Market Summary
U.S. employment data exceeded expectations, adding 353,000 people, almost twice the forecast. Coupled with the fact that average hourly earnings increased by 0.6%, which was twice as expected (but some analysts believe that the decrease in working hours caused by extreme cold weather has brought about passive growth in hourly wages), the data for November and December have also been significantly upwardly revised. Coupled with Powell's personal suppression of expectations for a March interest rate cut and strong ISM manufacturing data, the market had to reprice the path for interest rate hikes. The probability of raising interest rates in March has dropped to 21.5%, and the market will need to digest the differences in views after the U.S. employment report in the coming week. However, in general, Powell is regarded as a paper tiger. The market does not really care whether the Fed cuts interest rates in March or May. Unless inflation accelerates, the stock market should continue to be optimistic.
The most obvious reaction was in the interest rate market. The 2-year U.S. bond yield surged 20bp and rebounded from 4.17 to 4.37, the 10-year U.S. bond yield rose 12bp and rebounded from 3.8 to above 4, and the 30-year U.S. bond yield rebounded from 4.1 to 4.22. This week, the market has re-priced the short-term interest rate market to a greater extent. Of course, this wave of correction is also due to the exaggerated drop in U.S. secondary market interest rates after the December FMOC meeting. We also reminded many times at the weekly meeting that interest rates have bottomed out. The current interest rate The market is still in a correction phase and is unlikely to return to last year's highs without a major risk event.
Another major event in the interest rate market is that the Treasury Department has lowered the scale of refinancing than expected and stated that it will not further increase the scale of longer-term Treasury bond auctions, which is seen as helping to boost demand for U.S. debt. The U.S. Treasury Department expects net borrowing in the first quarter to be $760 billion, down $55 billion from its previous forecast. In the second quarter, net borrowing is expected to be $202 billion, less than half of Wall Street's expectations. Mainly because tax revenue is higher than previously expected, there are currently more than 800 billion US dollars in the Treasury account, which is the most abundant moment in the past two years. However, analysts warn that financing uncertainty in the second quarter is high, and Congress may approve US$78 billion in taxes. relief bill, causing the deficit to worsen.
The Ministry of Finance's better-than-expected bond issuance and economic data have offset some of the impact of each other. Currently, the derivatives market still expects a 150bp interest rate cut in the next 12 months, which is almost unchanged from last week:
U.S. GDP may rise again in the first quarter, with GDP Now forecasting growth of 4.3%, higher than the 3.3% growth in the fourth quarter. The current market is therefore very optimistic and believes that the rising market has been supported. Although economic data has led to a rebound in interest rates, U.S. stocks have continued to rise under the strong protection of technology giants. The S&P and the Dow both hit record highs last week, and the three major stock indexes have closed higher in 13 of the past 14 weeks.
Mag7's financial report last week was generally good. Since the market's expectations for these companies are already quite high, even if some indicators are less than expected, it cannot be said to be bad. It still supports technology stocks to maintain bull market sentiment. Specifically:
Microsoft achieved its best quarterly revenue growth in the past two years and hit new revenue highs for five consecutive quarters. Core indicators such as EPS and intelligent cloud business also exceeded expectations. Artificial intelligence drove Azure cloud revenue to grow by 6%, with a higher contribution than the previous quarter, but growth or unsatisfactory;
Google’s advertising business revenue in the fourth quarter was US$65.5 billion, which was lower than analysts’ expectations of US$65.8 billion, sparking concerns in the market. There are also views that Google’s financial report may reveal the risk of lagging behind Microsoft, and the stock price fell 6.7%;
After announcing that its fourth-quarter revenue exceeded expectations by 25%, the highest growth rate in a single quarter, and that it planned to repurchase US$50 billion in shares and pay dividends for the first time in the company's history, Meta rose by more than 20% in early trading, and its market value soared by about 200 billion during the session. U.S. dollar, the largest increase in stock market value in the history of U.S. stocks.
Due to the effectiveness of cost cutting, Amazon's fourth-quarter results and first-quarter performance guidance were generally better than expected, causing Amazon's stock price to rise by more than 9% after the market closed. Among them, Amazon's cloud business revenue increased by 13% year-on-year, alleviating investors' concerns about declining demand for cloud services;
Apple's quarterly revenue returned to year-on-year growth for the first time in a year. EPS reached a new high, and iPhone sales were higher than market expectations. Service revenue hit a record high for four consecutive quarters, but revenue in Greater China, its third largest market, exceeded expectations. A year-on-year decrease of approximately 13% confirmed market concerns, and Apple closed down 3.4% for the week.
