By Craig McAvinue – 1 August, 2024
“ The stock market is filled with individuals who know the price of everything but the value of nothing”
As the second half of the year gets underway, we are seeing a bit more volatility creep in. But overall markets remain buoyant in the US and Europe, though parts of Asia experiencing a bit of a downward trend…
Data from Google Finance
As noted in the last update, with the JPY/ USD hitting a 35 year low, unsurprisingly we saw a bounce on this pairing, this being the standout currency move..
Data from Google Finance
Last week we saw a couple of days trading where sell offs in the much discussed AI sector and the “Magnificent 7” caused some media speculation around the value in these businesses.
Nvidia in particular, which saw its share price fall from a month high of US$134 down to US$103 had many media sensationalising this apparent crash. As is always the case in these circumstances, a more level headed approach recognises that this sector is not crashing. With profits of over 140% in the calendar year, Nvidia was always going to be a candidate for a sell off.
Since its drop to US$103, the share price has since recovered and is sitting around US$117 as I write this.
Volatility had been low for much of the year, but with these sell offs in Magnificent 7 / AI we saw the VIX (Volatility index) up 34%. The sheer size of these companies and their impact on markets as a whole cannot be underestimated.
The AI sector is most definitely not crashing and the race amongst tech giants to create more and advanced chips in this area is huge with spending in Quarter 1 reaching over US$22billion, over 400% increase year on year.
The overall market picture however remains positive and with the Federal Reserve making noises around an interest rate cut in September, and possibly being 0.5% this always helps.
China remains in a difficult place and there still appears to be a lack of investor confidence in the government’s willingness and ability to implement effective economic stimulus measures. The fallout from the real estate crash with Evergrande still facing bankruptcy and the delayed recovery due to the strict COVID-19 lockdowns has also played a role.
It’s a difficult call as to whether there is value here and a strong recovery is on its way in the near term, but with US$6 trillion wiped off the Chinese markets since 2021, longer term investors would see some potential.
Political changes also continue to dominate headlines with the labour government settling into power in the UK and Joe Biden stepping down as presidential candidate in favour of Kamala Harris. However as per usual these events have little impact on the market other than the odd knee jerk reaction.
So as we head into the last five months of 2024 most analysts have a cautiously optimistic outlook for the S&P 500 for the rest of 2024, expecting moderate gains but with potential volatility. Factors such as the path of inflation, Fed policy, and economic data releases will be pivotal.
With inflation seemingly under control, GDP growth and the technological innovations such as mentioned above, indicators are the market will finish in positive territory for the fifth time in the last six years… but just how positive remains to be seen
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