We see mixed stocks globally, with US technology stocks leading the losses after Alphabet and AMD delivered disappointing earnings reports. Microsoft delivered a strong earnings report, but this was already largely priced in. The mega-hype around AI revenue growth could now take a small hiccup.
Lower yields following signs of weakening US labor market data are at least supporting growth stocks (and gold too).
The market is now trying to understand what yesterday's earnings reports mean for the current rally, as there are more important earnings reports to come this week. The markets are also looking at the labor market data, the recent drop in US inflation data and what the Fed will say today with the interest rate decision (which will bring no change) and more importantly the press conference by Fed Chairman Jerome Powell.
The Fed will likely continue to send the message that there is no need to rush – and I would agree, as the US economy has remained resilient overall. However, the market continues to expect rate cuts – but more significantly for the ECB as Eurozone economic data remains weak and disinflation in the Eurozone shows strong signs of continuing.
While we are seeing some dip buying, I think it is likely that some of the big tech stocks that have performed so strongly in recent months will face profit taking. We will see high volatility in early US trading. I also expect a reallocation from tech stocks to more defensive stocks (e.g. healthcare, consumer staples, etc. McDonalds, etc.).
We see the US 10-year yield falling back towards 4.0% (currently down 4.5 basis points). This shows that the markets still expect the Fed to cut rates quickly during the year – which supports gold, but also the CHF and JPY, which are looking back on a weak year given the low interest rates in Switzerland and Japan (even negative).
Oil prices continue to be supported by geopolitical tensions – but I do not expect the situation (in the Middle East) to deteriorate further for the time being as the US in particular has no interest in escalating tensions. Given the ongoing concerns about the Chinese economy and the weak economy in the eurozone, expectations for oil demand remain fragile.
👁 ROB'S MARKET OVERVIEW:
January 31, 2024
⚠️ Fed interest rate decision today – which I believe will have relatively muted impact on markets.
🌐/🇺🇸 Global/US Markets ↘️
Cyclical Stocks ↘️
Tech/Growth Stocks ↘️ (losses of big tech also weighing on smaller cap tech)
Financial Stocks ↘️/➡️
Defensive Stocks ↗️/➡️ (benefitting from a rotation from tech to more defensive stocks)
Energy Stocks ↘️
Materials Stocks ➡️
JPY, CHF ➡️/↗️
EUR ↗️/➡️/↘️ (early EUR gains thanks to lower US Treasury yields, EUR to weaken again)
USD ↘️/➡️ (slide headwinds on the USD due to lower US Treasury yields)
AUD, CAD ➡️/↘️ (weakness in commodity-linked currencies due to worsened risk sentiment)
⚡️Cryptos ➡️ (benefiting from lower yields but headwinds from worsened risk sentiment)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)