Macrosynthesis
TLDR
- U.S. stocks hit new highs
- China stimulates economy, materials stocks rally
- Hurricane disrupts oil and gas supplies
- Middle East conflict becoming a war
- SMCI hit with DOJ probe
- Visa sued by DOJ
- Micron earnings show AI trade is still alive
U.S Stocks Reach New Highs
U.S. stocks rose this week, with the S&P 500 gaining .46%, the Dow Jones up .60%, and the Nasdaq increasing by 1.1%. Investors digested the PCE report, which showed a 0.1% rise in both the PCE and core PCE indices, with core PCE below expectations. Personal spending slowed, and income growth unexpectedly eased. The likelihood of a second 50bps Fed rate cut in November increased slightly to 53%. China stocks rocketed on the news that the government is issuing around $300 billion in stimulus.
China Gives the Economy a Lifeline
On Friday, China’s central bank lowered interest rates and injected liquidity into the banking system as Beijing launched a major stimulus effort to push economic growth closer to its 5% target for the year. In response, Chinese stocks experienced their biggest weekly rally since 2008, with the CSI 300 Index surging 16%, including a 4.5% gain on Friday. The stimulus package included a 2 trillion yuan ($284 billion) special sovereign bond issuance, a 50-basis point reserve requirement ratio cut, and additional housing market support. Intense trading overwhelmed the Shanghai Stock Exchange, causing delays. This comes after the CSI 300 index neared a 5 year low. However, the index is now in the green for the year. Stocks like Alibaba rocketed over 20% this week as well as material stocks like MP rising nearly 30%.
War in Middle East Expands
Reports indicate an airstrike on Yemen's Red Sea port city of Hodeidah, with Reuters noting that fuel tanks were hit Sunday. The Iran-backed Houthis have launched missiles and drones at Israel and disrupted global trade by attacking 60 container ships in the Red Sea in response to Israel's ongoing assault on Hamas in Gaza. Over 90% of shipping traffic has been diverted around this area because of these attacks. Meanwhile on Friday, U.S. war ships were attacked by Houthis, with a barrage of missiles and drones sent to the ships which shot them down.
Iran and Iran-back Hezbollah have promised retaliation for Israeli's pager attack and bombing which killed Hezbollah's leader as well as civilians. Israel has been bombing 1500 Hezbollah targets in Southern Lebanon for a week straight in response to 8,000 rockets launched at Israel by Hezbollah over an 11-month cycle. Civilian casualties are rising, as are the number of displaced civilians. While both sides' leader have stated an all-out war is not desired, it's hard to see how the situation can be de-escalated quickly enough to prevent one. Iran plays a key role in controlling tanker passage through the Strait of Hormuz, which handles about 15% of global oil transport. If Iran got directly involved in this war, it could disrupt oil supply worldwide.
Personal Consumptions and Net Income Rise
In August 2024, the US personal consumption expenditure (PCE) price index rose by 0.1%, following a 0.2% increase in July, meeting expectations. Service prices increased by 0.2%, while goods prices declined by 0.2%. Core PCE, excluding food and energy, also rose 0.1%, below the forecasted 0.2%. Annually, PCE inflation dropped to 2.2%, its lowest since February 2021. Meanwhile, US personal income increased by 0.2%, below the expected 0.4%. Compensation of employees grew 0.5%, while personal income from assets and government transfers weakened.
Consumer Sentiment Better Than Thought
The University of Michigan's consumer sentiment index for the U.S. was revised up to 70.1 in September 2024, the highest in five months, surpassing the preliminary reading of 69 and beating expectations of 69.3. The current economic conditions measure increased to 63.3 from 62.9, and the expectations index rose to 74.4 from 73. Inflation expectations for the next year fell to 2.7% from 2.8%, while the five-year inflation outlook rose slightly to 3.1% from 3%.
Materials Stocks Outperform on Upbeat China News
The CBOE Volatility Index rose 5% to 16.96, indicating increased market uncertainty. Among the S&P 500 sectors, Materials led with a 3.4% gain, followed by Consumer Discretionary (+1.8%) and Industrials (+1.6%). Utilities and Telecom both rose by 1%, while Information Technology gained 1.1%. On the downside, Healthcare fell by 1.1%, Financials dipped by 0.5%, and Energy lost 0.8%. Real Estate saw a modest decline of 0.2%, while Consumer Staples edged up 0.1%.
