1.

2 charts show why the stock market sell-off isn't done yet

2024-07-26 08:00:39 by Josh Schafer from Yahoo Finance

The roaring stock market rally of 2024 has finally hit a pause.

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) tallied their worst one-day drops since 2022 on Wednesday and extended those losses on Thursday. Over the past 10 days the benchmark S&P 500 is down about 3%, while the Nasdaq is down more than 6%.

The recent pause in the rally's chug higher aligns with calls from equity strategists in our recently released third volume of the Yahoo Finance Chartbook. Truist co-chief investment officer Keith Lerner noted that in years when the S&P 500 has risen more than 10% in the first half of the year, the second half usually sees an average pullback of about 9%.

Through the end of June, the S&P 500 was up about 14%.

"This choppier market action of late, which we have been anticipating, likely has further to go in terms of price and time," Lerner wrote in a note to clients on Thursday.

Tech has been the clear leader of the recent market drawdown. Information Technology and Communication Services are the only two of the 11 sectors in the S&P 500 with negative returns over the past month. In an interview with Yahoo Finance, Lerner reasoned that the recent sell-off in Tech made sense given how far up the sector had run.

In late June, tech had outperformed the S&P 500 on a rolling two-month basis by the most since 2002, per Lerner's research. Lerner reasons that, like a rubber band that becomes overstretched, there's usually a snapback from extreme levels of outperformance in markets.

"When we get that stretched, a little bit of bad news can go a long way," Lerner said.

The "little bit of news" came via earnings reports from Alphabet (GOOGL, GOOG) and Tesla (TSLA) after the bell on Tuesday leading into Wednesday's sell-off. Lerner noted that the earnings weren't bad but failed to impress investors, who had a high bar entering this reporting season.

Earnings from Apple (AAPL), Meta (META), Microsoft (MSFT), and Amazon (AMZN) expected next week will prove the next test for investor sentiment in the tech sector. Lerner reasoned that, after the market reset over the past few trading sessions, there's a chance technology's latest swath of earnings can surpass investors' now-trimmed expectations.

"I think the secular story of this bull market is still intact," Lerner said. "Money will come back there. I just think more likely you need a resting period and kind of a pause that refreshes."

NEW YORK, NEW YORK - APRIL 02: Traders work on the floor of the New York Stock Exchange during afternoon trading on April 02, 2024 in New York City. All three major stock indexes closed at a loss with the Dow Jones leading the way closing over 350 points falling for a second day as Wall Street has a turbulent start to the second quarter. Both the Dow and S&P 500 had its worst day since March 5th. (Photo by Michael M. Santiago/Getty Images) — Traders work on the floor of the New York Stock Exchange during afternoon trading on April 2, 2024, in New York City. (Michael M. Santiago/Getty Images)

BMO Capital Markets chief investment strategist Brian Belski also highlighted the likelihood of a pause in stocks' climb higher in the latest edition of our Chartbook. Similarly to Lerner's analysis, Belski's work shows that going back to 1949, the second year of a bull market sees a roughly 9% average pullback. The most recent bull market started in October 2022.

Belski told Yahoo Finance on Tuesday that the market was "ripe for a pullback from a sentiment perspective." But to Belski, this is a "buying opportunity." His research shows that markets typically bounce back an average of 14.5% from the bottom of the second-year bull market drawdowns he studied.

"Stocks will be higher at year-end," Belski said.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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2.

1 No-Brainer Growth ETF to Buy Right Now for Less Than $500

2024-07-25 09:46:00 by Justin Pope, The Motley Fool from Motley Fool

Every long-term investor should consider having some exposure to growth stocks, companies that are rapidly growing their revenue and earnings. Even the most conservative investor can benefit from owning a high-quality exchange-traded fund that offers instant, diverse growth stock exposure with a single ticker symbol.

And as far as growth ETFs go, the Invesco QQQ Trust (NASDAQ: QQQ) is tough to beat.

I'll explain below why the Invesco QQQ is the best growth ETF you can buy under $500 and how best to implement it into your long-term investment strategy.

What is the Invesco QQQ ETF?

The Invesco QQQ is an exchange-traded fund (ETF), a basket of stocks that trades under one ticker symbol. Most ETFs might mimic a stock market index or focus on a specific niche. The Invesco QQQ follows the Nasdaq-100, an index of the 100 largest non-financial companies trading on the Nasdaq stock exchange. The Nasdaq is popular among technology companies, so the Nasdaq-100 and the Invesco QQQ, by association, lean heavily into the technology sector. Technology stocks make up just over half of the Invesco QQQ.

A group of the world's largest tech stocks, often referred to as the "Magnificent Seven," dominate the ETF's top 10 holdings:

Company	Percentage of Invesco QQQ
Apple	8.91%
Microsoft	8.49%
Nvidia	7.72%
Broadcom	4.98%
Amazon	4.96%
Meta Platforms	4.30%
Tesla	3.12%
Alphabet Class A Shares	2.71%
Alphabet Class C Shares	2.61%
Costco	2.49%

Data source: Invesco QQQ Prospectus.

The fund's remarkable 10-year return of over 430% bests the broader Nasdaq's 340% and the S&P 500's 234%.

Why does it continue to perform so well?

The Invesco QQQ's stellar performance boils down to a couple of simple mechanisms:

First, the Nasdaq-100 is a market cap-weighted index. That means that larger companies represent a more significant portion of the index. The better stocks perform, the larger they grow and the more weight they have. In other words, the index leans harder into winning stocks. That's why these enormous technology giants dominate the Invesco QQQ.

Second, the ETF's top holdings, these technology giants, have enjoyed growth virtually unmatched by anything in history. Just think about all the industries these Magnificent Seven companies dominate today:

Cloud computing
E-commerce
Internet search
Internet advertising
Smartphones
Electric vehicles
Semiconductors

These industries are worth hundreds of billions of dollars (trillions in some cases), and many are still growing! Meanwhile, these juggernaut companies collectively generate hundreds of billions of dollars in annual cash profits, which fund innovation and acquisitions that open new doors and keep smaller competitors out. In most cases, these companies compete with each other and few others.

Invesco QQQ's concentration on these huge technology winners has fueled its remarkable investment returns.

Here is the smartest way to invest in the ETF

Concentrating so heavily on relatively few stocks is a double-edged sword that can cut badly when things go south. You can see just how sharply the Invesco QQQ can plummet during a market crash:

There's a solid argument that technology stocks are in an AI-driven bubble. Does that mean you should avoid buying shares in the Invesco QQQ?

Not necessarily. Here's why:

The Invesco QQQ launched in 1999 near the height of the dot-com bubble. The market crashed the following year, the worst downturn for technology stocks in history. Talk about lousy timing. Still, the Invesco QQQ has outperformed the S&P 500 by nearly 400 percentage points over its lifetime!

Remember, nobody can perfectly predict if or when a market crash will occur.

Here's the game plan: Buy shares in the Invesco QQQ ETF slowly over time. Pick up a share here, a share there. You'll slowly build an investment with a cost that averages out. That way, you'll benefit if technology stocks keep thriving while having the ability to be opportunistic if the market does break down.

The future looks bright for technology growth stocks. Many existing growth trends still have years ahead of them, and artificial intelligence could add trillions of dollars to the global economy over the next decade and beyond. The Invesco QQQ is arguably the most effective and simple way to position your portfolio for that growth.

Should you invest $1,000 in Invesco QQQ Trust right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

1 No-Brainer Growth ETF to Buy Right Now for Less Than $500 was originally published by The Motley Fool

3.

Big Tech earnings won't be make or break for the stock market: Morning Brief

2024-07-24 10:00:18 by Jared Blikre from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

Tesla (TSLA) and Alphabet (GOOGL) kicked off Big Tech earnings on Tuesday with mixed results. Each fell in pre-market trading on Wednesday.

But for all the hand-wringing about the concentration of outsized gains in the hands of a magnificent few, stock bulls have two reasons to cheer as earnings season intensifies.

First, markets just completed a violent rotation that shifted winnings from the seven largest US stocks — Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Meta (META), Nvidia (NVDA), Tesla, and Alphabet — to small-cap stocks and interest rate-sensitive names.

Sectors like real estate, homebuilders, and regional banks are among those now leading the way.

The severity of the move — which accelerated with the latest weak inflation numbers — shouldn't be discounted.

Liz Ann Sonders, chief investment strategist at Charles Schwab, wrote that June was the Russell 2000's worst month versus the Nasdaq in over a year. Yet, she notes that July is already tracking the best since 2016.

Meanwhile, in the land of giants, the Magnificent Seven lost $1.25 trillion in market cap value over seven sessions recently — just as the small-cap stocks started asserting strength.

The trillion-plus drop in valuation by the Mag Seven represented an 8% fall in price — yet the overall market (the S&P 500) was off only 2% over the same time. Timing is everything.

The other tailwind favoring bulls is a game of earnings catch-up.

The S&P 493 (the S&P 500 minus the Mag Seven) is finally climbing out of an earnings recession, as noted by the BofA US Equity & Quant Strategy team.

S&P 493 EARNINGS GROWTH TURNING POSITIVE

Earnings per share (EPS) for the S&P 493 have been "flat to down for the past five quarters," wrote BofA, even as EPS growth for all 500 names turned positive three quarters ago.

This newfound strength for the rest of the market comes just as earnings growth is "expected to slow for the Magnificent Seven for the second straight quarter and again in the [third quarter]."

It appears that even earnings growth is rotating on a higher time frame.

The very fact that overall market volatility remains subdued despite these tectonic shifts taking place under the market's hood is a testament to the resilience of the bull market itself.

And BofA expects the rally to continue through breadth expansion.

"Given the high correlation between Tech's outperformance in stocks vs. earnings," the bank wrote, "we expect the narrowing growth differential to be the catalyst for the market to broaden out."

Click here for the latest stock market news and in-depth analysis, including events that move stocks

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4.

SMH, AI ETFs Rise on Nvidia Blackwell Hope

2024-07-23 12:00:00 by Kent Thune from etf.com

AI - Artificial Intelligence

After logging one of the worst weeks for semiconductor stocks in 2024, AI ETFs started a new week with healthy gains as optimism about Nvidia returned, and investors felt a Trump presidency was less assured.

The largest AI exchange-traded fund with Nvidia as a top holding, the VanEck Semiconductor ETF (SMH), rose nearly 4% on the renewed optimism.

Excitement around Nvidia comes as its promising Blackwell architecture for generative AI returned to focus and President Biden’s exit from the November election neutralized former president Trump’s questioning U.S. support for Taiwan last week.

NVDA rose nearly 5% and TSM gained more than 2% in Monday trading.

AI ETFs and Nvidia’s Blackwell

The incredible rise of AI ETFs has largely been supported by the dominance of Nvidia stock, the top holding in many of these mega-cap tech funds. Nvidia’s gains have been driven by its ability to beat earnings forecasts. Nvidia's Blackwell release date is expected in late 2024 to early 2025, and excitement over the “new era” GPU architecture is expected by many analysts to be transformative for artificial intelligence.

Here's a breakdown of what Blackwell brings to the table:

Focus on Generative AI: Unlike previous Nvidia architectures geared toward diverse computing tasks, Blackwell is purpose-built for generative AI, a rapidly growing field focused on creating new content like text, images, or code.
Unmatched Performance: Nvidia says that Blackwell delivers 30 times better performance on large language models compared to its predecessor. This significant leap allows for more complex and powerful AI applications.
Increased Efficiency: The company says that Blackwell will have 25 times greater energy efficiency compared to the prior generation. This may translate to lower operational costs for businesses and reduced environmental impact.
Custom Manufacturing Process: Blackwell GPUs are built using a 4NP manufacturing process tailored by TSMC, a leading chip manufacturer. This customization should improve power and performance, the company says. Superchip Design: Blackwell GPUs use a "superchip" design featuring two interconnected dies. This essentially creates a single, powerful AI processing unit.
High Bandwidth Connectivity: The two dies within a Blackwell GPU are linked by a high-speed, 10 terabytes per second (TB/s) connection, enabling efficient data transfer and processing.

Investors are banking that the Blackwell architecture will represent a significant leap in AI processing capabilities that can improve different fields, including natural language processing, computer vision and robotic automation. How this affects price remains uncertain.

5.

Yahoo Finance Chartbook: 32 charts tell the story of markets and the economy midway through 2024

2024-07-23 09:58:12 by Josh Schafer from Yahoo Finance

Stocks are near all-time highs, and investors think interest rate cuts from the Federal Reserve are around the corner.

An overarching feeling of optimism about both the economy and markets emerges from the third volume of the Yahoo Finance Chartbook, a trend similar to that seen in volume two in late January.

Across the 32 charts compiled by economists and strategists on Wall Street, we see broad confidence that the US economy can still achieve the vaunted "soft landing" outcome following the Fed's historic rate-hiking cycle.

Following a nearly 17% gain in the S&P 500 (^GSPC) so far this year, equity strategists see room for the bull market to run further, as many areas of the market have only recently joined the rally.

However, just past the midpoint of 2024, there is some doubt about how long this can last without significant changes.

The risks aren't hard to find with the US presidential election looming. A stock market pullback is more than overdue, according to some market data. And a resilient economy continues to straddle the fine line between normalization from pre-pandemic trends and the start of a broader slowdown.

Economists are clamoring for changes to monetary policy to ensure the Fed can land the plane safely. Investors are also highlighting new opportunities and a potential stock market rotation as artificial intelligence enthusiasm moves into its next phase.

This volume of the Chartbook reflects markets and the economy at what Goldman Sachs economist Jan Hatzius called an "inflection point," where many things appear the same for now — but almost everything seems on the cusp of looking quite different.

The case for cutting rates | The state of the bull market | A pending US presidential election | The health of the US economy | The market's next move

The following commentary has been edited for length and clarity.

Click here to download YF Chartbook Vol. 3 (Open Link in New Tab on desktop)

The case for cutting rates

David Kelly, chief global strategist, JPMorgan Asset Management Market Insights Team

"Stubborn inflation during the first quarter dashed hopes for aggressive policy easing this year. That said, inflation remains below its June 2022 peak, and disinflationary momentum has regathered steam in recent months. In fact, headline inflation rose by just 3.0% y/y in June, well below the 3.5% pace recorded just three months prior.

"While food and energy prices have been well-behaved and core goods have been a steady source of disinflation, gains in shelter and auto insurance have remained elevated, prolonging inflation’s journey back to the Federal Reserve’s 2% target. However, with real-time data across both categories pointing to easing price pressures, inflation should continue its slow descent and return to 2% by the middle of next year. If, as expected, inflationary pressures ease through the summer, the Federal Reserve should feel comfortable cutting rates twice this year, delivering a first cut in September."

Goldman Sachs economics team led by Jan Hatzius

"Contrary to the predictions of some prominent economists but consistent with our own work and that of Fed Governor Christopher Waller, the normalization of the US labor market over the last two years has occurred in a very benign fashion, with a large decline in the job openings rate and only a negligible increase in the unemployment rate. In the jargon of labor economics, we have moved down the steep post-pandemic Beveridge curve and are back to the flatter pre-pandemic Beveridge curve. This means we may be approaching an inflection point at which further softening in labor demand results in a bigger and much less welcome increase in unemployment."

Brett Ryan, senior US economist, Deutsche Bank

"The most important chart — and the impetus for the change to our [call for a September rate cut] — is the latest rental inflation data from [this month's] CPI release. The drop in primary rents and owners' equivalent rents in the June CPI data is a 'game changer' and should meaningfully boost Fed officials' confidence that inflation remains on a trajectory back to its 2% target. To be sure, the Fed will likely want to see a couple more prints to confirm the downshift, but historically, rents have been fairly sticky — i.e., when you have a shift in either direction from [a] prior trend, it tends to persist."

Mark Zandi, chief economist, Moody's Analytics

"Inflation, as measured by the harmonized consumer expenditure deflator, is firmly below the Federal Reserve's 2% target. Harmonized inflation excludes the implicit cost of homeownership, also known as owners' equivalent rent. Measuring OER is vexed in typical times but is intractable in current times given the upside-down housing market. It is understandable the Fed doesn’t want to change the inflation measure it is targeting at this time and risk its credibility, but Fed officials should call out harmonized inflation as critical to watch. By so doing, it will make it easier for the Fed to make the case that inflation is where it needs to be for them to do the right thing and lower interest rates."

