It’s not every day you see a company increase its market cap by US$180 billion.
That’s about the same as the market cap of ANZ Group Holdings [ASX:ANZ], National Australia Bank [ASX:NAB], Westpac Banking Corp [ASX:WBC] and Fortescue Metals Group [ASX:FMG] combined.
The AI revolution is gathering steam with the market darling Nvidia [NASDAQ:NVDA] rocketing 25% in a day after upgrading EPS guidance by a mind blowing 55%.
That managed to keep markets in the green despite growing headwinds from rising interest rates. The US two-year bond yield has leapt more than 50bps in the last couple of weeks from 4% to 4.52%.
But US stocks are yet to react in a noticeable way. If you look beneath the surface, though, it is obvious that the breadth of the market is narrowing as less and less stocks join in the rally.
The Russell 2000 Index is still trading near last year’s low while the Nasdaq blasts higher.
The US dollar is leaping higher on the back of rising interest rates and that is feeding into weakness in commodities with gold, copper, nickel, and zinc all feeling some heat.
Australia can’t ride on the back of large tech stocks and is weighted towards commodities, so a period of underperformance seems on the cards.
The ASX 200 is within a whisker of the 200-day moving average and selling pressure could increase below there.
Our bond markets are selling off with US bonds, and we face a sharp rise in electricity prices soon that will feed into higher inflation. The RBA will be under pressure to continue raising rates.
There’s a lot of noise about our property market turning up, but there are still headwinds coming as fixed rate loans roll off into higher floating rates towards the end of the year.
US commercial real estate is still the wild card to keep your eye on as two-year bond yields jump. The longer rates stay close to 5% the higher the chance something will break.
I am still focused on capital preservation rather than becoming gung-ho in a volatile macro situation such as this.
We’ve had months of sideways motion, and, as I keep saying, it’s like shaking up a coke bottle. When the lid comes off it can get messy.
I remain firm in the view that as long as the S&P 500 remains below 4,350, the risk is to the downside.
In today’s Closing Bell video above, I show you the state of play in US two-year bonds, the Nasdaq, the US dollar index, gold, copper, the S&P 500, and the ASX 200.
Until next week,
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Murray Dawes,
Editor, Money Weekend
