Switzer on Saturday

Stocks loved the US data drop this week

Founder and Publisher of the Switzer Report
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Two big pieces of news dominated stock prices on US stock market indexes. The first piece was economic data drops that are adding credibility to the news that US interest rates could take their first leg down in September. The second are the questions around whether it’s time to see Nvidia as overbought, so maybe it’s time to take profit.

This raises other questions, such as whether it’s an overdue pullback or correction coming for US stocks and/or is it time for this narrow-driven rally on the back of seven stocks to broaden more into other companies, which could also imply a rotation into other sectors as well?

I mentioned in our Boom, Doom, Zoom webinar on Thursday that Wells Fargo’s investment team like materials, healthcare and energy going forward. We saw positive signs for many stocks in these sectors locally this week. That said, I suspect we won’t see significant gains for these sectors until later this year and more into 2025, when interest rates are bound to be falling and the global economy is starting to be helped by those lower rates.

And while softer US economic data helped US market indexes remain positive, with the S&P500 hitting an all-time high, Nvidia has seen profit-taking, as questions had to surface about its spectacular stock price surge this year, with a 194% super spike!

Nvidia (NVDA)

For chart or technical analysis lovers, a “bearish engulfing” pattern for Nvidia emerged recently, that experts say goes with a waning of a stock’s upsurge.

According to Mark Newton, head of technical strategy at Fundstrat: “The chart pattern occurs during a rally when a large down candle follows a series of up candles. The downside candlestick is also larger than the upside ones preceding it. A candle represents the difference between the opening and closing price. “A one-day reversal to create a bearish engulfing pattern is typically important for the near-term to suggest that a turning point might be near.” (CNBC)

At the suggestion that the market leader could be under some pressure, profit-takers must be looking at their big gains and ponder what might happen next to Nvidia’s share price and the rally it has propelled. And all this has to be considered knowing that while July is historically a good month for stocks, August through to October can be pretty challenging for share players.

Another warning sign for those loving the rally in stocks is the recent nosedive for bitcoin. Stifel’s chief equity analyst, Barry Bannister, told CNBC that a weakening bitcoin … “signals an imminent S&P500 summer correction and consolidation phase”. He uses complex technical analysis of the relationship between bitcoin and the S&P500, but suffice to say, it didn’t help those hoping that stocks in the US can keep defying gravity.

Bitcoin

Bitcoin has had a 9% fall since June 5 but is still up 118% over the year, while Nvidia, as I pointed out above, has added an unbelievable 194%! In contrast, the S&P500 is up 25% and our S&P/ASX 200 is a measly 8.35% higher. It’s why I believe after a pullback or correction, when interest rates head down, other companies will help market indexes head higher. It could be after the US election in early November, which would coincide with my view that once again the December quarter will be good for stocks and should set us up for a strong start for 2025.

To the local story and the overall market racked up a positive week, with the S&P/ASX 200 index up 71.7 points (or 0.93%) to 7796. The better performing sectors were healthcare, energy and tech. Of course, this is thanks to Nvidia and AI and their impacts on the Nasdaq and other indexes.

The big news was Guzman Y Gomez and how it became a $3 billion plus company on day one of being listed. https://switzer.com.au/the-experts/peter-switzer/guzman-y-gomezs-founders-got-rich-yesterday-but-how/

Meanwhile, CBA spiked 2.15% for the week to an unbelievable $127.68. However, it was shocker for lithium stocks, with Liontown Resources down 9.66% to 94 cents for the week and Mineral Resources off 7% to $55.76.

Retail-wise, Kathmandu (KMD) showed our economy is slowing, with a disappointing result that took its share price down 10% for the week to 36 cents.

For the week’s summary of big moves for popular stocks, check out the table below.

What I liked

  1. This from AMP’s Shane Oliver: “A hawkish hold from the RBA at 4.35%, but we still see a rate cut late this year. Our view remains that inflation will resume its downswing, as has occurred in various other countries after pauses including the US, and that as a result, rates have peaked ahead of a start to rate cuts late this year, or if not then, early next year.”
  2. As we need a slower economy for eventual rate cuts, this news that Australian business conditions PMIs for June showed a further deterioration, driven by both services and manufacturing, while new orders fell sharply.
  3. Local new home sales fell back to weak levels in May, after regulatory changes pulled forward sales into April.
  4. ANZ jobs ads continued to slide and now are down 18% year-on-year.
  5. Nuclear getting more support as part of the mix for alternative energy.
  6. US economic data was mostly on the soft side.
  7. US May retail sales again were weaker than expected, which is helping the view that the Yanks might cut rates in September.

What I didn’t like

  1. Hawkish comments from the RBAshowing how out of touch the central bank might be.
  2. Chinese economic data was softish.
  3. French stupidity about right wing politicians doing better than expected in EU elections that spooked financial markets, and especially bond yields.
  4. State budgets (with the latest being in NSW) that are continuing the fiscal easing seen federally, which doesn’t help the RBA’s inflation fight.

The big watches for next week

It’s all about inflation, with the Yanks getting the May core private final consumption inflation reading or “core PCE” due Friday, which the Fed watches closely. And then there’s the latest economic growth number as well for the US. Meanwhile, locally, we get to see the May CPI here. We need to see it go lower to stop the RBA hinting that a rate rise might be needed. A reading of 0.2% month-on-month would be good, while anything lower would be a ripper.

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Top Stocks — how they fared

 

Most Shorted Stocks

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before 

Quote of the Week

“Price measures getting back on track,” noted AMP’s Shane Oliver. “While the output price component of the PMI survey remained range bound input prices resumed their downtrend led by services which is a good sign.”

Chart of the Week

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