Gregory Daco, chief economist, EY

"Given unfavorable year-on-year comparisons, PCE inflation is likely to hover around an 'uncomfortable plateau' around 2.6%-2.7% over the summer. While softer consumer spending growth due to increased pricing sensitivity, moderating wage growth, declining rent inflation, reduced markups, and stronger productivity growth will continue to provide a healthy disinflationary impulse, it's not until September that inflation readings will fall below that uncomfortable plateau. We foresee headline and core PCE inflation ending the year around 2.5% [year over year]."

Michael Gapen, head of US economics, Bank of America Global Research

"We expect the contribution from fiscal [policy] to the growth rate of the US economy should moderate over time, down from the substantial contributions it made in the last six quarters. And, to a lesser degree, business spending should follow the same path. This is part of the reason we assume growth moderates and inflation decelerates."

John Silvia, CEO and founder, Dynamic Economic Strategy

"The Fed, Powell, and others have cited these series as benchmarks for easier labor market conditions. These two series support the argument the Fed will ease in September."

Click here to download YF Chartbook Vol. 3 (Open Link in New Tab on desktop)

The state of the bull market

Liz Ann Sonders, chief investment strategist, Charles Schwab

"Over multiple periods during the past year, a historically low percentage of the S&P 500 has outperformed the index itself while churn/rotations/weakness under the surface remains acute. The better-than-expected [June] CPI report unleashed some rotation into smaller-cap stocks, and we think there will be continued bouts of that rotation. However, we recommend staying up in quality when going down the cap spectrum."

Goldman Sachs equity strategy team led by David Kostin

"This chart shows how the market has been trading three groups of potential AI beneficiaries. The first group is stocks with revenues tied to investment in AI infrastructure, including semiconductor firms, cloud providers, and data centers, among others. The second is companies with the potential to monetize AI by generating incremental revenues. The third group contains the companies with the biggest potential earnings boost from AI-driven productivity gains. So far, investors have expressed confidence in the trajectory of AI investment, with those beneficiaries outperforming the average S&P 500 stock by nearly 30 percentage points so far this year. However, the flat performance of the other groups signals that investors remain skeptical about the longer-term impacts of AI adoption."

Nicholas Colas, co-founder, DataTrek Research

"Low expected volatility, as measured by the CBOE VIX Index, is a common feature of bull markets. This was the case in the mid-1990s, mid-2000s, and much of the 2010s. Many market observers are worried the VIX is too low, signaling unhealthy complacency. We disagree, and the history of Wall Street's 'Fear Index' supports our view."

Citi's US equity strategy team led by Scott Chronert

"This chart is our way of measuring how much growth markets are pricing into current index levels. Right now, we are near post-pandemic highs. This means market expectations are high for fundamentals. Basically, you need strong earnings results and follow-through in guidance to support the market or push it higher [at] these levels."

Richard Bernstein, CEO & CIO, Richard Bernstein Advisors

"This chart shows the relationship over the last 10 years between high-yield corporate spreads and large versus small stock performance. Historically, large-cap stocks (higher quality) tend to outperform smaller-cap stocks (lower quality) when high-yield credit spreads are widening (high-quality bonds outperform low-quality bonds). However, the relationship has reversed since the end of 2022. Large-cap stocks have outperformed smaller stocks despite credit spreads narrowing. This is quite rare and conflicts with sound economic theory."

Paul Hickey, co-founder, Bespoke Investment Group

"On July 16, the Russell 2000 closed 4.42 standard deviations above its 50-day moving average. That was not only the most overbought reading that the Russell 2000 has seen on a closing basis in its history, but for major US Indices (S&P 500, DJIA, Nasdaq, and Russell 2000), it is the most overbought reading in history!

We've discussed in the past how the size of the Russell 2000 in terms of its market cap (smaller than Apple, Microsoft, or Nvidia) could make it susceptible to large swings."

Jean Boivin, head of BlackRock Investment Institute

"AI and the low-carbon transition could spur historically large capital spending — and in a much shorter space of time than previous technological revolutions. We see a possible investment boom ahead that could transform economies and markets. But the speed, scale, and impact of that investment is unclear."

Ohsung Kwon, senior US equity strategist, Bank of America Global Research

"The de-stocking cycle over the past 18-24 months has been one of the sharpest in history, with inventory levels for the S&P 500 falling as much as it did during the prior three recessions. But the sharp inventory contraction started to moderate for the third straight month in June, suggesting that the de-stocking cycle is likely coming to an end."

Kathy Jones, chief fixed income strategist, Schwab Center for Financial Research

"With the Treasury yield curve inverted, many investors have been reluctant to extend duration in their bond portfolios because it would mean giving up yields of more than 5%. However, staying too short increases reinvestment risk. We have been encouraging investors to look beyond the Treasury market for yield. Currently, there are opportunities to build a portfolio of yields 5% or more over the next 5 to 10 years without taking significant credit risk. Investment grade corporate bonds, agency mortgage-backed securities, and/or the Aggregate Bond Index provide the chance to capture higher yields for longer without dropping below investment grade."

Click here to download YF Chartbook Vol. 3 (Open Link in New Tab on desktop)

A pending US presidential election

Bernard Yaros, lead US economist, Oxford Economics

"Oxford Economics has modeled the macroeconomic impact of various possible election outcomes. No matter the result on Election Day, policymaking during the next presidential term will add to inflation. However, the magnitude of the inflationary boost will depend on the president and the makeup of Congress. The inflationary impact is greatest in a 'full-blown Trump' scenario where a Republican trifecta doubles down on tax cuts, higher defense spending, and tariffs. Even in a 'limited Trump' scenario, where a Republican trifecta doesn’t loosen fiscal policy or raise tariffs to the same extent, inflation is still meaningfully higher. In our 'baseline [Democrat]' scenario, a Democratic trifecta would expand government social benefits and partially pay for them with higher corporate taxes; inflation is higher in this scenario too. Ultimately, the inflationary boost is least under a divided government and under our 'full-blown [Democrat]' scenario, where a Democratic trifecta doubles down on tax increases."

Sam Ro, editor, TKer

"Schwab strategists made a great observation about the importance of staying invested. If you started with $10,000 in 1961 and invested in the S&P 500 only when there was a Republican in the White House, your investment would've grown to $102,000 in 2023. If you did the same but with a Democrat in the White House, that investment would've grown to $500,000. But none of that compares with the $5.1 million you would've had if you had stayed invested the whole time, regardless of who was president. It speaks to the power of compound interest and what can happen if you miss out on it."

Jonathan Pingle, chief economist, UBS Investment Bank

"The chart highlights the impact the supply of longer-run Treasury bonds was having on bond yields. The vertical lines are the Treasury funding announcements last year. The rising debt issuance appeared to pressure yields higher. Then, at the November announcement, the Treasury Department announced shifting issuance to short-term bills, weighing on longer-term bond yields. This could have implications for the coming expiration of the 2017 tax cuts and impact on markets of sustaining large deficits over time."

Click here to download YF Chartbook Vol. 3 (Open Link in New Tab on desktop)

The health of the US economy

Ed Yardeni and Eric Wallerstein, Yardeni Research

"We think the labor market is normalizing from the pandemic shock and do not see a recession materializing on the horizon. While the Sahm Rule approaches its recession trigger (when the three-month moving average of unemployment rises 0.5 percentage points above its low of the past year), we believe the flood of illegal immigration and the growing labor force are behind the rise in unemployment. Using the insured unemployment rate from weekly jobless claims data, which excludes new workers entering the labor force, we see little cause for concern that the labor market is cracking."

Thomas Simons, US economist, Jefferies

"According to the JOLTS data, 47.7 million people quit their jobs in 2021, and an additional 50.6 million quit their jobs in 2022. This compares with an average of 37.9 million annually for the 5-year period leading up to the pandemic in 2020 (2015-2019). ... Businesses spent enormous amounts of money on investment in human resources services to find employees, and then on increased wage costs. Often, these investments barely maintained headcount/capacity and did not generate more. By definition, this is a drag on productivity.

"Recent JOLTS data shows that turnover is slowing. The 'Great Resignation' has transitioned to 'The Big Stay.' The drag on productivity caused by labor market turnover will continue to reverse as workers stay in their jobs longer and build up skills, efficiency, and experience. As productivity improves, businesses will have less pressure to pass on higher wage costs to customers through higher prices, allowing inflation to cool further."

Wells Fargo economics research team led by Jay Bryson

"In more than 60 years, there has never been a recession without real discretionary spending falling on a year-over-year basis. What about false positives? Turns out, they are rare. It has only happened twice; both were short trips across the zero line and the most recent was more than 35 years ago in 1987 (the other was 1967). Household spending habits these days reveal a more choosey consumer as purchasing power fades. Real non-discretionary spending has outpaced discretionary purchases on trend in recent months, consistent with a moderation in broader consumption. Real discretionary spending growth has been awfully close to breaking through the zero line this year."

Ryan Detrick, chief market strategist, Carson Group

"Yes, inflation is up more than anyone would like, but it might surprise many that disposable incomes and employee compensation have increased more than overall inflation since the pandemic started. This is one of the main reasons we haven’t had a recession when so many expected it. The good news is we expect inflation to improve the second half of this year, so consumers should remain in good shape as incomes and compensation remain healthy."

Claudia Sahm, founder, Sahm Consulting

"Even after adjusting for higher prices, consumer spending has risen solidly in recent years and is near its pre-COVID trend. That's remarkable, given the depth of the recession and the subsequent spike in inflation. In the first half of 2024, the growth in real consumer spending slowed, following a robust pace in 2023. So far, that appears to be nothing unusual, but as two-thirds of the US economy, consumers will be at the center of any watch over recession risks."

Liz Everett Krisberg, head of Bank of America Institute

"Is changing jobs worth what it used to be? In addition to finding that the rate of workers changing jobs (job-to-job (J2J) change rate) has declined relative to 2023, job hoppers are getting a smaller bump in pay from their new employers. During the height of the 'Great Resignation,' the median pay raises workers received when they changed jobs rose to above 20%, but as of May 2024, median pay raises for J2J movers moderated to less than half that level — around 10% YoY — and below the 2019 and 2020 average annual levels."

Dr. Issi Romem, research fellow, ADP Research

"Even before the pandemic, the pay raise from switching jobs into a long-distance role, which is when a worker lives in a different metro than their manager, was typically greater than from switching into a local one. A couple of years after the pandemic, we started seeing something new: The advantage of switching into a long-distance role — about 8% before the pandemic — roughly doubled!

"Thicker job markets — ones that have a greater variety of both jobs and candidates — allow people and employers to better match with each other and to share the extra value that those better matches create. When the pandemic normalized long-distance work, the result was an explosion in the variety of both jobs and candidates available, or in other words: a thicker market for those embracing long-distance work. No doubt, long-distance work will also have its fair share of disadvantages, but for the economy at large, it could prove to be a newfound source of efficiency, growth, and well-being. For a fuller account, see here."

Click here to download YF Chartbook Vol. 3 (Open Link in New Tab on desktop)

The market's next move

Binky Chadha, chief equity strategist, Deutsche Bank

"Earnings are the anchor for equity prices. The bottom-up analyst consensus and our earnings forecasts both see continued solid earnings growth and further upside for equities by year-end. How much? The forward consensus for S&P 500 EPS looks to be pointing to 5,500 and our earnings forecasts to 5,800 by year-end, but where equity prices end relative to earnings (the multiple) will depend also on the perceived speed and durability of the earnings cycle to come."

Callie Cox, chief market strategist, Ritholtz Wealth Management

"Rate cuts are probably coming soon. And yes, they tend to happen when the economy is in trouble. But you don't need to freak out just yet. Rate cuts tend to happen in crises, when the Fed has to swoop in and save the economy through drastic changes in interest rates.

"But rate cuts can also happen when the Fed just needs to make a small adjustment to policy. You know, take the foot off the brake pedal to get to a cruising speed on the highway. A rate cut is just a rate cut — not a sign that something ominous is on the horizon. And this particular rate cut looks to be a celebratory rate cut — one that happens because the Fed believes they finally have inflation under control. In today's environment, that’s definitely worth celebrating."

Kristina Hooper, chief global market strategist, Invesco

"The relationship between monetary policy and technology stocks is an important one to consider, especially since we are close to the start of rate cuts. Tech stocks are considered a ‘long duration’ asset class, which means their cash flows are considered more distant and therefore they are typically more sensitive to changes in interest rates. It is assumed that lower rates are more positive for higher duration stocks such as technology stocks.

"However, if we look at the last twenty-five years of performance of the NASDAQ Composite Index, it is clear that the relationship is more nuanced. Tech stocks were more sensitive to monetary policy tightening when their valuations were higher relative to history.

"Currently, the P/E ratio on the NASDAQ 100 is 32.72, which is higher than the historical average but not at the high end of the historical range of valuations. Therefore, I suspect that tech stocks will not be as sensitive to rate cuts going forward. I expect small caps and cyclical stocks to outperform tech stocks as markets anticipate an economic re-acceleration in coming months — but I still expect tech stocks to react positively to rate cuts."

Michael Kantrowitz, chief investment strategist, Piper Sandler

"We’ve been bullish on equities in 2024, with the view that we’re in a “softilocks” backdrop of softening macro activity and moderating inflation. This helps to bring down interest rates and provide room for the Fed to cut rates, something that will continue to propel the bullish soft landing narrative for stocks and the economy."

Brian Belski, chief investment strategist, BMO Capital Markets

"We are still skeptical that the 5.5% drawdown that occurred during March-April will be the worst for the S&P 500 this year given historical data that shows an average drawdown of 9.4% for the second year of bull markets historically. However, we are now convinced that should a more severe pullback happen over the near term, it will likely occur at higher index levels than we previously anticipated. Therefore, the eventual rebound, which has averaged roughly 14.5% historically, will begin at a higher base, suggesting to us that stocks have plenty of room to run through year-end."

Keith Lerner, co-chief investment officer, Truist Advisory Services

"Since 1950, there have been 27 years where the S&P 500 gained more than 10% in the first half on a total return basis, such as what occurred this year. In the second half following these periods, the S&P 500 has averaged an additional gain of 9%. The index has risen in 24 of 27 such periods, despite seeing an average peak-to-trough pullback of 9% at some point."

Click here to download YF Chartbook Vol. 3 (Open Link in New Tab on desktop)

This project would not be possible without the work of Yahoo Finance Senior Editor Brent Sanchez, who turned Wall Street jargon into a digestible visual presentation of the current market moment. And a special thanks to Yahoo Finance's team of editors who worked on this project, including Myles Udland, Adriana Belmonte, Grace O'Donnell, Becca Evans, and Anjali Robins.

Most of all, thank you to all of the experts who contributed their time and thought to this project and helped make this Chartbook such a valuable snapshot in economic time.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Have thoughts on volume three of the Yahoo Finance Chartbook? Email him at Josh.schafer01@yahoofinance.com

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

6.

Biden dropping out presents 'another curveball' for stocks

2024-07-22 20:15:16 by Josh Schafer from Yahoo Finance

On Sunday, President Biden announced he will not seek reelection in November, adding to uncertainty about who will be in the White House in 2025.

Stocks appeared to shrug off worries related to the election, with the S&P 500 rising over 1% on Monday. Investors also gained clarity over the state of the Democratic ticket, as Biden was joined by several prominent Democrats, most notably Speaker Emerita Nancy Pelosi, in endorsing Vice President Kamala Harris as the nominee. Harris picked up enough delegate endorsements late Monday to secure the nomination.

In a note to clients on Monday, RBC Capital Markets head of global equity strategy research Lori Calvasina wrote the news added "yet another curveball" for investors trying to digest how political news will impact the stock market in 2024.

A key driver for stocks lately has been investor confidence in who the next president will be. As odds rose in betting markets that former President Donald Trump would win November's election, stocks also rose. When Trump's odds peaked around July 16, the S&P 500 hit its most recent high.