U.S. natural gas futures jumped nearly 5% to $2.9 per MMBtu, reaching their highest level in three months, as Hurricane Helene impacted the Southeast. The storm forced Gulf of Mexico producers to cut output and left millions without power across Florida, Georgia, and the Carolinas. Natural gas prices are up 38% over the past month. Meanwhile, silver prices outpaces gold and the S&P 500 for the week. Silver has more industrial uses than gold.
Uranium stocks also jumped last week, following a series of power deals and announcements as well as a commitment by the major banks to support development of nuclear power. The Uranium Miners ETF (URNM) rose 7% last week on the events.
The Week Ahead
This week in the U.S. will be packed with significant economic updates, with a strong focus on the labor market report and speeches from several Federal Reserve officials, including Chair Jerome Powell. Key data releases to follow include JOLTS job openings, ISM Manufacturing and Services PMI, and factory orders. On the global stage, inflation data will be published for various countries such as Poland, Italy, Germany, the Euro Area, the Netherlands, South Korea, Switzerland, Turkey, and the Philippines.
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Natural Gas
+5.41% (1D Chg)
+19.23% (1W Chg)
Cocoa
+7.94% (1W Chg)
+139.64% (YoY Chg)
Beef
+4.92% (1W Chg)
+15.13% (1M Chg)
Eggs
-22.9% (1W Chg)
-47.11% (1M Chg)
Company News
LevelFields AI Alert Highlights This Week
This week, LevelFields alerts delivered significant gains. JBL's $1B buyback drove its shares up by over 11.5% in a single day. TMDX announced its inclusion to the S&P Small Cap 600, boosting its stock by 10% in one day. AIR's $1.2 billion contract with the U.S. Navy's Naval Air Systems Command lifted its stock by more than 8%. Additionally, both VALE and DELL were flagged in our Quick Sprints scenario as their prices broke out, resulting in shares rising over 5% in a day.
Visa Gets Hit with Antitrust Suit
The U.S. Department of Justice has filed an antitrust lawsuit against Visa, accusing the company of using threats and incentives to stifle competition in debit card processing. Prosecutors claim Visa’s actions led to hidden consumer costs and helped the company maintain dominance, processing over 60% of U.S. debit transactions. Visa, which denies the allegations, saw its shares drop by -3.9% this week. The lawsuit is part of broader efforts by the Biden administration to tackle rising consumer prices and promote competition in financial markets.
SMCI Stock Plunges After DOJ Opens Investigation
The U.S. Department of Justice has initiated an investigation into Super Micro Computer, following allegations of "accounting manipulation" by short-seller Hindenburg Research. The investigation, still in its early stages, is connected to claims made by a former employee about accounting violations. Super Micro's shares dropped by 12% after the news. Last month, the company delayed its annual report to evaluate its financial reporting controls. Super Micro, a major player in AI servers, denies the allegations, while the DOJ has not confirmed the probe.
China Stimulus Boosts Materials and Chinese Equities
China's recent stimulus measures significantly boosted material and China-related stocks. As a result, copper and lithium mining stocks surged, with companies like Freeport-McMoRan, VALE and Southern Copper seeing strong gains. U.S.-listed Chinese stocks, such as Alibaba and Li Auto, also rallied. The announcement helped lift the Dow and S&P 500 to record highs, reflecting growing optimism in materials and cyclical sectors sensitive to China's economy.
Micron Gets a Boost
Micron's stock surged 17% after the company projected higher-than-expected Q1 2025 revenue of $8.5 to $8.9 billion, surpassing analysts' $8.3 billion estimate. The forecast is driven by strong demand for memory chips used in AI data centers. Micron's fiscal Q4 revenue reached $7.75 billion, up 93% year-over-year, surpassing expectations.
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Upcoming Earnings:
Monday: Carnvial (CCL)
Tuesday: Paychex (PAYX), Nike (NKE)
Wednesday: Levi Strauss (LEVI)
Thursday: Constellation Brands (STZ)