shutdown could prevent that last rate hike to happen before this year ends. And indeed, activity on Fed funds futures gives more than 70% chance for a third pause at the FOMC's November meeting, and Goldman Sachs now sees the US expansion slow to 1.3% from 3.1% printed in the Q3. KPMG also warned that a prolonged auto stoppage may precipitate contraction. And if no deal is inked by noon today, the strikes will get worse.   One's bad fortune is another's good fortune  The Japanese auto exports surged big this year, they were 50% higher in yen terms. The yen is certrainly not doing well, but yes, you can't have it all. That cheap yen is one of the reasons why the Japanese export so well outside their country. And in case you missed, the BoJ did nothing today to exit their hyper-ultra-loose monetary policy. They didn't even give a hint of normalization, meaning that the yen will hardly strengthen from the actual levels. In the meantime, Toyota, Mitsubishi and Honda shares are having a stellar year, and the US strikes will only help them do better. 

US and European equity futures trade mixed following Tuesday's US technology stocks led weakness after consumer confidence dropped to a four-month low and the expectations index fell below a level that in the past has signaled an incoming recession. The S&P 500 dropped to a June low as the Fed’s higher for long message drove US 10-year yields to a fresh 16-year high while the Dollar index reached a fresh year-to-date high. Overnight equities in Hong Kong gained with those on the mainland cooling after sharp gains earlier as China reported improved industrial profits Crude oil prices remain elevated adding to inflation concerns while gold trades soft near $1900. The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. Equities: The relentless rise in long-end US Treasury yields saw selling accelerate across US stocks on Tuesday with the S&P 500 dropping 1.5% to hit the lowest level since June 7. Technology stocks, which led the rally earlier this year, has been challenged all month on concerns the Fed’s higher for longer message is starting to hurt consumer confidence. A message that was strengthened after the Consumer Expectations Index declined below 80, the level that historically signals a recession within the next year. The S&P 500 will be looking for support around 4,200, the 50% correction of the March to July rally and the 200-day moving average. FX: The DXY dollar index broke higher to fresh YTD highs, having taken out the 105.80 resistance, as long-end Treasury yields continued to rise. Data remained soft, helping keep the short-end yields capped but Fed member Kashkari, who is usually a dove, noted he puts a 40% probability on a scenario where Fed will have to raise rates significantly higher to beat inflation and a 60% probability of a soft landing. USDCAD rose to 1.3528 while GBPUSD slid below 1.2150 and next target at 1.20. EURUSD plunged further to lows of 1.0556 while USDJPY is hovering close to the 150-mark as verbal jawboning continues to have little effect. Commodities: Crude oil remains rangebound with tight market conditions, as seen through the highest premium for near-term barrels in more than a year, being offset by a stronger dollar and the general risk-off tone. API inventory data showed a crude build of 1.6m barrels vs expectations of a 1.7m drop. Gold trades below $1900 on continued dollar and yield strength with focus on $1885 support while China property market concerns sees copper traded near a four-month low. Meanwhile in agriculture, El Nino has been confirmed, and it could be a strong one, potentially impacting food inflation from rising risks of droughts in Southeast Asia, Australia and Brazil-Columbia. Fixed Income. The Federal Reserve’s higher-for-longer message reverberates through higher long-term US Treasury yields. Unless there is a sign that the job market is weakening significantly, or that the economy is slowing down quickly, long-term yields will continue to soar. With 10-year yields breaking above 4.5% and selling pressure continuing to mount through an increase in coupon supply, quantitative tightening and less foreign investors demand, it’s not unlikely to see yields to continue to rise towards 5% until something breaks. This week, our attention turns to US PCE numbers and Europe CPI data and US Treasury auctions. Yesterday’s 2-year notes auction received good demand while offering the highest auction yield for that tenor since 2006. Yet, our focus is on the belly of the yield curve with the Treasury selling 5- and 7-year notes today and tomorrow. If demand is poor, it might mean that the yield curve is poised to bear-steepen further. Overall, we continue to favour short-term maturities and quality. Volatility: The CBOE Volatility Index jumped 2 on Tuesday to close at 18.94%, a four-month high after the underlying SPX index lost 1.5% to settle at the lowest level since June Macro: US consumer confidence fell for a second consecutive month to 103.0 from 108.7 (upwardly revised from 106.1) and beneath the expected 105.5. Present Situation Index marginally rose to 147.1 (prev. 146.7), while the Expectations Index declined further to 73.7 (prev. 83.3), falling back below 80 - the level that historically signals a recession within the next year. Inflation expectations for the 12 months ahead were unchanged at 5.7% in September. New home sales in the US fell 8.7% to 675k from 739k (upwardly revised from 714k), shy of the consensus 700k. Fed's Kashkari has published an essay where he says there is a 60% chance of a soft landing with a 40% chance the Fed will have to hike 'significantly higher'. In the news: FTC Sues Amazon, Alleging Illegal Online-Marketplace Monopoly (WSJ), Foreign brands including Tesla to face scrutiny as part of EU probe into China car subsidies (FT), Senate leaders agree on a short-term spending bill, aiming to avert a shutdown, extending government funding until November 17, pending House approval (CNN). What ‘peak oil’ will mean for China (FT), Americans finally start to feel the sting from the Fed’s rate hikes (WSJ), Exclusive: German economic institutes forecast 0.6% GDP contraction this year – sources (Reuters) Technical analysis: S&P 500 downtrend support at 4,200. Nasdaq 100 support at 14,254. DAX downtrend support at 14,933. EURUSD downtrend support at 1.05. GBPUSD below support at 1.2175, oversold, next support 1.2012. USDJPY uptrend stretched but could reach 150. Gold bearish could drop to 1,870. Brent and WTI Crude oil resuming uptrend. US 10-year T-yields uptrend expect minor correction Macro events: US Durable Goods Orders (Aug) est –0.5% vs –5.2% prior (1230 GMT), Feds Kashkari Speaks on CNBC (1200 GMT), EIA’s Weekly Crude and Fuel Stock Report (1430 GMT)

The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak. 

The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak.   

Elsewhere...  The nice jump in the Japanese yen pulled the dollar index lower yesterday. Of course, the EURJPY, GBPJPY and AUDJPY all made a similar move. The US bonds, on the other hand, were little changed yesterday – for once – as traders sat on their hands ahead of this week's much-awaited US jobs data, while technology stocks were on fire yesterday. Alphabet jumped more than 5% after Google released Gemini – the largest and most capable AI model it has ever built, and AMD jumped nearly 10% after the company unveiled a chip that will run AI software faster than rival products. But rival Nvidia was little hit by the news, as its chips gained 2.40% yesterday. The AI demand is big enough for everyone to benefit amply from it.   Today, all eyes are on the US jobs data.  According to a consensus of analyst estimates on Bloomberg, the US economy may have added 180'000 new nonfarm jobs in November, the pay may have risen slightly faster on a monthly basis, and the unemployment rate is seen steady at 3.9%. The fact that the data released earlier this week hinted at a clear loosening in the US jobs market makes many investors think that today's official data will also follow the loosening trend. If the data is soft enough, the rally in the US bonds could continue and the US 10-year yields could have a taste of the 4% psychological mark, while a stronger-than-expected figure could help scale back the dovish Federal Reserve (Fed) expectations but could hardly bring the hawks back to the market before next week's FOMC decision.      

The Finish Line By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Here we are, on the last trading day of the year. This year was completely different than what was expected. We were expecting the US to enter recession, but the US printed around 5% growth in the Q3. We were expecting the Chinese post-Covid reopening to boost the Chinese growth and fuel global inflation, but a year after the end of China's zero-Covid measures, China is suffocating due to an unexpected deflation and worsening property crisis. We were expecting last year's negative correlation between stocks and bonds to reverse – as recession would boost bond appetite but batter stocks. None happened.  The biggest takeaway of this year is the birth of ChatGPT which propelled AI right into the middle of our lives. Nasdaq 100 stocks close the year at an ATH, Nvidia – which was the biggest winner of this year's AI rally dwarfed everything that compared to it. Nvidia shares gained more than 350% this year. That's more than twice the performance of Bitcoin – which also had a good year mind you.   Besides Nvidia, ChatGPT's sugar daddy Microsoft, Apple, Amazon, Meta, Google and Tesla – the so-called Magnificent 7 generated almost all of the S&P500 and Nasdaq100's returns this year. And thanks to this few handfuls of stocks, Nasdaq100 is set for its best year since 1999 following a $7 trillion surge.   The million-dollar question is what will happen next year. Of course, we don't know, nobody knows, and our crystal balls completely missed the AI rally that marked 2023, yet the general expectation is a cool down in the technology rally, and a rebalancing between the big tech stocks and the S&P493 on narrowing profit lead for the Magnificent 7 compared to the rest of the index in 2024. T  The other thing is, the S&P500's direction next year is unclear as the Federal Reserve (Fed) is expected to start chopping the interest rates, with the first rate cut expected to happen as early as much with more than 85% probability. So what will the Fed cuts mean for the S&P500? Looking at what happened in the past, the S&P500 typically rises after the first rate cut, but the sustainability of the gains will depend on the underlying economic fundamentals. Lower rates are good for the S&P500 valuations EXCEPT when the economy enters recession within the next 12-months. So that backs the idea that I have been trying to convey here since weeks: lower US yields will be supportive of the S&P500 valuations as long as the economy remains strong, and earnings expectations hold up.    For now, they do. The S&P500 earnings will certainly end a bit better than flat this year, and the EPS is expected to rise by more than 10% next year. The Magnificent 7 are expected to post around 22% EPS growth next year. But note that, these expectations are mostly priced in, so yes, there will still be a hangover and a correction period after a relentless two-month rally triggered a broad-based risk euphoria among investors. The S&P500 is about to print its 9th consecutive week of gains – which would be its longest winning streak in 20 years.  In the FX, the US dollar index rebounded yesterday as treasury yields rose following a weak sale of 7-year notes. But the US dollar is still set for its worse year since 2020. Gold prepares to close the year near ATH, the EURUSD will likely reach the finish line above 1.10 and the USDJPY having tested but haven't been able to clear the 140 support. In the coming weeks, I would expect the EURUSD to ease on rising expectations from the ECB doves, and/or on the back of a retreat from the Fed doves. We could see a minor rebound in the USDJPY if the Japanese manage to calm down the BoJ hawks' ambitions. Overall, I wouldn't be surprised to see the US dollar recover against most majors in the first weeks of next year.  In the energy, crude oil remains downbeat. The barrel of American crude couldn't extend rally after breaking the $75pb earlier this week, and that failure to add on to the gains is now bringing the oil bears back to the market. The barrel of US crude sank below the $72pb as the US oil inventories slumped by more than 7mio barrels last week, much more than a 2-mio-barrel decline expected. The latter brought forward the demand concerns and washed out the supply worries due to the Red Sea tensions. Note that crude oil is set for its biggest yearly decline since 2020; OPEC's efforts to curb production and the rising geopolitical tensions in the Middle East remained surprisingly inefficient to boost appetite in oil this year. 