"If the change at the top of the ticket swings momentum in the race for the White House back to the Democrats, the historical relationship suggests that it could be fuel for a short-term pullback that may already be underway," Calvasina wrote.

"If Trump expands his lead, the historical data suggests that stocks may avoid the pullback we’ve been worried about. But it’s possible this relationship won’t hold up."

Roundhill Investments CEO Dave Mazza echoed a similar sentiment in an interview with Yahoo Finance on Monday, noting that if a new Democratic nominee pushes markets to expect a closer presidential race, investors should expect "more volatility."

Mazza added that the upcoming week in markets could be "messy" overall, with the start of Big Tech earnings as well as readings on economic growth and inflation all coming alongside the ongoing political upheaval.

"The biggest headlines for the near term are going to be what happens with the presidential election," Mazza said. "And then investors will try to absorb the corporate earnings and then start looking at the Fed again.

"I do think it's going to be a bit choppy," Mazza said, "but...where earnings come in, ultimately, will be that longer-term driver, even if there's a lot of macro headlines in the near term."

FILE - President Joe Biden speaks at a news conference July 11, 2024, in Washington. President Joe Biden dropped out of the 2024 race for the White House on Sunday, July 21, ending his bid for reelection following a disastrous debate with Donald Trump that raised doubts about his fitness for office just four months before the election. (AP Photo/Jacquelyn Martin, File) — President Joe Biden speaks at a news conference in Washington on July 11. (AP Photo/Jacquelyn Martin, File)

As for how investors should start thinking about the possibility of a Trump-Harris face-off, the initial reaction from Wall Street showed investors should remain in wait-and-see mode.

"We don’t think there’s a lot of mileage to be had in trawling through [Harris's] policy positions during the 2020 primary, particularly as she focused more on social issues rather than economic initiatives," wrote Paul Ashworth, chief North America economist at Capital Economics.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices

Read the latest financial and business news from Yahoo Finance

7.

Joe Biden dropout fallout, inflation data, and the start of tech earnings: What to know this week

2024-07-21 18:17:15 by Josh Schafer from Yahoo Finance

Stocks pulled back from record highs amid pressure across the technology sector after a global tech outage sent shockwaves throughout the market on Friday.

The S&P 500 (^GSPC) ended the week down nearly 2% while the Nasdaq Composite (^IXIC) dropped more than 3.5% on the week. Both indexes had their worst weekly performance since April. Meanwhile, the Dow Jones Industrial Average (^DJI) rose about 0.7%.

This week, critical readings on economic growth and inflation, as well as the start of Big Tech earnings, will determine if the malaise continues.

Investors will also be digesting the news that President Joe Biden will no longer be seeking reelection. Biden announced he‘s dropping out of the presidental race in a post on X Sunday.

On the economic data side, the advanced reading of second quarter economic growth is slated for Thursday, followed by the June reading of the Personal Consumption Expenditures index, the Fed's preferred inflation gauge, on Friday.

In corporate news, a slew of S&P 500 companies are expected to report quarterly results in a week headlined by Alphabet (GOOGL, GOOG), Tesla (TSLA), and Chipotle (CMG).

Inflation outlook

Last week, new data showing a slowdown in inflation prompted markets to put the chances that the Federal Reserve cuts rates by the end of its September meeting at 100%.

The week ahead will bring another look at inflation, this time with the Fed's preferred gauge: The Personal Consumption Expenditures (PCE) index.

Due out on Friday, economists expect "core" PCE increased 2.5% in June from the previous year, down from May's 2.6% annual gain. Over the prior month, economists expect "core" PCE rose 0.2%, slightly above May's 0.1% increase.

The release comes less than a week before the Fed's next monetary policy decision on July 31. Markets are widely expecting the central bank to hold interest rates steady.

UNITED STATES - JULY 10: Federal Reserve Chairman Jerome Powell testifies during the House Financial Services Committee hearing titled — Federal Reserve Chair Jerome Powell testifies during the House Financial Services Committee hearing titled "Federal Reserve's Semi-Annual Monetary Policy Report" in Rayburn building on Wednesday, July 10, 2024. (Tom Williams/CQ-Roll Call, Inc via Getty Images)

Growth check

One key question on investors' minds is whether the economy can remain resilient with rates still at their most restrictive levels in more than two decades.

Thursday will bring the first reading of Gross Domestic Product (GDP) for the second quarter. Economists expect the US economy grew at an annualized pace of 1.9% in the second quarter, up from the 1.4% growth rate seen in the first quarter.

Bank of America Securities head of economics Michael Gapen summed up expectations for the upcoming week's data release in a weekly note, writing," The data should show healthy activity, and that inflation is moving in the right direction."

Signs of a rotation

Since investors have become more optimistic about the likelihood of multiple interest rate cuts this year, a shift has been underway within the stock market.

In the past 10 days, Real Estate (XLRE) and Financials (XLF) have led individual sector action. Meanwhile the market's biggest winners of the past year, Technology (XLK) and Communication Services (XLC) , have recently been the worst-performing sectors in the S&P 500.

And the rotation has finally trickled down in cap size too, with small caps joining the 2024 stock market rally.

The small-cap Russell 2000 (^RUT) is up about 8% over the past month, while the S&P 500 is up less than 1% in the same time period, sparking debate over whether this bout of small-cap outperformance can continue.

"We think there is room for the rotation into low quality to persist if rate cuts remain priced and the Trump 2.0 trade carries on ahead of US elections," UBS Investment Bank US equity derivatives strategist Maxwell Grinacoff wrote in a note to clients on Thursday.

Big Tech earnings on tap

With Big Tech stumbling amid the market rotation, the fundamental story for some of the stock market's largest names will be in focus in the week ahead.

Tesla and Alphabet are slated to report earnings after the bell on Tuesday. Second quarter results from the two Magnificent Seven members will provide an early read on investor appetite for the most popular trade of 2023. Both stocks are up double digits over the past six months despite the recent sell-off.

The question is whether the AI-fueled trajectory upward can continue.

"The biggest risk heading into the next six to eight weeks is, are we setting ourselves up for this AI disappointment [in earnings]?" Ryan Grabinski, Strategas Research Partners managing director of investment strategy, told Yahoo Finance. "Do all of the trades that were associated with AI ultimately begin to unwind themselves?"

How Big Tech companies perform will likely determine the trajectory of earnings growth for the broader S&P 500. Four companies — Alphabet, Nvidia (NVDA), Meta (META), and Amazon (AMZN) — are expected to grow earnings by 56.4% compared to the same period a year prior, according to FactSet senior earnings analyst John Butters. The other 496 are expected to grow earnings by just 5.7%.

When combining the two groups, the S&P is currently on pace to produce year-over-year earnings growth of 9.7%. This would mark the best quarter for earnings growth since the fourth quarter of 2021.

Weekly Calendar

Monday

Economic data: Chicago Fed Nat Activity Index, June (-0.06 expected, +0.18 prior)

Earnings: Cleveland Cliffs (CLF), Nucor (NUE), SAP (SAP), Truist (TFC), Verizon (VZ), Zions Bancorporation (ZION)

Tuesday

Economic data: Richmond Fed Manufacturing Index, July (-7 expected, -10 prior); Existing home sales month-over-month, June (-2.7% expected, -0.7% previously)

Earnings: Alphabet (GOOG, GOOGL), Cal-Maine Foods (CALM), Capital One (COF), Comcast (CMCSA), Enphase (ENPH), Freeport-McMoRan (FCX), GE Aerospace (GE), General Motors (GM), Lockheed Martin (LMT), Phillip Morris International (PM), Spotify (SPOT), Tesla (TSLA), UPS (UPS), Texas Instruments (TXN), Visa (V)

Wednesday

Economic data: MBA Mortgage Applications, week ending July 19 (+3.9% prior); S&P Global US manufacturing PMI, July, preliminary (51.4 expected, 51.6 previously); S&P Global US services PMI, July, preliminary (55 expected, 55.3 previously); S&P Global US composite PMI, July, preliminary (54.8 previously); New home sales, month-over-month, June (+3.8% expected, -11.3% previously)

Earnings: AT&T (T), Chipotle (CMG), Ford (F), IBM (IBM), General Dynamics (GD), Lamb Weston (LW), Las Vegas Sands (LVS), ServiceNow (NOW), Viking Therapeutics (VKTX), Waste Management (WM), Whirlpool (WHR)

Thursday

Economic data: Second quarter GDP, advance estimate (+1.9% annualized rate expected, +1.4% previously); First quarter personal consumption, advance estimate (+1.7% expected, 1.5% previously); Initial jobless claims, week ended, July 20 (243,000 previously); Durable goods, June preliminary (+0.5% expected, +0.1% previously)

Earnings: American Airlines (AAL), AstraZeneca (AZN), Boston Beer (SAM), Deckers (DECK), Hasbro (HAS), Honeywell (HON), Juniper Networks (JNPR), Keurig Dr. Pepper (KDP), New York Community Bancorp (NYCB), RTX (RTX), Skechers (SKX), Southwest (LUV), Texas Roadhouse (TXRH), Valero (VLO)

Friday

Economic data: Personal income, month-over-month, June (+0.4% expected, +0.5% previously); Personal spending, month-over-month, June (+0.3% expected, +0.2% previously); PCE inflation, month-over-month, June (+0.1% expected, 0% previously); PCE inflation, year-over-year, June (+2.5% expected, +2.6% previously); "Core" PCE, month-over-month, June (+0.2% expected, +0.1% previously); "Core" PCE, year-over-year, June (+2.5% expected; +2.6% previously); University of Michigan consumer sentiment, July, final reading (66.3 expected, 66 previously)

Earnings: 3M (MMM), Bristol Myers Squibb (BMY), Colgate-Palmolive (CL), Charter Communications (CHTR)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

8.

Before You Buy the Invesco QQQ ETF, Here Are 3 Others I'd Buy First

2024-07-21 09:25:00 by Adam Levy, The Motley Fool from Motley Fool

If you're looking for a way to invest in the biggest tech companies currently powering the stock market higher, you've likely considered investing in the Invesco QQQ Trust ETF (NASDAQ: QQQ). The exchange-traded fund (ETF) tracks the Nasdaq-100 index, which consists of the 100 largest stocks listed on the Nasdaq Stock Exchange. Tech stocks account for the majority of the index's value, with the "Magnificent Seven" making up over 40% of the fund's portfolio.

Investors looking to add some more tech exposure can do well with QQQ, but there are even better options out there. Here are three ETFs I'd consider before the Invesco QQQ Trust.

A piggy bank labeled ETF next to stacks of coins increasing in size. — Image source: Getty Images.

1. Nasdaq 100 ETF: A less expensive option for buy-and-hold investors

Investors looking to increase exposure to the Nasdaq-100 index in general don't have to pay the 0.2% expense ratio charged by Invesco for its QQQ Trust. Invesco offers a cheaper alternative that's completely suitable for most investors.

In 2020, Invesco launched the Nasdaq 100 ETF (NASDAQ: QQQM). It follows the same trading rules as QQQ, but it charges just 0.15% per year instead of 0.2%.

QQQ holds over $300 billion in assets, and many investors are locked into the fund with huge unrealized capital gains. That can make them hesitant to sell shares even if there's a cheaper option. Instead of lowering the price for QQQ, Invesco determined it could generate more revenue by launching a new ETF. The new ETF is priced more competitively with other broad-based index ETFs. That can help Invesco attract new investors looking to buy an ETF for the first time.

There are some caveats, though. The trading volume for the newer ETF is significantly lower than its older sister. That means that you might experience wider bid-ask spreads when you look to buy or sell shares. But that's mostly important for short-term or institutional traders looking for highly liquid investments. For the average buy-and-hold investor, the less expensive ETF will come out ahead over the long run.

2. Direxion Nasdaq-100 Equal Weighted Index ETF: Get more exposure beyond the Magnificent Seven

As mentioned, the Magnificent Seven stocks make up over 40% of the QQQ Trust ETF. The same is true of the Nasdaq 100 ETF. The top 10 companies in the ETF account for over 50% of the fund's value. That is to say, the portfolio is heavily concentrated.

You may want a simple fund that offers exposure to the big tech names in the Nasdaq-100, without putting most of your money into just a handful of names. After all, that's the general idea behind index funds. To that end, you might consider the Direxion Nasdaq-100 Equal Weighted Index ETF (NYSEMKT: QQQE).

The ETF invests 1% of its assets in each of the 100 constituents of the Nasdaq-100 index. The ETF rebalances once every quarter, adjusting for any changes in the index.

Equal-weight indexes historically outperform cap-weighted indexes over the long run. That's because smaller companies can generally grow faster than larger ones. Using an equal-weight index fund allows you to invest more of your money in those smaller companies without entirely eschewing the big market leaders.

Direxion charges an expense ratio of 0.35% for its index fund. Over time it could prove worth the premium to the QQQ Trust.

3. Vanguard Total Stock Market ETF: A much broader index fund with a much smaller expense ratio

If you want some middle ground between the extremely concentrated Nasdaq-100 index and the completely equal-weight fund offered by Direxion, you might consider a broader index fund. The Vanguard Total Stock Market ETF (NYSEMKT: VTI) offers a ton of exposure to the big tech companies that dominate the Nasdaq, while also adding a small amount of exposure to small- and mid-cap stocks.

That added exposure can provide more downside protection. The Nasdaq stocks can be much more volatile, which can lead to some big swings in the value of your holdings. That works in your favor when stocks are going up, but it can be especially tough in down markets. The total market index outperformed the Nasdaq-100 during the tumultuous decade of the 2000s.

Investing in the total stock market index doesn't mean abandoning big tech stocks, though. The Magnificent Seven stocks, for example, still account for 28% of the fund's portfolio. But investors will also get exposure to a broader set of stocks and industries, including financials, which are completely left out of the Nasdaq-100.

On top of the diversification, the other benefit of the Vanguard Total Stock Market ETF is its minuscule expense ratio. Vanguard charges just 0.03% per year, one of the lowest fees in the market.

Despite the recent success of the QQQ Trust ETF, investors would be wise to look elsewhere before putting more money into the fund.

Should you invest $1,000 in Invesco QQQ Trust right now?

Before you buy stock in Invesco QQQ Trust, consider this:

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $722,626!*

See the 10 stocks »

*Stock Advisor returns as of July 15, 2024

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Index Funds - Vanguard Total Stock Market ETF. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

Before You Buy the Invesco QQQ ETF, Here Are 3 Others I'd Buy First was originally published by The Motley Fool

9.

Unemployment Claims Rise More Than Expected, Boosting Hopes For Rate Cuts As Cracks In Labor Market Emerge

2024-07-18 21:15:08 by Piero Cingari from Benzinga

Unemployment Claims Rise More Than Expected, Boosting Hopes For Rate Cuts As Cracks In Labor Market Emerge

Signs of a cooling U.S. labor market are becoming more evident, increasingly reinforcing investor beliefs that the time has come for the Federal Reserve to lower interest rates.

New unemployment benefits rose more than expected last week, while continuing jobless claims reached their highest levels since November 2021, according to the Department of Labor’s report on Tuesday.

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Simultaneously reported, the Philadelphia Fed Manufacturing Index surprisingly spiked from 1.3 points to 13.9 points – the highest level in three months – beating expectations of 2.9.

Jobless Claims Report: Key Highlights

Weekly jobless claims rose from an upwardly revised 223,000 to 243,000 for the week ending July 13, topping economist expectation of 230,000 as TradingEconomics data shows.
The 4-week average of weekly jobless claims – which smooths out week-on-week volatility – rose from 233,750 to 234,750.
Continuing claims inched up from 1,847 million to 1,867 million, reaching levels unseen since late November 2021.
The highest increases in initial claims were in Michigan (+10,578), New York (+5,247), Indiana (+2,835), Ohio (+1,604), and Tennessee (+1,166), while the largest decreases were in California (-5,672), New Jersey (-5,517), Georgia (-1,900), Texas (-1,809), and Minnesota (-1,078).

Trending: Are you richer than most people you know? Here’s the net worth you need at every age to be above average.

