US stocks endured a tough day at the office overnight, with the Real Estate and Utilities faring the worst after the Fed minutes saw investors reduce bets for rate cuts into 2025. Also, we saw firm economic data, which compounded the nervousness post Fed with Services and Manufacturing data printing strongly. Nvidia (NVDA US) soared after delivering a solid earnings beat, but it wasn’t enough to turn around the concerns arising from the Fed Minutes – note that the stock is to undergo a 10-1 split; hence, it won’t be trading above $US1,000 for long!
With credit markets losing confidence that the Fed will cut rates in September, it is likely to be tough going for the S&P500 to accelerate higher. The overnight price action was bearish and we are now watching closely, ready to amend our more positive stance towards markets. We are now more inclined to sell strength as opposed to buy dips for now, although one bad day doesn’t end a bull market.
- We are targeting the 5500 over the coming weeks/months by the S&P500, but the risk/reward is no longer exciting.
MM is bullish (just) on US stocks short term
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This week’s Fed Minutes and resilient US economic data have kept the US 2s around 5%, a level they’ve visited a few times over the last year. Ultimately, we believe rate cuts have just been kicked down the road, with only one now the most favoured scenario in 2024. Stocks will struggle if the risks of future hikes are embraced, but for now, it is business as usual with the view that it’s when, not if, the Fed cuts rates through 2024/5.
- We are ultimately targeting a test/break of 4% by the short-dated US bond yields.
MM remains bearish towards bond yields medium-term
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