  When do you start to worry about Chinese stimulus?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  The stock rally continued on both sides of the Atlantic on Wednesday; the technology and chip stocks remained in the driver seat. Sentiment in Europe was bolstered by an almost 9% rally in ASML on news that their orders more than tripled last quarter. Now, there is a catch. A third of the $10 billion dollar worth of orders came from China as Chinese companies rushed to buy these machines by the end of last year before the US and Dutch chip ban came into effect. But even if the Chinese demand will fade away, ASML says that it expects its sales to remain steady thanks to AI demand..  As such, the ASML news also boosted the stock prices of our favourite AI plays. Nvidia hit another record yesterday, TSM extended gains, Microsoft was worth $3 trillion for some time. The S&P500 and Nasdaq 100 hit a fresh record, and Netflix – which has nothing to do with AI, but which was just cheering its 13-mio new subscribers for the latest quarter - jumped 10%.   In summary, all goes well for those who are in the technology boat sailing north. For the rest, skepticism best describes how they feel about an unsustainable rise in valuations.   Tesla misses, Intel next.  Tesla missed estimates in its latest quarterly earnings report and warned that its EV sales growth will be 'notably lower' and that the numbers will suffer until the company comes up with a cheaper model. The series of price cuts weren't enough to bolster demand in a way to keep the company smiling and profits rising – sufficiently. As such, Tesla refused to offer a specific growth target and its share price took a 6% hit in the afterhours trading. Intel is due to report its earnings today.   Connecting the dots  The Chinese are serious about bolstering their economy and they look like they are getting to a place where they are ready to do whatever it takes to reverse the slowing trend.  In addition to a series of market stimulus news, the People' Bank of China (PBoC) announced yesterday that it will cut the reserve ratio for the banks by 50bp from February to release more liquidity to bolster stock valuations The latter will free up to an additional trillion yuan, which equals $139bn US dollars.  Will it help? Well, we will see. The good news is, if it doesn't, the Chinese will continue until it does.   The CSI 300 finally sees some positive reaction, stocks in Hong Kong are up 10% since Monday, American crude is drilling above the $75pb per barrel and copper futures – which are a gauge of global growth – also seem gently convinced that the Chinese will put all their weight – all they need to – to make things better.   But note that China's supportive policies may not echo well across the developed markets' central banks, because the Chinese stimulus – if successful – should boost global inflation and interfere with DM central banks' plans to loosen policies.   BoC calls the end of tightening, ECB next to speak.  But until we see concrete results from Chinese measures, softer policies remain the base-case scenario for the Federal Reserve (Fed) and the other major central banks (except Japan). In this context, the Bank of Canada (BoC) kept its rates unchanged at yesterday's meeting and called the end of rate hikes. The European Central Bank (ECB) will meet today and will certainly vehicle the same message - that policy tightening is over. But that's not enough.  When it comes to the ECB, what investors want to know is WHEN the ECB will start cutting the inteerest rates. If we had this conversation two weeks ago, I would say that the ECB would push back on expectations of premature rate cuts. But after having heard Christine Lagarde say that the first rate cut could come in summer, I am more balanced going into the meeting. Inflation has come lower – but we saw an uptick in the latest figures. The rising shipping costs and the positive pressure in oil prices mean that upside risks prevail. Yet the slowdown in European economies calls for lower rates. Released yesterday, the Eurozone PMI figures showed that aggregate activity remained in the contraction zone for the 8th straight month and slow down accelerated in January – except for manufacturing.   A hedge fund called Qube apparently built a $1 bn short position against German stocks, and Goldman Sachs says that a Trump presidency would increase risks for European businesses, and economically sensitive pockets of the market, like the German industries, would be the most exposed.