Market Reactions

Both Treasury yields and the dollar remained broadly flat following the release of the unemployment insurance claims report. Concurrently, the European Central Bank left key interest rates unchanged, but failed to pre-commit to a September rate cut.

Futures on major U.S. indices were positive during Thursday premarket trading. Contracts on the Nasdaq 100 were up 0.6% by 08:37 a.m. ET, while those on the S&P 500 were 0.4% higher. Futures on the Dow Jones Index eased slightly by 0.1%.

On Wednesday, the tech-heavy index, as tracked by the Invesco QQQ Trust (NASDAQ:QQQ) suffered its worst day in nearly a year, amid broadbased drops in chipmakers.

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This article Unemployment Claims Rise More Than Expected, Boosting Hopes For Rate Cuts As Cracks In Labor Market Emerge originally appeared on Benzinga.com

10.

BlackRock ETF Taps Into American-Made Mood

2024-07-18 16:00:00 by Jeff Benjamin from etf.com

Flag

BlackRock Inc., the world’s largest asset manager with approximately $4 trillion in ETF assets under management, has rolled out an exchange-traded fund aimed at tapping into the growing focus on international trade relations and manufacturing.

The iShares U.S. Manufacturing ETF (MADE) focuses on investing in companies at the “forefront of the U.S. manufacturing renaissance.”

According to an announcement from New York-based BlackRock, MADE will invest in companies that benefit from a boost in manufacturing regardless of traditional sector classifications, and will include companies directly involved in manufacturing across consumer cyclicals, technology, automotive, defense and construction categories.

MADE's debut lands in the middle of this week's Republican National Convention, where Donald Trump and party representatives have been promoting efforts to impose tariffs designed to help U.S. manufacturing.

iShares ETF to Capture American Made Theme

The ETF, which is part of the iShares thematic equity suite, is pegged to “policy efforts to increase domestic production (that) have accelerated the growth story for U.S. manufacturers,” according to BlackRock.

The announcement cited recent policies, including the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the Chips and Science Act, which have already allocated $2.1 trillion to infrastructure projects and incentives.

Beyond existing policy efforts, BlackRock expects the “rewiring of global supply chains for resilience could bolster continued growth among U.S. manufacturers.”

According to BlackRock, since 2020, construction spending on U.S. manufacturing has increased nearly threefold to $234 billion as of May 2024, “demonstrating an accelerating effort to reestablish the U.S.’s production of goods from automobiles and chips to aerospace and defense equipment.”

In a prepared statement, Jay Jacobs, U.S. head of thematic and active ETFs at BlackRock, said MADE will be positioned to benefit from “evolving trade relations and a call for enhancing supply chain resiliency … across the public and private sectors that reestablish the U.S. as a leader in manufacturing.”

“MADE is designed to capture these long-term themes by providing targeted access to companies that could be poised to benefit from supportive policies and secular trends, enabling investors to potentially capture the renaissance in American manufacturing in the convenience of an ETF,” Jacobs added.

11.

Why small caps are showing up the tech titans: Morning Brief

2024-07-18 10:00:34 by Jared Blikre from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

Small caps are solving Wall Street's concentration problem.

Though small caps stumbled Wednesday, in the five prior trading days, the Russell 2000 (^RUT) rocketed an eyewatering 12% as the Nasdaq Composite (^IXIC) barely remained green. It was a surge that had never been surpassed by any of the major US stock indexes, according to Bespoke.

The catalyzing event was last week's dovish Consumer Price Index, which reported an actual decline in prices of 0.1%. The sign change in inflation was enough to convince holdouts on Wall Street that there's more to stocks in 2024 than the well-known cadre of tech titans riding the artificial intelligence wave.

But laggards are once again turning to leaders, bringing to mind the "everything rally" that dominated the fourth quarter last year.

As the Magnificent titans wilt, smaller pockets of strength fill the leadership void. Sector rotation is the lifeblood of bull markets, they say.

Nasdaq 100 heat map — July 9 to July 17 — Tech stocks led by megacaps have caused the Nasdaq 100 to underperform since last Tuesday. Meanwhile, the Russell 2000 (not shown) soared 12%.

Since last Tuesday's close, Real Estate has led the large-cap sectors, up 7%. On its heels, cyclicals and values are well represented — as Materials, Industrials, Energy, and Financials are all up about 5%.

The only two losers are also the highest-returning sectors for the year — Tech (XLK) and Communication Services (XLC) — down 4% and 2%, respectively.

Delving into the financial sector, we see the SPDR S&P Regional Banking ETF (KRE) has now clawed its way back to the drop-off point from last year's internet bank crisis. The 16% surge is a notable move for regionals, which have had a rough two years since their 2022 highs.

The SPDR S&P Homebuilders ETF (XHB) also jumped more than 14% on Monday, and notched its first record high since March.

While the prospect of tamer inflation is behind much of the move, Trump's surge in popularity after the weekend assassination attempt is also a factor. Investors believe banks will benefit from a lighter regulatory touch, and the steepening yield curve over the last week also helps.

Then there's crypto. For all the talk about spot ether ETFs, the bitcoin halving, and Gary Gensler, Trump's crypto support has helped bring bitcoin (BTC-USD) back from a nasty sell-off that might have had bearish legs.

After all the gyrations over the last week, the two leading sectors in 2024 remain Tech and Communication Services — each holding on to gains of about 17%. But the handwringing over concentration can finally take a breather — at least, for now.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

12.

Global ETF Assets Cross $13T as Flows, Markets Rise: ETFGI

2024-07-17 22:22:30 by Ron Day from etf.com

global finance

Global ETF assets jumped 19% in June to $13.1 trillion as markets worldwide gained and flows into funds continued unabated after more than five years, U.K. researcher ETFGI said.

Exchange-traded funds globally pulled in a net $136.2 billion last month, pushing year-to-date net inflows to a record $730.4 billion, London-based ETFGI said in a statement. Year-to-date, assets have jumped 13% and are on track for a record year, the firm wrote.

ETF issuers are benefitting from rising markets around the world. The S&P 500, as measured by the SPDR S&P 500 Trust ETF (SPY), has added 20% so far this year as recession fears fade and investors pile back into stocks. At the same time, issuers are adding funds at a rapid clip to cater to investors’ diversifying tastes.

“There are a number of significant tailwinds pushing the ETF industry,” ETFGI founder Deborah Fuhr wrote in an email, citing market moves and net inflows, which have continued 61 months straight–more than five years–she said. Fuhr is a member of the etf.com editorial advisory board. ETFGI said.

ETFs' Global Spread

In the U.S. alone, total assets in the country’s 3,602 funds have jumped to $9.52 trillion. Morningstar says $568 billion went into U.S. ETFs last year. BlackRock Inc., whose iShares unit is the world’s biggest ETF issuer, said this week that its exchange-traded funds now hold $4 trillion globally, which would be nearly one-third of the total that ETFGI reported.

ETFs are available on 81 exchanges and 63 countries, ETFGI said.

Some countries’ exchanges are hosting more ETFs to boost trading activity due to fewer initial public offerings, Fuhr wrote. “There are other countries where investors are using ETFs and due to the lower number of IPOs are looking to grow."

“There’s an array of ETFs available to stimulate both as investment products but also as a tool that can be traded on their exchanges,” Fuhr wrote.

13.

The true bull market may finally 'wake up' as investors eye rate cuts

2024-07-16 08:00:27 by Josh Schafer from Yahoo Finance

Since the start of the bull market in October 2022, the stock market's move higher has largely been about artificial intelligence and the outperformance of a few large equities, driving investor concern that gains aren't widespread enough for the rally to continue.

That could be changing.

Thursday's better-than-expected inflation reading has sent the stock market into a tizzy in recent trading days. As investors have rapidly priced in higher chances of an interest rate cut from the Federal Reserve in September, the most loved areas of the market of the past year have underperformed as investors rotate into sectors outside of tech.

The Roundhill Magnificent Seven ETF, which tracks the group of large tech stocks that led the 2023 stock market rally, is down more than 1.5% in the past five days. Meanwhile, Real Estate (XLRE) and Financials (XLF), both interest rate-sensitive sectors, have been the market's biggest winners over the same time period. The small-cap Russell 2000 (RUT) index is up more than 7% and finally breached its 2022 high for the first time during the current bull market.

In another sign that a wide swath of stocks are rallying, the equal-weight S&P 500 (^SPXEW), which ranks all stocks in the index equally and isn't overly influenced by the size of the stocks moving higher or lower, has outperformed the traditional market cap-weighted S&P 500.

Ritholtz Wealth Management chief market strategist Callie Cox told Yahoo Finance the market action as of late has been "refreshing" and could be the sign of a maturing bull market, where a wide range of stocks are contributing to the rally, providing more support for stock indexes at record levels.

"If this trade continues, if the prospect for a rate cut is still in play for this fall, then we could finally see the bull wake up, and that's good news for all investors," Cox said.

It's not the first time strategists have been optimistic about market rotations like the one currently happening. Other spurts of widespread rallies were celebrated in December 2023 and during the first quarter of this year.

The question is whether a big broadening of stock market gains is finally underway this time, or if this is yet another head fake as the market becomes overly optimistic about Fed rate cuts.

"The conviction level that we have is higher right now than back in December [during the Fed pivot-driven market rally]," Bank of America Securities senior equity strategist Ohsung Kwon told Yahoo Finance.

Kwon notes that the narrative driving the rally — hopes of a soft landing and gradual interest rate cuts from the Fed — is largely unchanged from the prior broadening spurts. But this time, he said, "the earnings backdrop is really supporting this rotation as well."

Bank of America's earnings analysis shows the 493 stocks not including the Big Tech "Magnificent Seven" are expected to grow earnings year over year for the first time since 2022 during the current reporting period. As seen in the chart below from JPMorgan Asset Management's midyear outlook in June, the earnings growth of those stocks is expected to pick up in the coming quarters, while Big Tech is expected to see its earnings growth slow.

Given that earnings are typically the key driver of stock prices, this would support the theory of a broadening rally. But the key caveat is that these are just expectations. And given the market's struggle thus far this year to produce a wide array of winners, some strategists want to see actual earnings growth to confirm the narrative that's currently baked into estimates.

"I want to see earnings growth come from more sectors than just tech," Cox said. "I think that that's the big theme of this particular season. You know, seeing how many sectors can actually pitch in and move the S&P 500's profit expectations higher."

The same could be said for the other narrative backing the recent rotation. Markets are now pricing in a more than 90% chance the Fed cuts interest rates in September, per the CME FedWatch tool. But again, Cox is wary of declaring the broadening will certainly continue.

"Until we're officially in that rate cut cycle, it's hard to say that this broadening trade is here to stay," Cox said. "I hope it is. I'm optimistic it is, but you're still going to have a market that's hanging on every piece of economic data that comes across the tape."

Charles Schwab senior investment strategist Kevin Gordon is also cautious about declaring the big broadening has arrived. Gordon noted "more clarity" on the Fed's cutting cycle and why it would start cutting remains paramount, particularly for the most interest rate-sensitive areas of the market like small caps.

Gordon reasoned the recent market action has been a "great step in the right direction." But a broad rally won't come overnight, Gordon said. He added, "The nature has been for everybody to say that it's this great rotation, but great rotations tend to take a little bit longer than a couple of days."

And even if that rotation slowly occurs, recent index performance shows that will mean a different, slower path higher for the S&P 500 too. The S&P 500 closed down last Thursday despite the release of a promising June inflation report as investors moved out of the large tech stocks, which hold bigger weightings in the index than smaller stocks.

"We could see a little bit of this churn where some stocks are passing the baton to other stocks," Cox said. "Tech stocks are passing the baton to other stocks. Sure, we may not see prices move up as quickly as they have. But this is the kind of movement that strengthens the foundation of a bull. It means that this rally can be stronger and live longer eventually."

Charging Bull bronze sculpture in the Financial District of Manhattan, New York, United States, on October 23, 2022. The sculpture was created by Italian artist Arturo Di Modica in the wake of the 1987 Black Monday stock market crash. (Photo by Beata Zawrzel/NurPhoto via Getty Images) — Charging Bull bronze sculpture in the Financial District of Manhattan, N.Y., on Oct. 23, 2022. The sculpture was created by Italian artist Arturo Di Modica in the wake of the 1987 Black Monday stock market crash. (Photo by Beata Zawrzel/NurPhoto via Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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14.

Global ETF Inflows Surge to $128.1B in June: BlackRock

2024-07-15 12:00:00 by DJ Shaw from etf.com

Blackrock sign outside of building

Global exchange-traded fund inflows reached $128.1 billion in June 2024, marking the second-highest monthly inflows for the year and a significant increase from May’s $116.4 billion, according to BlackRock’s latest Global ETP Flows report.

Equity ETFs dominated the landscape, attracting $90 billion in new assets, according to the report. Fixed income flows moderated to $34.9 billion, while commodities notched their second consecutive month of inflows at $1.3 billion.

U.S. equity flows slowed to $51.2 billion, but emerging market equities saw increased interest. The report noted “a marked increase in Mexico and India equity ETP buying post-election.” European equity flows held steady at $2.5 billion.

In the EMEA-listed segment, emerging market preferences were clear: “India led, with $0.7B of inflows, while $0.4B was added to Mexico ETPs – the highest monthly inflows for EMEA-listed Mexico ETPs on record," the report said.

U.S. Treasurys Surging

In the fixed income space, rates products led with $12.5 billion in inflows, the report stated. U.S. Treasury ETFs continued to grow, through European rates products also saw continued buying.

“The vast majority of European rates buying went into blended maturity exposures, while UST ETP flows showed more of a preference for targeted duration exposure,” the report said.

Investment grade credit flows rose to their highest level since January at $7.8 billion, helping to offset flat high yield flows. Notably, “Eurozone IG flows rose to the highest level since February, at $1.4B, while US IG flows rose to $5.4B.”

Emerging market debt ETFs recorded their third straight month of inflows, adding $1.6 billion in June.

Gold ETPs experienced a second consecutive month of inflows for the first time in a year, attracting $1.3 billion. The report highlighted that these inflows “went entirely into EMEA-listed ETPs, with APAC-listed inflows and US-listed outflows netting out over the month.”

Investors showed renewed interest in silver ETFs, which had $300 million in inflows following two months of outflows totaling $1 billion, according to the report.

15.

Investing at 40? Here's How Much You Should Put Into This ETF Each Month to End Up With a $1 Million Portfolio by Retirement

2024-07-13 13:00:00 by David Jagielski, The Motley Fool from Motley Fool

Many people can't afford to start investing early in life. But it doesn't mean that if you start later, it's too late to invest and that you can't end up with a great retirement fund. Also, as you advance in your career, wages should increase, and there's the potential to invest more (on a monthly basis) than if you had started years earlier. So you may not be at a huge disadvantage.

Below, I'll show you how much you would need to invest each month if you're 40 years old or have 25 investing years until retirement in order to end up with a portfolio worth at least $1 million.

Investing more money can make up for lost time

When you're saving and investing for the long term, there are three important variables to consider: time, money, and risk. For example, you can make up for having less time by investing more money and/or by taking on a bit more risk. In an extreme situation where you don't have many investing years left or much money to invest, the only lever you can pull is risk, which clearly isn't ideal when you're talking about retirement.

But if you've got 25 investing years left, you still have plenty of time. The S&P 500 has averaged a long-run return of approximately 9.7%. If you were to generate that kind of return over a period of 25 years, an investment could grow to 10 times its value. That would mean investing $100,000 could potentially turn into $1 million with a fairly safe investment that mirrors the market.

Top growth funds can make the most of your money

You can accelerate your returns by investing in a potential market-beating investment, such as the Invesco QQQ Trust (NASDAQ: QQQ). The exchange-traded fund (ETF) gives you exposure to the Nasdaq-100 index, which includes the largest non-financial stocks on the exchange. Its top holdings include such big names as Apple, Microsoft, Nvidia, and other stocks that will be familiar to tech investors.

In 10 years, the fund has generated total returns (including dividends) of 473%. That averages out to a compound annual growth rate of 19%. But for the sake of being conservative, let's assume that you will average a smaller return, but one which would be modestly higher than the S&P 500's gains.

