S&P 500 and Nasdaq 100 rose 0.64% and 1.1%, respectively, last week.
Major stock movers: Nvidia (+4.66%), Tesla (+9.32%), Micron (+18.26%), AMD (+5.39%), Caterpillar (+6.04%), Microsoft (-1.67%), Eli Lilly (-4.74%), Amazon (-1.89%), Visa (-3.37%).
Key economic data this week: Manufacturing PMI and JOLTS Job Openings (Tuesday), ADP Non-farm Employment Change (Wednesday), Unemployment Claims and Service PMI (Thursday), and Non-Farm Payroll (Friday).
Fed Chair Jerome Powell will speak at an economic conference on Monday.
Things you should know before starting the week:
1) Micron Earnings Beat Sent AI Stocks Higher Last Week
Both Q4 2024 earnings results and the Q1 2025 outlook exceeded expectations, indicating strong AI demand moving forward.
Micron's earnings often set the tone for the semiconductor sector, as it’s one of the first to report.
2) S&P 500 Tends to Decline After the First Fed Rate Cut
Historically, the S&P 500 tends to experience a correction in the first 1.5 months after the initial rate cut, regardless of whether a recession follows within 12 months. Waiting for a pullback might be wise for accumulation.
Source: Matt Cerminaro
3) Investors Focus on the Labor Market This Week
Softer-than-expected PCE data last Friday failed to lift the market. Investors seem immune to inflation surprises and are focusing on the labor market instead.
Key data this week includes JOLTS Job Openings on Tuesday, ADP Non-Farm Employment Change on Wednesday, Unemployment Claims on Thursday, and Non-Farm Payroll on Friday.
"Bad news is bad news": U.S. stocks may tumble if there is a negative surprise in the job market, as investors could worry that the Fed is behind the curve.
4) Beware of Another Round of Yen Carry Trade Unwind
USD/JPY rallied to 142.37 following Shigeru Ishiba's election win in Japan.
Further yen appreciation could trigger another round of yen carry trade unwinding, potentially affecting global markets.
Conclusion:
U.S. stocks were mostly up last week, buoyed by a rally in Chinese stocks and better-than-expected earnings from Micron.
However, I remain skeptical of an October rally due to factors such as election uncertainties, high valuations, potential negative earnings surprises, poor October seasonality, and the risk of another yen carry trade unwind, which could weigh on U.S. stocks in the short term.
I maintain a bearish outlook for October but expect to turn bullish after the U.S. election, as funds may flow into U.S. equities once election uncertainties are removed.
You may refer to an example of an Aggressive Equity Portfolio below.
The said Aggressive Portfolio has returned 31.7% year-to-date, outperforming the S&P 500’s 21.55% and the Nasdaq 100’s 19.65%.
Source: Bloomberg
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