Weekly Overview of Global Markets

Market Review and Outlook

US Stocks: Last week, two key labor market indicators helped to boost U.S. stocks once again. The JOLTS job vacancy and non-farm payroll reports from April showed that the U.S. economy was cooling off, and combined with recent indications of improving inflation, many believe that the Fed may cut interest rates in the coming months. Leading the way in the stock market were large-cap tech stocks, with NVIDIA (NASDAQ: NVDA) surpassing Apple to become the second-largest publicly traded company in the U.S. with a market value of over $3 trillion. An important development to take note of is the increasing speed at which central banks around the world are cutting interest rates. This week, the Bank of Canada and the European Central Bank both joined the rate cut camp, with each institution announcing their respective decisions on Wednesday and Thursday. Softening U.S. bond yields helped to support sentiment in both the bond and stock markets, with the S&P 500 rising by around 8% since its low point in April. Year-to-date, U.S. large-cap stocks have risen by about 11%. While growth stocks continue to be a source of strength, with the technology and communication services sectors leading the way, cyclical and defensive sectors have made up ground recently, with energy, finance, and utilities all rising by double digits in 2024.

US Bonds: Following the Fed's announcement that interest rate cuts would be further delayed, U.S. bond yields skyrocketed, which seemed to cause significant turbulence in the stock market just two weeks ago. However, last week saw a sharp reversal, with U.S. bond yields dropping significantly. The 10-year Treasury yield fell by around 33 basis points from its high point on May 29th, reaching its lowest level in two months. Truist Advisory Services has suggested that this yield decline is a reaction to various data points indicating that the U.S. economy is indeed cooling off. While the situation is still developing, this shift in bond yields could have significant implications for the stock market and broader economy moving forward.

Crude Oil: OPEC+ members' decision to extend production cuts until the end of September has raised questions in the market, and oil prices have fallen to their lowest point in four months as a result. The plan to gradually phase out production cuts based on market conditions has left some analysts skeptical, especially when considering the voluntary nature of these cuts. As demand is expected to slow down next year, there are concerns that relaxing production cuts now could limit the potential for crude oil prices to rise in the future.

Note: The weekly performance of major asset classes is ranked based on the weekly change in the asset class as shown in the table above, with ">" indicating the ranking from highest to lowest. US bonds are ranked based on the change in futures prices. Past returns do not guarantee future returns.

Data source: Bloomberg. Date as of May 24th, 2024

Weekly Hot Topic

NVIDIA 10-for-1 stock split: what does it mean for investors?

NVIDIA (NASDAQ: NVDA) has announced that its long-awaited stock split will take place at the close of business on June 7, 2024. Since the chipmaker announced its 10-for-1 stock split on May 21, the stock has risen by more than 15%. Even before the company announced the split, NVIDIA's stock had been on an upward trend, rising by about 121% since the beginning of this year. With the news of the stock split, many investors may have questions about what it means and how it will impact their investments.

• What does a stock split actually mean?

In NVIDIA's case, at the close of business on June 7, each share of common stock will be entitled to receive nine additional shares, which will not impact the company's overall market value. However, it will change the number and price of outstanding shares. For example, if the stock price was $1,000 per share before the 10-for-1 split, the price per share after the split will be $100.

• Why did NVIDIA decide to split its stock?

The company stated in its first-quarter earnings report that the stock split "will make it easier for employees and investors to own stock."

• Is it still worth buying after the stock split?

Many investors may wonder whether it's still worth buying NVIDIA's stock after the split. While some believe that a stock split is a positive signal indicating bullish momentum, history has shown that the actual performance of companies after a stock split can be unpredictable. Even the "Tech Seven Giants" have had mixed results in predicting their performance after a stock split. Therefore, investors should conduct a thorough analysis before making any investment decisions.

In conclusion, there is no direct relationship between stock splits and stock price increases. The growth of future stock prices still relies on the growth of profits. The market has always had confidence in NVIDIA's strong profitability, and analysts are generally optimistic about the company's prospects. For example, CFRA Research predicts that NVIDIA's earnings will grow by 108% this year. As NVIDIA's founder and CEO Jensen Huang stated in the earnings call, "The next industrial revolution has already begun."

US Stock Market's Outstanding Pullback Performance This Year

The first half of 2024 has been turbulent for the market, with geopolitical tensions and inflationary pressures causing uncertainty. Despite these challenges, the US stock market has remained relatively stable, with only a minor dip of 5.5% so far this year. This is a positive sign for investors, as it suggests that the market is resilient and able to weather economic storms.

It's worth noting that the S&P 500 has experienced much lower daily volatility this year compared to previous years, with only one day of volatility exceeding 2%. This is in contrast to the 21 instances of markets with daily volatility exceeding 2% since 2018. This suggests that although there are many concerns about interest rates, inflation, and geopolitical risks, the market is still able to maintain a level of stability that is reassuring to investors.

Important Events Outlook for This Week

Consumer Price Index (CPI)

The eagerly awaited Consumer Price Index (CPI) data will be released on the morning of June 12, which coincides with the date of the next FOMC interest rate decision. As a result, regardless of how the CPI data turns out, the market is expecting interest rates to remain stable at the FOMC meeting. However, the Fed will be closely analyzing the May CPI data, as it provides guidance for the timing of rate cuts in 2024. Current predictions show that the May CPI will rise by 0.08% month-on-month, but this forecast may be partly attributed to the drop in oil prices for most of May. Once the impact of food and energy is eliminated, the core CPI is expected to rise by 0.3% month-on-month. If the CPI falls again as predicted, this will increase speculation about two rate cuts in 2024.