Here's a breakdown of just how much you would need to invest per month at different growth rates, assuming that you have 25 years to go until retirement:

Growth Rate	Monthly Payment
10%	$753.67
11%	$634.46
12%	$532.24
13%	$445.02
14%	$370.94
15%	$308.31

Calculations by author.

As you can see, there's definitely an incentive to target a potentially market-beating fund rather than just mirroring the index. While the S&P 500 can offer some stability and safety, by taking on a bit more risk and investing in a tech-heavy fund like the Invesco ETF, you may require smaller monthly payments.

Returns are never guaranteed, of course, but by focusing on the top tech and growth stocks on the Nasdaq, that's a reasonable risk to take on -- and the benefits for your portfolio can be significant.

Investing is never a bad idea, regardless of your age

Your investing strategy may change over time, but there are so many stocks and ETFs to invest in which can give you plenty of options to choose from. If you've started early, you can take on a bit more risk and focus heavily on growth stocks and tech. If you're closer to retirement, then safe blue chip stocks which pay dividends may make a lot more sense.

But the key thing is to try and save and invest money on a regular basis. Even in retirement, stocks can be valuable sources of recurring dividend income.

And there's the potential that an investment does better than you expect, which is why it's generally a good idea to invest in quality stocks. While not every year may be a good one for the markets, in the long run, good, quality investments will rise in value.

Should you invest $1,000 in Invesco QQQ Trust right now?

Before you buy stock in Invesco QQQ Trust, consider this:

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $791,929!*

See the 10 stocks »

*Stock Advisor returns as of July 8, 2024

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Investing at 40? Here's How Much You Should Put Into This ETF Each Month to End Up With a $1 Million Portfolio by Retirement was originally published by The Motley Fool

16.

Passive to Active ETF Migration Grows: JPMorgan

2024-07-12 12:00:00 by Kent Thune from etf.com

Increase

For the fourth consecutive year, most new exchange-traded funds are active ETFs, according to JPMorgan Chase.

In their 2024 Global ETF Handbook, the $600 billion multi-national finance company noted that actively managed ETFs accounted for 76% of new issues over the past year as ETF providers continued to address new investment themes and increasingly migrate from passive to active strategies.

Within the active ETF space, JPMorgan cited the biggest increase in new issues were among popular strategies like managed risk/defined outcome, factor investing, call/put writing, and thematic funds, together accounting for nearly half of all new ETF debuts.

Migration From Passive to Active ETFs

The migration from passively managed funds to active strategies has been more pronounced in recent years, but this trend is not a new one.

In the early 2000s, the ETF scene was dominated by index-based broad U.S. stock market ETFs like the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ). Funds like these held a staggering 90% of all ETF assets.

However, with a flood of new offerings, diversification took hold. Today, broad-based passive ETFs compose just 35% of the asset pie. International equities ETFs have seen a big jump, growing from a mere 3% to 16% of total assets.

The story is similar for style-based ETFs (focusing on factors like growth), which have grown from 3% to 21%. Sector funds have also gained ground, rising from 5% to 8% of total assets. Fixed income has also increased and now accounts for a 17% share.

Finally, commodity, currency, and multi-asset ETFs collectively hold 3% of the market. Notably, all categories enjoyed double-digit percentage growth in assets year-over-year, fueled by strong inflows and a stellar year for stocks.

US ETF Growth in New Listings

New US ETF Listings: JPMorgan

Managed Risk, Defined Outcome “Buffer ETFs”

JPMorgan’s report found that managed risk ETFs, which include defined outcome or “buffer ETFs,” were the leading category of funds introduced over the past year. These funds, which represent 16% of new launches, use active strategies to attempt to reduce volatility compared to a traditional ETF that passively tracks an index.

The increase of new ETFs in this area of the market indicates that issuers see opportunities in an environment where investors increasingly fear a major market correction, as high-flying tech stocks appear due for a major correction.

For example, the largest defined outcome fund, the FT Vest Laddered Buffer ETF (BUFR), is designed to provide investors with exposure to U.S. large-cap stocks while also offering limited downside protection.

Here’s a breakdown of how defined outcome ETFs work:

Target returns and downside protection: These ETFs aim to deliver a specific level of return within a set timeframe, while also offering some level of protection against potential losses in the underlying index.
Option strategies: Defined outcome ETFs achieve their goals by using option contracts. These options contracts are typically linked to a market index, such as the S&P 500.
Outcome period: Each defined outcome ETF has a predetermined period, often one year, during which the targeted returns and downside protection apply.
Limited upside potential: While offering protection, or a “buffer” against losses, defined outcome ETFs may also limit potential gains if the market significantly outperforms expectations.

One of the most prolific issuers of defined outcome ETFs is Innovator ETFs. Their largest fund is the Innovator U.S. Equity Power Buffer ETF January (PJAN) with $1.11 billion in assets. In the last year, the best-performing Innovator ETF was Innovator Uncapped Accelerated US Equity ETF (XUSP) at 36.03%. The most recent ETF launched in the Innovator space was the Innovator Equity Defined Protection ETF 2 Yr to July 2026 (AJUL) on July 1.

17.

SPY Leads Inflows, QQQ Tops in Outflows: ETF Fund Flows as of July 10, 2024

2024-07-10 21:21:09 by etf.com Staff from etf.com

etf.com

Top 10 Creations (All ETFs)

Ticker	Name	Net Flows ($, mm)	AUM ($, mm)	AUM % Change
SPY	SPDR S&P 500 ETF Trust	1,776.93	546,563.29	0.33%
IVV	iShares Core S&P 500 ETF	446.63	502,965.31	0.09%
SMH	VanEck Semiconductor ETF	438.72	24,100.19	1.82%
IWM	iShares Russell 2000 ETF	363.87	58,927.23	0.62%
VOO	Vanguard 500 Index Fund	360.54	484,514.99	0.07%
VCLT	Vanguard Long-Term Corporate Bond ETF	291.99	9,970.35	2.93%
VCIT	Vanguard Intermediate-Term Corporate Bond ETF	249.52	46,787.76	0.53%
TLT	iShares 20+ Year Treasury Bond ETF	203.91	54,832.10	0.37%
DIA	SPDR Dow Jones Industrial Average ETF Trust	196.74	32,852.15	0.60%
IBIT	iShares Bitcoin Trust	187.21	17,483.53	1.07%

Top 10 Redemptions (All ETFs)

Ticker	Name	Net Flows ($, mm)	AUM ($, mm)	AUM % Change
QQQ	Invesco QQQ Trust	-945.06	300,528.47	-0.31%
LQD	iShares iBoxx USD Investment Grade Corporate Bond ETF	-486.54	30,781.45	-1.58%
XLV	Health Care Select Sector SPDR Fund	-209.20	38,675.67	-0.54%
XLI	Industrial Select Sector SPDR Fund	-188.15	17,938.39	-1.05%
SOXL	Direxion Daily Semiconductor Bull 3X Shares	-176.96	12,483.52	-1.42%
XLK	Technology Select Sector SPDR Fund	-117.27	72,928.64	-0.16%
GLD	SPDR Gold Trust	-109.90	63,652.92	-0.17%
PHB	Invesco Fundamental High Yield Corporate Bond ETF	-85.11	561.38	-15.16%
IWF	iShares Russell 1000 Growth ETF	-75.70	100,732.81	-0.08%
VNQ	Vanguard Real Estate ETF	-66.14	32,053.55	-0.21%

ETF Daily Flows By Asset Class

	Net Flows ($, mm)	AUM ($, mm)	% of AUM
Alternatives	7.44	8,113.59	0.09%
Asset Allocation	-52.96	18,876.57	-0.28%
Commodities	-149.48	145,318.69	-0.10%
Currency	304.04	53,109.77	0.57%
International Equity	553.10	1,532,531.32	0.04%
International Fixed Income	74.45	199,996.41	0.04%
Inverse	62.87	12,688.22	0.50%
Leveraged	-123.91	115,262.76	-0.11%
U.S. Equity	3,790.29	5,818,481.76	0.07%
U.S. Fixed Income	1,602.54	1,436,724.58	0.11%
Total:	6,068.38	9,341,103.65	0.06%

Disclaimer: All data as of 6 a.m. Eastern time the date the article is published. Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.

18.

June CPI May Embolden Fed to Cut Soon

2024-07-09 12:00:00 by Sumit Roy from etf.com

Inflation

Economists expect more benign inflation news when the government reports the latest consumer price index figures this Thursday.

The core CPI is expected to have grown by 0.2% from May to June, according to the consensus estimate compiled by Bloomberg.

That would mark the second month-over-month reading of around 0.2% for the consumer price index, a level that is consistent with the central bank’s 2% inflation target.

On a year-over-year basis, the core CPI is anticipated to have grown by 3.4% in June, the same rate as in the prior month.

Meanwhile, the headline consumer price index—which includes food and energy—is expected to rise by 0.1% month-over-month in June following no change in May, and 3.1% year-over-year in June, down from 3.3% in May.

If economists are right, these figures would give the Fed confidence to cut rates soon—perhaps as early as September.

In addition to cooling inflation, a rising unemployment rate and slower job gains in recent months suggest that the central bank can confidently ease monetary policy without risking rapid price gains.

The pricing of fed funds futures implies there is a 74% chance that the Fed cuts the interest rate at its September meeting.

There is one more FOMC meeting ahead of that at the end of this month, but markets are currently pricing in only a 5% chance that the central bank slashes rates at that time.

SPY, QQQ Gains Fueled by Rate Hopes, AI

The SPDR S&P 500 ETF Trust (SPY) has benefitted from rising rate cut hopes. The exchange-traded fund hit a fresh all-time high on Monday and is up an impressive 17.5% so far this year. The Invesco QQQ Trust (QQQ) has done even better, with a 21.6% gain as AI-fueled gains in megacap tech stocks help the tech-heavy ETF outperform the broader stock market.

The S&P 500 was roughly flat in Monday afternoon trading after soaring to its latest record highs last week, while the tech heavy Nasdaq was slightly in positive territory.

19.

The unemployment rate is just 0.1% from causing a major headache for the Fed: Morning Brief

2024-07-09 10:00:50 by Jared Blikre from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

Despite the sleepy summertime doldrums, the economic data calendar continues to heat up.

Following last Friday's monthly job numbers, investors will feast on the latest Consumer Price Index inflation print this Thursday, teed up by testimony from Fed Chair Jerome Powell, who delivers his semiannual Humphrey-Hawkins testimony to the Senate on Tuesday and to the House on Wednesday.

The "data-dependent" Powell will no doubt do his best not to surprise investors when it comes to assessing the Fed's twin mandates of maximum employment and stable prices.

But the latest economic data is ratcheting up support for the Fed's first rate cut since 2019 — especially after some surprise weakness Friday in the unemployment rate.

Investors can reasonably expect the Fed to stand pat at its July meeting in three weeks. But the odds of a September rate cut have been increasing, now standing at 72% — up from a 47% chance a month ago.

Last week at a European Central Bank event in Portugal, Powell was asked point blank if the Fed might cut in September. Powell declined to answer, noting the Fed could afford to be patient given how the strong job market is slowing down only gradually.

But on Friday — only a few days after that event — the Bureau of Labor Statistics reported that the June unemployment rate had ticked up to 4.1%, surprising Wall Street, which expected it to hold at 4.0%.

It's a small difference and only one data point. But the unemployment rate is getting tantalizingly close to triggering a well-respected recession indicator called the Sahm Rule.

Briefly stated, the Sahm Rule warns the US economy is in the beginning stages of recession if the unemployment rate's three-month average has risen half a percentage point or more from the average's low over the prior twelve months. It's designed to detect an acceleration of job losses, and it successfully predicted the prior nine US recessions going back to 1970.

As of June, the reading is now 0.43 ppts. By the September meeting, there will be two more employment releases (for July and August). If either one of those prints is 4.2% or higher for the unemployment rate, the half-a-percent threshold for the Sahm Rule will have been met, according to Yahoo Finance calculations.

Even if the Sahm Rule triggers, the Fed has plenty of cover to do nothing — especially in an election year.

On top of that, Powell is on record recently saying he still wants to see more evidence that inflation is sustainably moving down to its 2% target. So if Thursday's headline CPI numbers jump substantially, you can bet that September rate cut odds would likely plummet to near zero.

Claudia Sahm, the former Fed economist who created the eponymously named rule, herself has expressed doubts about the rule's effectiveness in a world that's still normalizing from record unemployment during the pandemic.

But Sahm herself has been pressing for the Fed to move soon. In a recent interview with CNBC, she said that recession is a real risk, though it's not her base case.

“The worst possible outcome at this point is for the Fed to cause an unnecessary recession,” she said.

Depending on the job numbers that drop in a month or two, we could easily face a barrage of headlines proclaiming the recession is nigh as the focus shifts from inflation and stable prices to jobs and maximum employment. Just like with airplanes, the risks for an economy seem to increase right before landing.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

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20.

Inflation data, Powell speaks, and big banks report earnings: What to know this week

2024-07-07 14:17:37 by Josh Schafer from Yahoo Finance

A reading on inflation and the start of second quarter earnings reports will greet investors after a holiday-shortened week that saw stocks close near record highs.

With job growth slowing, investors will be closely watching the release of June's Consumer Price Index (CPI) on Thursday as the case builds that the Federal Reserve could be set to cut interest rates in September. Semiannual testimony from Federal Reserve Chair Jerome Powell before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday will also be a key focus for investors.

On the corporate side, Friday morning will see some of America's largest financial institutions, including JPMorgan (JPM), Wells Fargo (WFC), and Citi (C), kick off second quarter earnings season. Results from PepsiCo (PEP) and Delta Air Lines (DAL) will also be in focus earlier in the week.

Last week, the S&P 500 (^GSPC) rose nearly 2% while the Nasdaq Composite (^IXIC) rallied over 3%. Both finished the week at record highs. The Dow Jones Industrial Average (^DJI), which has been a notable laggard all year, gained a more modest 0.5%.

Case for a September rate cut builds

On Friday, the June jobs report showed the US economy added more jobs than expected last month. But economists found several signs of a slowing labor market in the details of the report.

The unemployment rate rose to 4.1%, its highest level since November 2021. Meanwhile, job gains for April and May were revised lower by 111,000, showing the labor market's robust gains over the past several months weren't as solid as initially thought.

Several economists believe this print will lead the Federal Reserve to cut interest rates in September.

"The June jobs report showed more signs of cooling in the labor market, with job growth including revisions weaker than expected, the unemployment rate rising and earnings growth slowing," Oxford Economics lead US economist Nancy Vanden Houten wrote in a note to clients.

"Federal Reserve officials have become increasingly focused on the downside risks to the labor market and the June data bolster our forecast for the Fed to cut rates in September and at every other meeting thereafter."

Renaissance Macro's head of economics Neil Dutta wrote in a note to clients on Friday that the report should "firm up expectations of a September rate cut."

"Economic conditions are cooling and that makes the trade-offs different for the Fed," Dutta added, "Powell should use July to set up a September cut."

As of Friday, investors were pricing in a roughly 75% the Fed cuts rates by its September meeting, up from a 64% chance seen the week prior, per the CME's FedWatch Tool.

With Powell set to give his semiannual testimony on Capitol Hill this week, investors will be closely listening for any hints at policy moves ahead of its July 30-31 meeting.

Price check

While the labor market's slowing has added to the case for Fed rate cuts, inflation remains a key factor.

In May, inflation readings showed prices increased at their slowest pace of 2024. Powell remarked last week that those readings "suggest that we are getting back on a disinflationary path."

The first test for whether that path will continue is set for release on Thursday morning with the June CPI report.

Wall Street economists expect headline inflation rose just 3.1% annually in June, a slowdown from the 3.3% rise seen in May. May's data was the slowest year-over-year inflation reading since July 2022. Prices are set to rise 0.1% on a month-over-month basis, a slight increase from the flat reading seen in May.

On a "core" basis, which strips out food and energy prices, CPI is forecast to rise 3.4% over last year in June, unchanged from May. Monthly core price increases are expected to clock in at 0.2%.