Although Nvidia has not yet announced its latest results, its stock price has soared 34% this year, because technology giants such as Amazon, Microsoft, Google, and Meta have all stated that they will continue to increase spending on AI. The commitment to increase spending coupled with beautiful financial reports continues Boost the share price of "Shovel Man" NV. AMD's performance this quarter has been mediocre, and its performance guidance for the first quarter has been lower. It is expected that sales of its own artificial intelligence chips will increase by 75% in 2024, reaching more than 3.5 billion US dollars, but Wall Street has been predicting that this number will reach 80 One hundred million U.S. dollars. In comparison, NV's data center sales in a quarter were US$16 billion, and the gap between the two is very large.
Interestingly, AMD fell 7% after the financial report, but then rose back in the next two days, falling only 0.6% for the whole week. Compared with Intel, whose guidance was also lower than expected, the performance was stronger. The latter gapped down after the financial report and opened 11 %, and the decline will continue to expand in the next few days. It seems that AMD has the potential to replace Tesla and become a member of the new Mag:
Bank of America's Hartnett believes that stocks should have risen when yields fell, but the recent two rises together mean that the stock market is supported by strong performance growth and is not afraid of rising bond yields. Now investors are betting on the Federal Reserve to slow down, and believe that artificial intelligence is still Far from being effective, in this context, already expensive technology stocks must be firmly held and not buck the trend. On the other hand, they must be hedged with bargains with discounted valuations, such as Chinese stocks or small-cap stocks.
Last week, China's major A-share stock index hit a new low. However, the stocks with high dividends, performance, and stable dividends that we mentioned earlier clearly resisted the decline, such as major banks, coal mining stocks, three barrels of oil, telecommunications stocks, etc., and many even closed higher. In addition, there is reason to suspect that the Chinese stock market's leakage will make officials more determined to maintain the stability of the RMB exchange rate. In fact, the RMB has been relatively strong among non-US currencies recently:
Other charts worth noting:
The AI bubble has not yet exploded, so far valuations are still relatively rational:
This chart shows the relationship between the U.S. ISM Manufacturing Purchasing Managers Index and the new orders/inventories sub-data. The latter is leading. According to this, Bank of America predicts that the U.S. manufacturing PMI may further rise to 53 to 53 in the summer. Between 55:
Foreign capital has continued to buy the dips for the bottom, with US$6.3 billion flowing into Chinese stock funds last week, compared with nearly US$12 billion the week before. The past four weeks have seen the largest cumulative inflows on record, at just over $21 billion
China's retail consumption year-on-year indicator calculated by Goldman Sachs has accelerated its recovery in recent months, while data from the National Bureau of Statistics shows a slowdown in growth:
Despite China's economic downturn, monetary policy remains relatively tight. A Goldman Sachs China client survey shows that although mainland investors believe that China's stock market is already attractive from a valuation perspective, they have difficulty finding catalysts for this year's market rise. Offshore investors are paying attention to the upcoming Third Plenary Session of the Central Committee of the Communist Party of China and possible structural reforms. Mainland customers expect that policies will continue to be loose this year, but the intensity and scale will be limited. It will be more of a point-based loosening rather than a large-scale stimulus.
China’s net foreign exchange outflows for five consecutive months turned balanced in December:
Confidence in China’s real estate debt is improving:
Goldman Sachs' hedge fund clients have been net buyers of information technology stocks for four consecutive weeks, and their current net allocation to information technology stocks accounts for 21.2% of their total net exposure. This is a significant increase from 13.9% at the beginning of 2023 and 18.7% at the beginning of 2024, and the current allocation to information technology is in the 90th percentile compared to the past five years:
Bitcoin spot ETF reversed its decline in the past week and has had net inflows for 6 consecutive trading days:
Hedge funds began to short positions in the Bitcoin futures market:
MS: Liquidity support may weaken this year
U.S. Treasury bonds have become favored by domestic residential sector investors as their yields have become attractive, offsetting overseas selling:
Institutional sentiment indicators have risen but remain in neutral territory:
