US equity futures are trading lower in pre-market trading in the US after hitting multi-month highs in the previous session. After the recent strong gains on Wall Street, driven mainly by big gains in the technology sector, we see analysts becoming increasingly cautious as the S&P 500, Nasdaq 100 and Dow Jones are already above their year-end expectations.
The rally certainly went too far and was based in particular on strong optimism that rate cuts will start soon. Swap markets are pricing in about a 30% chance of a Fed rate cut in March. The dovish expectations also helped push yields lower, giving stocks an additional tailwind. However, today's minutes from the latest Fed meeting will not support the prospect of rate cuts – I also expect Fed officials to scale back hopes for rate cuts. While I agree that further rate hikes are unlikely given the clear signs of an economic slowdown and rapid disinflation, there is little scope to meet or even exceed expectations of rate cuts, but plenty of scope for disappointment.
The markets are also somewhat brushing aside the fact that we have had a rather mixed earnings season – especially for companies that generate most of their revenues outside the US. A slowing economy and slowing sales growth are not a recipe for further stock gains.
Gediminas Simkus, a member of the Governing Council of the European Central Bank, said that market expectations regarding interest rate cuts were too optimistic. We will be hearing more voices like this from members of the Fed.
In the meantime, emerging market equities and currencies have been able to extend their gains against the USD as the ongoing weakness of the greenback continues to support demand for risk assets. However, I see increasing signs of a temporary consolidation here.
Asian equities have been boosted by reduced concerns over the Chinese real estate sector (little has changed here in my view) as there are signs that the government may increase support for some of the most indebted real estate developers.
We see oil slightly weaker. Yesterday‘s gains in oil prices were due to a weak USD and expectations that OPEC+ will reduce supply further – I still expect OPEC+ to send a signal by trying to prop up oil prices. Base metals prices have risen following gains in Asian trade, but further gains seem limited for today.
Retailers like Lowe's and Best Buy are slipping after both lowered their sales forecasts – another sign of slowing consumer spending. Much focus will be on Nvidia, which reports after the bell today. After strong earnings reports, investors will be hoping for another bombshell. However, with Nvidia significantly beating last quarter's results, expectations are high – I expect Nvidia to meet/exceed expectations.
I expect investors to be more cautious overall today, which will lead to profit taking. We are already seeing widespread selling in pre-market US trading. We are SHORT on the Nasdaq and seem to have found good timing again.
👁 ROB'S MARKET OVERVIEW:
November 21, 2023
🇺🇸 US Markets ↘️/↕️ (first profit taking; later likely more mixed stocks; markets will be concerned about Fed meeting minutes but likely be little moved by it after an initial negative reaction)
Cyclical Stocks ↘️/↕️
Tech/Growth Stocks ↘️
Financial Stocks ↘️/➡️
Defensive Stocks ➡️
Energy Stocks ➡️
Materials Stocks↗️/➡️ (open well after strong gains of Chinese real estate sector today – then sideways)
AUD, GBP ↗️/➡️/↘️ (worsening risk sentiment to weigh on AUD)
EUR, CHF, CAD ➡️
USD ↘️/↗️ (slight gains before and likely post Fed meeting minutes)
⚒ Commodity Markets ↕️/↗️ (benefiting from weak USD)
Oil prices ↘️/➡️ (finding support in range $76.00 – $77.00 WTI ahead of OPEC+ meeting)
Natural Gas prices ↕️
Metal prices ↗️/➡️ (limited / no more additional gains after gains during Asian trading)
Gold ↗️/➡️ (potentially testing $2,000 – but facing some headwinds on no dovish Fed meeting minutes; gold remains overall bullish)
⚡️Cryptos ➡️ (sideways – range $36K -$37.5K)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)