"We expect the June CPI report to be another confidence builder following the undeniably good May report," Bank of America US economist Stephen Juneau wrote in a research note previewing the release.

Big banks set the stage

Earnings season is upon us again, and Financials (XLF) will be in particular focus over the next few weeks; 40% of the S&P 500 companies set to report over that period will be from the sector, according FactSet.

The sector isn't expected to be a leader in earnings growth this quarter, with analysts forecasting 4.3% year-over-year earnings growth in Q2. This places Financials seventh among the eleven sectors in the S&P 500 for earnings growth.

As Yahoo Finance's David Hollerith recently reported, regional banks remain a key concern for the industry. Regional banks are expected to report a 26% year-over-year decline in earnings growth.

The JPMorgan Chase logo is seen at their headquarters building on May 26, 2023, in New York City. (Michael M. Santiago/Getty Images)

Michael M. Santiago via Getty Images

A 'high bar' for Q2 earnings

After climbing out of an earnings recession in 2023, corporates are finally facing a new challenge this reporting season: a high bar to beat.

Consensus forecasts are for the S&P 500's earnings to grow 8.8% against the year prior in the second quarter, according to FactSet. This would mark the highest year-over-year earnings growth for the index since the first quarter of 2022.

"We expect the magnitude of EPS beats to diminish as consensus forecasts set a higher bar than in previous quarters," Goldman Sachs chief US equity strategist David Kostin wrote in a client note previewing earnings season.

With the market trading near record levels ahead of this reporting period, Kostin and other strategists are cautious about how much upside investors can expect if results top Wall Street expectations.

Kostin noted that last quarter, companies that beat expectations saw their shares outperform the S&P 500 by 3 basis points in the following day of trading, well below the historical average of 100 basis points.

Given that investor sentiment is still elevated entering this round of earnings, Kostin reasoned, "the reward for beats should be smaller than average this quarter, although not as extreme as during the 1Q season."

Citi US equity strategist Scott Chronert struck a similar tone, warning that given "lofty implied growth expectations," the prospect of large stock pops this quarter is limited.

"Markets likely need to see raises coupled with solid execution driven beats to sustain recent gains or push higher from here," Chronert wrote in a weekly research note on Friday. "The concern is while fundamental trends are positive and consensus estimates are attainable, valuations suggest the buy-side will demand more."

Broadly, this has Wall Street tampering expectations about how much higher second quarter earnings reports could send a stock market.

Research from Deutsche Bank chief equity strategist Binky Chadha showed that the S&P 500 rises 80% of the time during earnings season, with an average return of 2%.

"On the other hand," Chadha noted, "the market run up into earnings season and overweight equity positioning argue for a muted rally."

Weekly calendar

Monday

Economic data: New York Fed 1-year inflation expectations, June (3.17% prior)

Earnings: No notable earnings releases.

Tuesday

Economic data: NFIB Small Business Optimism, June (89.9 expected, 90.5 prior); Fed Chair Powell testifies before the Senate Banking Committee.

Earnings: Helen of Troy (HELE)

Wednesday

Economic data: MBA mortgage applications, July 5, (-2.6% prior), Wholesale inventories month-over-month, May final (0.6% prior); Fed Chair Powell testifies before the House Financial Services Committee

Earnings: Manchester United (MANU), WD-40 (WDFC), PriceSmart (PSMT)

Thursday

Economic data: Consumer Price Index, month-over-month, June (+0.1% expected, +0% previously); CPI excluding food and energy, month-over-month, June (+0.2% expected, +0.2% previously); Consumer Price Index, year-over-year, June (+3.1% expected, +3.3% previously); CPI excluding food and energy, year-over-year, June (+3.4% expected, +3.4% previously); Real Average Hourly Earnings, year-over-year, June (+0.7% previously); Real Average Weekly Earnings, year-over-year, June (+0.5% previously);Initial jobless claims, week ended July 6 (238,000 previously);

Earnings: Conagra Brands (CAG), Delta Air Lines (DAL), PepsiCo (PEP), Progressive (PGR)

Friday

Economic data: Producer Price Index, month-over-month, June (+0.1% expected, -0.2% previously); PPI, year-over-year, June (+2.2% previously); Core PPI, month-over-month, June (+0.1% expected, 0% previously); Core PPI, year-over-year, June (+2.3% previously); University of Michigan consumer sentiment, July preliminary (67 expected, 68.2 previously)

Earnings: BNY Mellon (BK), JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

21.

A post-pandemic 'new normal' matters more to investors than AI: Morning Brief

2024-07-03 10:00:25 by Myles Udland from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

The first half of 2024 left little doubt for investors — this is an AI-fueled market.

With Big Tech companies accounting for the majority of both stock market gains and earnings growth in the S&P 500 this year, investors are rightly focused on what's next for the AI trade.

Looking past this year, however, investors are still mulling one of the most important and unsettled questions to emerge from the pandemic: What's normal now, anyway?

Writing in a note to clients on Tuesday, Lori Calvasina, head of global equity strategy research at RBC Capital Markets, wrote that not only are investors still figuring out what these post-COVID new normals for the economy and stock market are, but that "it's keeping many of them calm."

Calvasina added that as she and her team meet with clients, "What’s been most interesting to us recently, particularly as the path of the monetary policy has been debated, is how the basic idea that the post-COVID era will look very different from the post-GFC era and even the post-Tech bubble era, continues to resonate with many investors in the long-only community."

The day-to-day discussion in markets, as Calvasina noted, is basically a running dialogue about what the Fed should, will, needs to, or can't do next. Hold rates? Cut rates? When? And so forth.

Much like sports debates about which team should've won last night's game and how a certain team can win tomorrow's contest, daily and weekly market discussions look at what Jay Powell & Co. did in June, what they might do this month, and what they ought to do in September.

FILE - Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, June 12, 2024. Powell will be in Portugal on Tuesday, July 2, 2024, to take part in a panel discussion on central banking policy with members of the European Central Bank. (AP Photo/Susan Walsh, File) — Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, June 12, 2024. (AP Photo/Susan Walsh, File)

It's all great fodder for the financial media and the grist for daily market moves. And pinpointing the right-here-right-now trade has plenty of value for a certain kind of market participant and a certain slice of some portfolios.

But past the play-by-play, the bigger picture that Calvasina's team hears clients weighing is more in line with what central bankers think the long-run neutral rate will be rather than what rates will be in a few months. The destination, rather than the path, matters more.

For investors, a world with higher inflation but higher interest rates "[was] seen as the trade-[off] for a healthier underlying economy than what had been experienced post-GFC," Calvasina's team noted.

For consumers, making peace with this new normal may have less appeal.

But we think the idea advanced in Calvasina's conversations is worth reiterating to investors during a year in which markets have been dominated so far by AI and are set to be dominated in the coming months by politics.

The next wave of technological innovation and leadership atop the world's biggest economy matters for investors. Yet, in some ways, these changes are never settled. Technology has been redefining the corporation and its profitability for decades. Politics has been a risk for investors forever. And the scale of these questions almost diminishes the need to offer an answer.

Finding a post-pandemic new normal for markets, however, is really about seeking an answer to the most fundamental question investors can have — how much does it cost to borrow money, and what do I need to make to justify more?

Click here for the latest stock market news and in-depth analysis, including events that move stocks

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22.

Unemployment Rate in Focus Ahead of Key Jobs Report

2024-07-02 12:00:00 by Sumit Roy from etf.com

ETF Investing Tools

This Friday’s nonfarm payrolls report is expected to be a “goldilocks” report, with 200,000 jobs created and a steady 4% unemployment rate.

But even a minor deviation from the consensus could be noteworthy. This year, headline payroll gains have been solid, with an average monthly increase of 255,000 jobs.

Yet, in that same time, the unemployment rate has risen from 3.7% to 4%. It’s up even more from its post-Covid low point of 3.4% reached in January and April of 2023.

The nonfarm payrolls data and the unemployment rate come from two separate government surveys—the payroll survey and the household survey, respectively.

While the payroll survey has been showing strong job gains this year, the household survey hasn’t. No jobs have been added this year based on the household survey, compared to 1.5 million for the payroll survey.

Divergences in the two sets of data aren’t unusual, and the Bureau of Labor Statistics lays out several reasons why it happens, from sampling error to benchmark revisions to “off-the-books” employment.

In general, investors tend to favor the nonfarm payrolls report when gauging the health of the U.S. jobs market.

However, many investors also look at the unemployment rate, which is derived from the household survey’s measure of the number of unemployed people and the size of the labor force.

As mentioned earlier, that rate has been ticking higher. The number of unemployed people stood at 6.6 million in May, up from 6.1 million a year ago.

While little noticed up until now, the rise in the unemployment rate could begin to alarm investors if it triggers the Sahm Rule, a recession indicator.

According to the Federal Reserve Bank of Saint Louis, “the Sahm Rule identifies signals related to the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.”

Recession Looming?

Currently, the three-month moving average of the unemployment rate is 0.37% above its low point over the previous year.
If the unemployment rate keeps rising, that could cause it to cross the 0.5% threshold, signaling a recession.

Of course, no recession indicator is foolproof. The inverted yield curve indicator that was hailed as an accurate harbinger of an economic downturn failed to live up to its reputation during this economic cycle.

Still, the rise in the unemployment rate bears watching, and could become more concerning if its joined by a slowdown in nonfarm payrolls growth.

23.

History says stocks are looking bullish after a big first half of the year: Morning Brief

2024-07-02 10:00:50 by Jared Blikre from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

In the first half of 2024, stocks leapfrogged the wall of worry to deliver another solid set of six-month returns, leading the S&P 500 (^GSPC) to a respectable 14.5% gain and the Nasdaq Composite (^IXIC) to an even loftier 18% win.

If history is a guide, stock seasonality still favors the bulls in July. In fact, the Nasdaq has closed green in 10 of the past 11 Julys.

This bullishness extends into full-year results as well.

Looking back to 1928, there have been 29 years when the S&P 500 was up 10% or more at the halfway mark. By year-end, the average gain was 24%.

S&P 500 Monthly Returns When January to June Up More Than 10%

In each of the prior 12 instances of strong starts to the year going back to 1988, the second half of the year closed positive.

And across all years in the group going back to 1928, the second and third quarters combined were up an average 6.1% (9.6% median) — and were green 76% of the time.

Amid all these bullish results, two October stock market crashes — one in 1929 and one in 1987 — paved the way for the two worst-performing second halves of the year in the set, down 21.7% and 18.7%, respectively.

While July sports a respectable 1.4% average return (2.3% median), the percentage of years with positive returns drops to 59% from 83% the month prior.

The monthly seasonal pattern turns from lackluster in August — with a 0.4% average gain and 52% loss rate — to outright negative average returns in September and October (though median results remain positive).

Finally, after three months of roughly sideways tendencies, bullish tailwinds reaccelerate from November into year-end — just in time for the Santa Claus rally.

In general, historical seasonality patterns only account for up to a third of price returns. Big, unexpected catalysts can quickly tip the scales the other direction — so we can only outline tendencies. But it so happens that stock seasonality studies have generally worked well in this bull market, despite the AI moment seeming sui generis.

S&P 500 Seasonality — 1928 to 2023
First 10 Days and Last 10 Days of Each Month

Separately, BofA studied the first and last 10 trading days of each month going back to 1928 and found that the beginning of July has the highest average of any period (up 1.5% with positive results 69% of the time), another pattern to watch for this month.

Putting it all together, we might expect some more strength in early July before the traditional election market patterns take over.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

24.

June jobs report ushers in new quarter during holiday-shortened trading week: What to know this week

2024-06-30 12:32:22 by Josh Schafer from Yahoo Finance

A crucial week of labor market data will greet investors during a holiday-shortened trading week that begins the month of July, the third quarter, and second half of 2024.

The S&P 500 (^GSPC) enters Q3 up 14.5% so far this year, while the Nasdaq Composite (^IXIC) rallied more than 18%. The Dow Jones Industrial Average (^DJI) gained a more modest 3.8% in the first six months of the year.

With stocks sitting near record highs and recent inflation trends proving more positive, all eyes have turned to the labor market for signs of weakness as the Fed maintains its restrictive interest rate stance.

The June Jobs report will provide a robust look at the labor market on Friday, while updates on private payrolls and job openings will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also be scattered throughout the schedule.

Constellation Brands (STZ) is expected to be the focus of the lone notable corporate earnings report during an otherwise quiet week before big banks officially kick off second quarter earnings season the following week.

Markets in the US will close early on July 3 (1 p.m. ET) and will remain closed on July 4 for Independence Day.

A look at the labor market

The June Jobs report is due for release on Friday morning and is expected to show further cooling in the job market.

The report is expected to show that 188,000 nonfarm payroll jobs were added to the US economy last month, with unemployment holding steady at 4%, according to data from Bloomberg. In May, the US economy added 272,000 jobs while the unemployment rate ticked up slightly to 4%.

Bank of America US economist Michael Gapen reasoned a report along these lines would continue to show a labor market that is "cooling but not cool."

On Friday, the latest reading of the Fed's preferred inflation gauge showed inflation eased in May as prices increased at their slowest pace since March 2021.

The print was viewed as a step in the right direction for the Federal Reserve's fight against inflation.

Positive trends in inflation, combined with signs of slowing in economic activity, have economists arguing the Fed should be leaning toward cutting interest rates sooner rather than later.

"Emerging signs of softness in the labor market show [Fed] officials also need to be attentive to risks to the full employment side of their mandate," Oxford Economics deputy chief US economist Michael Pearce wrote in a note to clients.

Construction workers work the construction of a new building partly covered with a large US flag on September 25, 2013 in Los Angeles, California, where the state's Governor Jerry Brown signed legislation that will raise the California minimum wage from $8 to $10 per hour by 2016. AFP PHOTO/Frederic J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP via Getty Images) — Construction workers work on a new building partly covered with a large US flag on Sept. 25, 2013, in Los Angeles. (FREDERIC J. BROWN/AFP via Getty Images)

Halftime report

Just like 2023, most of 2024's stock market rally has been driven by a few large tech stocks.

Midway through the year, more than two thirds of the S&P 500's gains for the year have come from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Broadcom (AVGO). Nvidia alone has driven nearly one-third of these gains.

Despite some short-lived rallies throughout the year, just two sectors have outperformed the S&P 500 this year: Communications Services and Information Technology. Both are up more than 18% compared to the S&P 500's roughly 15% gain.

This has kept the debate going over whether the second half of the year will bring a broadening of the stock market rally, a hot-button issue on Wall Street.

Morgan Stanley's chief investment officer Mike Wilson recently argued in a research note that given weakening economic data and high interest rates, a true broadening in which sectors unrelated to tech pick up the slack is unlikely to happen.

"Narrow breadth can persist but it's not necessarily a headwind to forward returns in and of itself," Wilson said. "We believe broadening is likely to be limited to high quality/large cap pockets for now."

More megacap exceptionalism

Most strategists have reasoned that megacap tech companies have led the rally for good reason, given their earnings continue to outperform the market. That's expected to be the case during second quarter earnings as well.

Nvidia, Apple, Alphabet, Microsoft, Amazon, and Meta are expected to grow earnings by a combined 31.7% in the second quarter, per UBS Investment Bank US equity strategist Jonathan Golub.

The S&P 500 itself is expected to grow earnings by a more modest 7.8%.

This means that the lion's share of earnings growth is once again expected to come from Big Tech. And a similar trend has been seen in earnings revisions for the second quarter.

Since March 31, Golub's work shows earnings estimates for the S&P 500 have fallen just 0.1%, far less than the typical 3.3% drop seen on average. This is due in large part to a 3.9% revision upward for the aforementioned six biggest tech companies.

Entering the second half of the year, the debate over whether these Big Tech companies' consistent earnings beats will fall off will remain at center stage.

Weekly Calendar

Monday

Economic data: S&P Global US manufacturing, June final (51.7 expected, 51.7 prior); Construction spending, month-over-month, May (0.3% expected, -0.1% prior); ISM Manufacturing, June (49.2 expected, 48.7 prior)

Earnings: No notable earnings.

