Tuesday 16th July 2024 |
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Playing the trump card
Global
The Dow Jones hit a record high on Monday with the 30-stock index closing up 0.5% at 40,211. Healthcare stocks were strong and Goldman Sachs jumped 2.6% after an earnings beat. The S&P 500 also hit a record with a 0.3% rise, while the Nasdaq is also back near last week’s all-time peak, closing up 0.4%. The small/mid-cap Russell 2000 rose 1.8%. Apple hit a record high on broker upgrades, with optimism over AI-inspired earnings growth. The “Trump trade” was alive and well post the assassination attempt, and as the former President appointed ex-marine and author JD Vance as his much younger running mate. Energy and ammunition stocks also rallied, while green energy plays sold off. Fed Chair Jerome Powell buoyed sentiment said that the Fed would not wait for inflation to hit 2% before cutting rates.
A Fed rate cut of 25bps in September is the consensus view, with markets also assigning a 10% probability that the cut could be even deeper at 50bps. A cut at the end of this month has also not been ruled out with odds of 10% according to the CME Fedwatch tool. Jerome Powell did nothing to dispel the optimism around the proximity of easing. Speaking to the Economic Club of Washington, the Fed Chair said that recent data (including last week’s softer than expected CPI) “added somewhat to confidence” that inflation was returning to 2%, before further saying things were in “a pretty good place." Powell added that a hard landing for the U.S. economy was not a likely scenario. This buoyed small-mid-cap names with the Russell 2000 rising to its highest since January 2022.
Commenting on the attempt on Donald Trump’s life over the weekend, Powell said it was a “sad day for our country.” Investors have taken the view that the attack is a pivotal moment that will solidify Trump’s chances of victory in November. Healthcare names such as United Health were in demand. While Republican policies could mean a rise in the ranks of the uninsured (the first Trump administration tried to dismantle the Affordable Care Act), they are seen as creating an expansion of Medicare Advantage, less onerous regulation and less opposition to M&A in the sector. Firearms manufacturers rallied, with Smith & Wesson soaring 11%. Oil services companies were on the up given Republican positive leanings towards energy drilling (and as opposed to Renewables which were weaker – First Solar fell 8.5%). Small caps rallied – Goldman Sachs noted they performed strongly after Trump’s victory in 2016. Shares of Trump Media & Technology meanwhile soared 30%.
The focus on Trump continued on Monday. The “classified documents” case was dismissed by a Florida Judge. The Republican National Convention got underway, and the former President appointed Ohio Senator JD Vance as his running mate. Vance is aligned with many of Trump’s policies but will offer a point of difference in being nearly four decades younger. Vance has an interesting past, being a former marine and the author of the bestselling memoir "Hillbilly Elegy." Somewhat ironically, less than a decade ago Vance stated publicly that he “never liked Trump” and saw him as “noxious and reprehensible.” Views can clearly change.
Stock-wise, Goldman Sachs was higher on a second-quarter earnings beat with the bottom line up 150% to US$3b. Investment banking boosted revenues which rose 17% to US12.7b. Rising M&A activity was a tailwind, with management saying that the deal backlog was “up significantly.” One deal not going ahead is for Macy’s – shares in the department store chain fell 12% as an activist group ended buyout talks.
Apple hit a new record high, with an (unconfirmed) report showing that the iPhone maker’s sales in India surged 33% to US$8b with market share on the up. There is certainly plenty of scope for growth for Apple in a market that is dominated by Android, and where it has less than 4% of the country’s roughly 690 million smartphones in use. India is only 2% of Apple’s total sales. The tech titan only opened its first two full-service stores last year.
Apple may also be looking to India as a way to diversify sales away from China, with trade tensions escalating, and potentially set to increase further with a Trump win. In Asia, the Nikkei was closed while the Hang Seng fell 1.5% and the CSI300 added 0.1%. Second quarter GDP numbers from China disappointed, rising by 4.7% against 5.3% for the first quarter. Retail sales for June missed expectations (+2% vs estimates for +3.3%), while industrial production figures (+5.3%) beat. China’s high-level policy meeting, the Third Plenum, is underway, and it will be interesting to see whether any significant economic initiatives are forthcoming.
Luxury goods makers have also been reliant on strong demand in Asia, but this appears to be slowing down. In the UK, shares in Burberry plummeted 16%. The company said first-quarter comparable store sales fell 21% to £458 million. All regions were weaker with sales down 23% in both Asia-Pacific and the Americas. The company flagged an operating loss for the first half of the year amid weak demand and has axed its dividend as well as its CEO.
The FTSE100 was 0.9% lower, while the STOXX50 fell 1.2%. Industrial production in the eurozone fell (-0.6%) for the first time in four months in May, though the decline wasn't as bad as expected. The largest monthly decrease was recorded in Slovenia (-7.3%), while the highest growth was seen in Ireland (+6.7%). The ECB meets later this week.
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