Tuesday

Economic data: Job openings, May (7.86 million expected, 8.06 million prior)

Earnings: No notable earnings.

Wednesday

Economic data: MBA Mortgage Applications, week ended June 28 (0.8%); ADP private payrolls, June (+158,000 expected, +152,000 prior); S&P global US Services PMI, June final (52.3 expected, 55.1 prior), S&P Global US composite PMI, June final (54.6 prior); ISM services index, June (52.5 expected, 53.8 prior); ISM services prices paid, June (58.1); Factory orders, May (0.3% expected, 0.7% prior); Durable goods orders, May final (0.1%)

Earnings: Constellation Brands (STZ)

Thursday

Markets are closed for the July Fourth holiday.

Friday

Economic calendar: Nonfarm payrolls, June (+188,000 expected, +272,000 prior); Unemployment rate, June (4% expected, 4% previously); Average hourly earnings, month-over-month, June (+0.3% expected, +0.4% prior); Average hourly earnings, year-over-year, June (+3.9% expected, +4.1% prior); Average weekly hours worked, June (34.3 expected, 34.3 prior); Labor force participation rate, June (62.6% expected, 62.5% prior)

Earnings: No notable earnings.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

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25.

Forget Nvidia: This ETF Could Turn $25,000 Into $1 Million

2024-06-29 09:39:00 by David Jagielski, The Motley Fool from Motley Fool

Nvidia (NASDAQ: NVDA) has generated some massive returns for investors in recent years. But the danger in buying the stock today is that at an extremely high valuation, you might be limited in the returns you get from it. While it may still be a good long-term investment, you may be better off putting your money into other growth stocks instead.

You could even simplify your strategy even further by investing in an exchange-traded fund (ETF), which can give you exposure to a broad range of stocks while still putting you on a path to generate some great returns.

A fund with tremendous long-run potential

For growth investors, one ETF that is a popular option is the Invesco QQQ Trust (NASDAQ: QQQ). It tracks the Nasdaq-100 index and gives investors exposure to the top growth stocks in the world within just a single investment. It's a safer alternative than putting all or even most of your money into a few investments, even if you're incredibly bullish on them.

With the Invesco fund, you don't even need to stay on top of what the hot new growth stocks are, as the Nasdaq-100 is made up of the top 100 nonfinancial stocks on the exchange. You'll still get exposure to Nvidia, but along with that, you'll also have exposure to Microsoft, Apple, and many other top tech stocks.

By investing in the fund, you can put yourself in a good position to beat the markets. Over the past 10 years, the Invesco QQQ fund has generated total returns (which include dividends) of more than 450%, which is far higher than the S&P 500's comparable returns of 235%. That means that the ETF has averaged a compounded annual growth rate of 18.6% in the past decade -- well above the S&P 500's long-run average of around 10%.

The fund could put you on a path to reach $1 million

The Invesco ETF can be an ideal option for long-term investors due to the effects of compounding and its potential to generate significant annual returns. While a near-19% growth rate may be a bit of an optimistic expectation to set for any investment for the very long term, even at a much lower average annual return, the ETF could generate considerable wealth for investors who buy and hold.

Suppose, for example, that you invest $25,000 into the ETF. If it averages an annual growth rate of around 13%, then after a period of 30 years, it'll grow to be worth nearly $1 million. If you're able to invest $30,000, it would take less than 29 years to get to $1 million. And if you can invest additional funds over the years, that can help accelerate your gains.

Invesco's ETF is a good default option for investors

If you're not sure what to invest in and are worried that hot stocks like Nvidia have become too expensive, the Invesco ETF can be a great option to consider investing in. It has a low expense ratio of 0.2%, and it gives you an easy way to invest in the best growth stocks in the world.

Even if you don't have a lot of money to invest today, you can periodically add to your investment every month or year to build up your position over time. And regardless of whether the ETF is up or down at the time you invest, it's likely to perform well in the long run, and that's ultimately what is most important.

Should you invest $1,000 in Invesco QQQ Trust right now?

Before you buy stock in Invesco QQQ Trust, consider this:

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $759,759!*

See the 10 stocks »

*Stock Advisor returns as of June 24, 2024

Forget Nvidia: This ETF Could Turn $25,000 Into $1 Million was originally published by The Motley Fool

26.

Forget the S&P 500 -- Buy This Magnificent ETF Instead

2024-06-28 14:00:00 by Neil Patel, The Motley Fool from Motley Fool

Because it includes 500 large, profitable businesses in the U.S., the S&P 500 is a popular benchmark to gauge the performance of the American stock market. It has done well for investors, producing a total return of 236% in the past decade, turning a $1,000 initial investment into almost $3,400 today.

Not many people will argue with the impressive returns that the S&P 500 has delivered. However, there is a magnificent exchange-traded fund (ETF) that follows a different index which investors should consider adding to their portfolios instead.

Massive companies built on tech and innovation

If you're not already, it's time to get familiar with the Invesco QQQ Trust (NASDAQ: QQQ). This ETF tracks the performance of the Nasdaq-100 Index, which includes the 100 largest nonfinancial companies that trade on the Nasdaq stock exchange.

This ETF is known for its heavy focus on tech stocks. The so-called "Magnificent Seven" make up 42% of the entire portfolio. This includes well-known names, like Microsoft, Apple, and Nvidia. The key theme that comes to mind is that these companies are known for being industry leaders that have strong financials and a culture of innovation.

Technology seems to be changing faster than ever these days. Not only does this make it difficult for even the experts to figure out what companies will grow and be tomorrow's leaders, it can make picking individual stocks seem like a very intimidating task to the average investor.

That's why the Invesco QQQ Trust deserves a closer look. By owning a broad basket of businesses exposed to what's happening in the tech sector, choosing single winners is not required.

Just to be clear, there are other areas of the stock market that investors will gain exposure to by buying this ETF. While the tech sector makes up 52% of the assets, the communication services (15.5%) and consumer discretionary (12.3%) sectors also shine.

An impressive track record

I mentioned that the S&P 500 has generated a total return of 236% in the last 10 years. That's admirable, but it doesn't hold a candle to this ETF; the Invesco QQQ Trust has produced a total return of 455% since June 2014. That translates to a stellar annualized gain of 18.7%.

This is hard to beat. Most active fund managers don't come close to this.

It's no surprise that the tech and consumer discretionary sectors do well when the economic backdrop is robust. This was the case for most of the past decade. But even in a higher-rate environment, the ETF has performed extremely well, soaring 80% since the start of 2023.

Besides this impressive track record, which is the factor that investors probably think about most, this ETF charges a low expense ratio of 0.20%. So for every $500 invested, $1 goes toward paying the fee. This means that an investor gets to keep more of their money over time, a positive development.

Is it too late to buy?

As of this writing, the Invesco QQQ Trust sits near its all-time high levels. The market is experiencing lots of optimism right now. Perhaps investors believe that the economy will be able to bring down inflation and avoid a recession at the same time.

But this can make one wonder if now is still a good time to invest, particularly as the ETF trades close to its record. If you have a long time horizon, the starting point is inconsequential. Having more time in the market is what matters most.

Always remember that past results don't indicate forward returns. It's reasonable to expect future gains to come down from what was achieved in the last decade. But the Invesco QQQ Trust should continue to reward the patient investor.

Should you invest $1,000 in Invesco QQQ Trust right now?

Before you buy stock in Invesco QQQ Trust, consider this:

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $759,759!*

See the 10 stocks »

*Stock Advisor returns as of June 24, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Forget the S&P 500 -- Buy This Magnificent ETF Instead was originally published by The Motley Fool

27.

There's something odd about the stock market's concentration: Morning Brief

2024-06-27 11:07:07 by Jared Blikre from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

The major indexes may have only chalked small gains Wednesday, but while the generals were sleeping, the soldiers were on the march.

At the vanguard, moderate losses in large-cap energy and financials were offset by outsized gains in the consumer discretionary sector — thanks principally to Amazon (AMZN) and Tesla (TSLA).

This seesaw theme has become a subtle but important market narrative. On days when AI isn't leading the charge, select pockets of strength keep the S&P 500 from more pronounced sell-offs — which itself is holding index volatility near multiyear lows.

The recent "plunge" in Nvidia is instructive.

Only Monday, the AI poster child closed down 13% from its record high. Surveying social media, you would think Wall Street was burning.

But during that harrowing three-day slump, a funny thing happened: The Dow Jones Industrial Average (^DJI) — up only 3% this year versus 14% for the S&P 500 — staged a comeback. Energy perked up, and biotech jumped as forgotten pockets of the market showed signs of life.

This seesaw-offsetting behavior is everywhere right now in lieu of correlations between even stocks in similar sectors. Stocks simply do not want to move in the same direction.

"This is a generationally weird US stock market," wrote Luke Kawa, a former director of investment solutions at UBS Asset Management Americas now at Sherwood Media.

Kawa was specifically referencing Tuesday's price action, in which the S&P 500 managed a 0.4% gain despite 384 of its components closing in the red — a new feat for a data set that goes back to 1996.

Similar "firsts" have been dotting the market statistics recently.

But none of this detracts from the argument — supported by ample research and history — that it's perfectly normal in a bull market to have gains concentrated in a few stocks.

Winning stocks that enjoy a secular-themed rally get bigger and bigger until the move runs its course.

In a bull market, when leading stocks falter, other parts of the market that may not be generating hype-filled headlines can rise to the occasion. Sector rotation keeps volatility at the index level low as new winners offset losers. And then, at some point, the music stops and all sectors start selling off in unison, kicking off a new bear market.

Kawa tied this to the current market, writing that "different major groups within the US stock market have been marching to the beat of their own drummers recently, and this dynamic has helped keep the stock market from lurching violently to the downside."

We're not only currently seeing disparate returns among sectors and industries, but also inside them — even in the megacap tech stocks. In the past six months, if some of them, say Microsoft and Alphabet, are up, Nvidia and Apple might be down. The correlation between directional moves between pairs in this cohort is a scant 43%, Kawa noted.

All of this zigging and zagging keeps index-level volatility at bay, but Kawa lays out the major risk in this environment: a "correlated shock" that is distributed "among these companies that control so much of US as well as global equity indices."

Though the "big drop" remains the focal risk, divergences can persist longer than arbitrage investors can remain solvent (to turn an old Wall Street trope).

In fact, research by the data analytics team at BofA suggests that the current regime of low inter- and intra-sector correlation can persist for years.

Stock correlations within the S&P 500 at historic lows — Stock correlations within the S&P 500 are at historic lows.

"Multiple years of decorrelation in the 90s as the internet bubble developed suggests that persistence of today's regime remains a risk," wrote BofA.

Accordingly, the outsized bifurcation in returns between the chosen AI few and the rest of the market needn't end with a bang.

"Just because we’re in uncharted waters doesn’t mean we’re heading for a waterfall. It could end up being a lazy river," wrote Kawa.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

28.

2 Index ETFs to Buy Hand Over Fist and 1 to Avoid

2024-06-27 09:02:00 by James Brumley, The Motley Fool from Motley Fool

The temptation to chase the performance of the market's hottest stocks is strong to be sure. Everyone else seems to be getting rich off of them. Why not you?

As veteran investors can attest, however, the proverbial grass isn't always greener on the other side of the fence. A simpler, more passive approach often ends up being a more rewarding one.

Enter exchange-traded funds, and specifically, index-based exchange-traded funds -- or ETFs -- like the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). Such funds are designed to help you sidestep the risks of individual stocks by allowing you to easily own a diversified basket of equities with at least one common attribute. In the case of the SPDR S&P 500 ETF, the common attribute is the fact that all of the stocks are constituents of the S&P 500 index.

With that as the backdrop (and assuming you've already established a foundational position in the SPDR S&P 500 ETF itself), there are a couple of ETFs you may want to consider stepping into to further diversify your portfolio.

Oh, and there's also a whole category of exchange-traded index funds most investors are just better off simply avoiding altogether.

Buy the Invesco QQQ Trust

If you're looking to add a little more zip to your portfolio's overall performance but aren't sure which stocks are poised to dish it out, the Invesco QQQ Trust (NASDAQ: QQQ) is a smart option. Just brace for above-average volatility.

The so-called triple Qs (or "cubes") mirror the performance of the Nasdaq-100 index, which consists of 100 of the biggest companies listed on the Nasdaq stock exchange. That in and of itself doesn't mean much. But, as it turns out, most of the market's best-performing tickers over the course of the past several years became the megacap companies they are today while listed on the Nasdaq. Some of these names include Microsoft, Nvidia, and Amazon. This tech-heavy exchange is just the preferred place for the world's top -- and highest-growth -- technology companies to list their stocks.

There is one downside here. That is, by merely mirroring the Nasdaq-100 index, this ETF easily becomes overweighted with the exchange's biggest companies due to their stocks' oversized gains. For perspective, Microsoft, Nvidia, and Apple each currently make up a little more than 8% of the index's and fund's total value (roughly 25% for three stocks). That's not an especially well-diversified basket of tech stocks, and that's despite a rebalancing imposed in July of last year that was meant to avoid this very sort of imbalance! This imbalance of course leaves the Invesco fund subject to sharp, sizable pullbacks once these high-flying market darlings fall even just a little out of favor.

It just doesn't matter. The Invesco QQQ Trust is still more likely than not to be holding most of the market's most promising technology growth stocks at any given time. If you can stomach the volatility, it's well worth the wild ride.

Buy the ProShares S&P 500 Dividend Aristocrats® ETF

Growth is one way for investors to build wealth. It's not the only way, however. An income-generating portfolio built on high-quality divided-paying stocks can get the job done nicely as well.

It's true! Although dividends haven't historically (not recently, anyway) been viewed by investors as a primary means of getting rich, a bit of number crunching makes it clear that an exchange-traded fund like the ProShares S&P 500 Dividend Aristocrats® ETF (NYSEMKT: NOBL) is actually up to the task. (Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.) There's just one catch.

But, first things first.

A Dividend Aristocrat® is simply the stock of an S&P 500 company that's raised its full-year dividend payment annually for at least 25 consecutive years. As of right now, over 60 such names qualify for the title, although most of them have been upping their annual payouts for far longer than 25 years.

Admittedly, the average yield here isn't exactly thrilling. ProShares says the fund's current dividend yield stands at only 2.3%, leaving some would-be investors wondering why this ETF should be seen as a long-term winner. Certainly, its ever-rising dividend payment helps, particularly when you reinvest those dividends in more shares of the ETF. Still, its long-term potential seems capped by its dividend-oriented focus.

The important detail not readily evident here is that stocks of companies with a policy of regularly raising their dividends -- and the capacity to make good on that policy -- actually do outperform most other stocks. Calculations performed by mutual fund company Hartford indicate that since 1973, stocks of companies that have reliably grown their dividend payments boast an average annual gain of 10.2%. For perspective, an equal-weighted version of the S&P 500 boasts a more modest average of 7.7%. Stocks that didn't pay dividends at all during this time only averaged a yearly gain of 4.3%. Hartford concludes that consistent dividend growers simply tend to be higher-quality, better-managed companies.

Oh, and the catch? The key here is just leaving such a position alone for years on end while reinvesting any of these dividend payments into more shares of the stock or fund paying them.

Avoid the ProShares UltraPro Short QQQ

Last but not least, most investors will want to avoid the ProShares UltraPro Short QQQ (NASDAQ: SQQQ) and other so-called "leveraged bear" ETFs like it. They just pose too much risk for the average person.

If you're not familiar with them, bearish exchange-traded funds rise when the market is falling. This is made possible in a handful of ways, including the simple short sale of stocks found in a particular index. More often than not though, it's facilitated through index-based futures or options trades that serve as short-term bets on an index's direction. In the case of the ProShares UltraPro Short QQQ, the index in question is the aforementioned Nasdaq-100.

The ProShares bearish ETF is unique even by ETF standards in another way though. That is, it's also leveraged, meaning it rises and falls much more than the underlying Nasdaq-100 falls and rises. For every 1% the Nasdaq-100 dips, the ProShares UltraPro Short QQQ gains 3% and vice versa.

The premise is compelling. All investors understand that the market moves up and down over time. A bit of well-timed exposure to a leveraged bearish fund like this one could at least offset the impact of a marketwide correction. It might even prove to be a major moneymaker ... if you plug into it at the beginning of the bear market.

These funds tend to be more trouble than they're worth and can easily do more harm than good.

See, the market's long-term tide is bullish even if it's occasionally interrupted by setbacks. Investors can afford to be patient, knowing the market and its highest-quality stocks will eventually recover.

That's not the case with bearish funds -- especially leveraged bearish funds. Not knowing if the stock market has made a major (or even minor) low until well after the fact means these ETFs can easily race deep into the red before you even start to think about cutting your losses. Never even mind the fact we tend to make bad decisions when we're stressed out or anxious!

The smart-money move, therefore, is simply not putting yourself into a position where you'd have to make such a difficult decision in the first place. Just be patient without trying to get cute or clever by doing something the vast majority of people -- including the professionals -- typically don't do well.

Should you invest $1,000 in Invesco QQQ Trust right now?

Before you buy stock in Invesco QQQ Trust, consider this:

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $772,627!*

See the 10 stocks »

*Stock Advisor returns as of June 24, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, Nvidia, and ProShares Trust - ProShares S&P 500 Dividend Aristocrats ETF. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

2 Index ETFs to Buy Hand Over Fist and 1 to Avoid was originally published by The Motley Fool

29.

SMH, Nvidia Stock ETFs Break Losing Streak

2024-06-26 12:00:00 by Kent Thune from etf.com

ETF Investing Tools

Nvidia stock has been driving market direction and Tuesday’s price action was no exception, as NVDA jumped nearly 7%, breaking a rare losing streak for the semiconductor giant and the exchange-traded funds that hold it.

The largest ETF with one of the highest allocations to Nvidia stock, the VanEck Semiconductor ETF (SMH), followed NVDA with a gain of more than 2%.

The Technology Select Sector SPDR ETF (XLK), which rebalanced its holdings Friday to move NVDA into the top position, was also higher in Tuesday trading.

Before the move higher, Nvidia had fallen more than 15% from its June 18 all-time high, pulling down the broader market indexes, including the S&P 500, along with it. The S&P 500 and tech-focused Nasdaq rose 0.4% and 1.3% on Tuesday, respectively.

Is the Market Overexposed to Nvidia Stock?

Here's a breakdown of the Nvidia (NVDA)’s rise to its $3 trillion market cap, how its size increasingly influences the market, and the associated potential drawbacks:

High weighting: Nvidia's stock price has grown significantly in recent years, leading to a high weighting in major indexes like the S&P 500 and the Nasdaq 100. This means the performance of these indexes, and thus the ETFs that track them, is heavily influenced by Nvidia's stock price fluctuations.
Concentration risk: A large weighting of a single stock can increase the concentrated risk within an index. If Nvidia's stock price falls, it could cause a larger-than-average decline in the overall index value.
Limited diversification: Overexposure to one sector (technology in this case) can limit the diversification benefits of index investing. Ideally, an index should be spread across various sectors to mitigate risk.

Bottom Line on Nvidia’s High Weighting in ETFs

Nvidia’s high weighting in many broad market index funds and tech sector ETFs simply reflects Nvidia's current market capitalization, a measure of its relative size and importance in the market.

This is a potential drawback for ETFs that track a cap-weighted index, and investors should remain aware of the associated benefits and risks of this heavy weighting.

While Nvidia’s stratospheric rise has lifted many stock ETFs along with it, the stock’s eventual decline may have even greater influence on the downside, as its position in many index-based funds is higher now than at the beginning of Nvidia’s ascent.

Overall, the debate over Nvidia’s outsized influence on the market highlights the ongoing discussion about index composition and potential risks of concentration. It's important to remember that diversification is a key principle of investing, and that some investors might choose to actively manage their portfolios to reduce reliance on any single stock, even within an index fund.

30.

A small group of tech stocks is driving the market rally — why that's 'not a flaw'

2024-06-25 14:41:32 by Josh Schafer from Yahoo Finance

This year's stock market rally has been led by just a few large tech names.

While it might seem concerning to have too much riding on a handful of stocks, strategists say the trend may not be a bad thing for markets.

"We see a small group of tech winners leading stock gains as a feature of the artificial intelligence (AI) theme — not a flaw," Jean Boivin, head of BlackRock Investment Institute, wrote in a research note on Monday. "We stay overweight U.S. stocks."

AI darling Nvidia (NVDA) has accounted for nearly one-third of the S&P 500's gains this year, and outperformance in quarterly results from large-cap tech continues to be a reason why earnings for the S&P 500 are growing year over year.

As of Monday's close, Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Broadcom (AVGO) had also contributed more than a quarter of the major index's gains.

One potential concern is that the market could be at risk if a few large tech companies that have driven a lion's share of the gains stop surprising to the upside.

However, research from Morgan Stanley's chief investment officer, Mike Wilson, shows this might not be an issue.

Wilson found roughly 20% of the top 500 stocks are outperforming the broader index over a rolling one-month period. This is the lowest percentage of companies outperforming in Wilson's dataset dating back to 1965.

Wilson's work noted that after similar narrow breadth readings where less than 35% of companies are outperforming the index on a one-month basis, the S&P 500 rose about 4% on average over the next six months.

Wilson argued that when considering the impact of high interest rates on corporations, this makes sense. Investors have flooded large-market-cap stocks that have held up well in the higher rate environment and are seeing earnings grow more than their smaller peers.

And a slew of recent upgrades to year-end S&P 500 targets reflect similar sentiment. Three Wall Street firms cited tech outperformance as part of the reason the index is doing better than they initially thought this year.

Evercore ISI's Julian Emanuel boosted his target to 6,000 from 4,750, citing the "early innings of AI" and a market supported by the "persistence of AI exuberance." Citi's Scott Chronert bumped his year-end target to 5,600 from 5,100 noting "the weighting effect of the mega cap growth cohort is exerting an outsized influence on index price action."

Goldman Sachs' equity strategy team boosted its year-end target to 5,600 from 5,200, highlighting that increasing earnings expectations for Alphabet, Microsoft, Amazon, Meta, and Nvidia have "offset the typical pattern of negative revisions to consensus EPS estimates."

"We underappreciated the degree to which those earnings would lift those few stocks and the degree to which those few stocks would drive the rest of the market, and that's basically what we're adjusting for," Goldman Sachs equity strategist Ben Snider told Yahoo Finance.

Goldman Sachs laid out an alternative scenario to their base case call for 5,600 on the S&P 500, where the benchmark skyrockets to 6,300 by the end of the year. This, Goldman's team wrote, would be driven by "further mega-cap exceptionalism."

Snider told Yahoo Finance this possibility would likely come from "continued revenue beats from those companies relative to what analysts expect." Snider added that such a scenario leaves investors "vulnerable" to a few stocks beating expectations. But it still comes with an upside.

"The beauty of the S&P 500 index ownership in general, which is when a few companies perform really well, they can drag up the whole index," Snider said. "And we're seeing that right now. So I think most investors who own the S&P 500 are very happy with what's happened, even if it means their underlying portfolios are more concentrated," Snider said.

Traders work on the floor of the New York Stock Exchange during morning trading on May 17, 2024 in New York City. Wall Street stocks opened little changed May 17 after pulling back from a record run where the Dow exceeded 40,000 points for the first time. Around 10 minutes into trading the Dow Jones Industrial Average was steady at 39,872.66. (Photo by ANGELA WEISS / AFP) (Photo by ANGELA WEISS/AFP via Getty Images) — Traders work on the floor of the New York Stock Exchange during morning trading on May 17, 2024, in New York City. (ANGELA WEISS/AFP via Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

31.

Economic Data Deluge: Claims, Starts, Philly Fed & More

2024-06-20 14:23:00 by Mark Vickery from Zacks

Thursday, June 20th, 2024

We come back refreshed from the Juneteenth holiday this morning with more economic data. A lot more economic data. From the labor market to homebuilding figures to regional manufacturing and a new account balance, we fill in a lot of gaps ahead of today’s opening bell. Pre-market futures were in the green ahead of this onslaught of data, and remain so afterward — though they seem to be dwindling a bit.

Initial Jobless Claims moderated week over week. A headline 238K was slightly above estimates for 235K, but down from the prior week’s upwardly revised 243K, which is now the highest print we’ve seen since last August. We spent from last fall to this spring with new jobless claims sub-220K in all but a few select weeks, which was an historically robust employment period. We’re now notably above this, but appear to only have buoyed back to where we were last summer.

Continuing Claims are reported a week in arrears from new claims. Thus, we tend to see last week’s initial claims data reflected in this week’s Continuing Claims, and this woulds stand to reason: a headline 1.828 million longer-term jobless claims is the highest single-week level we’ve seen since November of 2021. This follows a slightly downwardly revised 1.813 million — the first time we’ve seen back-to-back 1.8 million prints since the first week of February.

Housing Starts for May missed expectations. A total of 1.277 million seasonally adjusted, annualized units is the lowest tally we’ve seen since June of 2020 — right in the heart of the Covid pandemic. It’s lower than the 1.38 million analysts were expecting, and notably below the 1.5 million or so housing starts we’d been seeing over the last few years. Single-family housing starts fell -5.2% for the month, down nearly -2% year over year. Mortgage rates in May remained above 7%, and homebuilder sentiment has fallen in May (and June, as of yesterday’s survey).

Building Permits, also for May, hit lows not seen since June 2020, as well. Headline 1.386 million was well off the expected pace of 1.45 million seasonally adjusted, annualized units. Building Permits are a good gauge of future Housing Starts, so weakness on this metric does not bode well for a bounce-back a month from now on new starts. Oversupply in the multi-family space has led to a -52% drawdown in starts year over year, and we’re not seeing permits doing much heavy lifting as of now.

The latest Philly Fed manufacturing survey, for June, is also out this morning. It’s +1.3 is below the +5.0 analysts had been anticipating, and the unrevised +4.5 reported for the previous month, but it does make the fifth month in a row of positive Philly Fed numbers, following five negative months in a row prior. A year ago, Philly Fed registered a -13.6, bottoming out before that in April of last year at -26.3 — the lowest read we’d seen since plummeting during Covid.

Finally, the Q1 U.S. Current Account data is released this morning. This fell to -$237.6 billion, far lower than the -$207.4 billion anticipated and the downwardly revised -$221.8 billion the prior month. Over the past five years, the deepest cut to the U.S. account came back in Q1 of 2022, when it reached -$291.8 billion, which is also an all-time low. We’d like to see this flow back the other direction, but there isn’t much that will be directly impacted by this drop in the near-term economy.

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32.

The Smartest Tech ETF to Buy With $500 Right Now

2024-06-20 13:30:00 by Stefon Walters, The Motley Fool from Motley Fool

Picking individual stocks to add to your portfolio can sometimes be overwhelming, especially when there are thousands to pick from in the market. Even when you've settled on a specific sector or industry, picking stocks within those can be tedious.

Thankfully, you don't have to spend time researching and picking individual stocks; you could invest in an exchange-traded fund (ETF) that provides broad exposure to the sector or industry you're interested in. The tech sector has often been the most popular part of the stock market -- and the most rewarding -- for investors over the past couple of decades.

If you have $500 available to invest (meaning you have an emergency fund saved and high-interest debt paid down) and want exposure to some of the world's top tech companies, the Invesco QQQ Trust ETF (NASDAQ: QQQ) is a great option.

A tech ETF in its own right

The Invesco QQQ Trust ETF mirrors the Nasdaq-100, an index that tracks the 100 largest non-financial companies listed on the Nasdaq stock exchange. Although it's not a pure tech ETF, the tech sector makes up around 59% of the fund and contains many of the world's most important tech companies.

Here are the ETF's top 10 holdings, which include the "Magnificent Seven" (as of March 31).

Microsoft: 8.75%
Apple: 7.41%
Nvidia: 6.32%
Amazon: 5.25%
Meta Platforms: 4.76%
Broadcom: 4.44%
Alphabet (Class A): 2.49%
Alphabet (Class C): 2.42%
Tesla: 2.37%
Costco Wholesale: 2.35%

The ETF is in a nice sweet spot -- not quite as broad as the Nasdaq Composite Index (which contains over 3,000 companies), but broad enough to cover virtually all areas of the tech industry. Its tech companies are involved in software, semiconductors, cloud computing, artificial intelligence, and dozens of other industries poised to drive growth.

An inexpensive way to get exposure to top tech companies

The ETF's expense ratio is 0.20%, which works out to $1 annually per $500 invested. It's not as cheap as some popular S&P 500 ETFs, which could have expense ratios as low as 0.03%, but it's still a lower-cost option than many other comparable ETFs.

An ETF's expense ratio may seem like a small detail that can be ignored, but the smallest differences on paper can equal a decent amount of money in real life.

For example, imagine you invest $500 monthly into two ETFs that average 10% annual returns over 20 years. Below is how your investment totals would differ between 0.20% and 0.40% expense ratios:

Expense Ratio	Amount Paid in Fees	Ending Investment Total
0.20%	$7,700	$335,900
0.40%	$15,200	$328,400

Calculations by author. Figures rounded to the nearest hundred.

Even a slight 0.20% difference equaled thousands more paid in fees over time. Don't overlook ETF expense ratios; they matter.

The ETF has a history of market-beating results

The ETF is up close to 1,000% since its March 1999 inception, with many of those gains coming in the last decade. In that span, it has considerably outperformed the Nasdaq Composite and S&P 500. A $500 investment at its inception would be worth close to $5,500 today.

QQQ Total Return Level Chart — QQQ Total Return Level data by YCharts

An ETF returning close to 19% in a single year is impressive in itself, but averaging that over a decade is a testament to the consistency and resilience of the companies leading the way.

Past results don't guarantee future performance, but for the sake of illustration, let's assume the ETF averages more modest 15% annual returns over the next decade. A $500 investment now could be worth close to $2,000 after fees.

You should never invest in a stock assuming you can predict its performance, because you can't. That's like counting your chickens before they hatch and one of the easiest ways to set yourself up for disappointment. However, history can give you insight into a stock's ability, and this ETF has shown it can deliver consistent returns and capitalize on the tech sector's growth.

Should you invest $1,000 in Invesco QQQ Trust right now?

Before you buy stock in Invesco QQQ Trust, consider this:

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $830,777!*

See the 10 stocks »

*Stock Advisor returns as of June 10, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The Smartest Tech ETF to Buy With $500 Right Now was originally published by The Motley Fool

33.

JPM: Record low short interest in SPY, QQQ may expose US equities to vulnerability

2024-06-20 10:29:24 by Investing.com

The declining short interest in SPDR® S&P 500 (NYSE:SPY) and Invesco QQQ Trust (NASDAQ:QQQ) exchange-traded funds (ETFs) to successive record lows has been supporting US equities and reducing volatility over the past year, thus serving as an implicit short volatility (vol) trade, JPMorgan strategists said in a Thursday note.

SPY and QQQ, major vehicles for placing index-level positions on US equities, have seen their declining short interest bolster US equity indices as investors gradually covered their short positions.

“In turn this steady flow support from the gradual covering of short positions has suppressed realized vol, creating additional space to take bigger equity positions in notional terms,” strategists noted.

“In other words, the declining short interest over the past year in these two major ETFs has become the equivalent of an implicit short vol trade,” they added.

However, with short interest at historically low levels, this extended implicit short vol trade poses a vulnerability to US equities if negative news reverses the decline in short interest, they added.

The declining short interest at the index level poses a question of whether this trend corresponds to rising short interest in individual stocks. However, data does not support this hypothesis, JPMorgan highlights.

The firm’s analysis indicates no significant increase in short interest over the past year for individual stocks, whether examining the largest tech companies or the broader S&P 500 universe.

“The declining short in SPY and QQQ ETFs does not only reflect a net increase in US equity exposure by hedge funds over the past year, but also a shrinkage of short sellers,” strategists continued.

They believe this shrinkage is driven by difficulties in maintaining short positions in a rising market, regulatory transparency increasing shorting costs, and active retail investor engagement deterring short sellers.

JPM: Record low short interest in SPY, QQQ may expose US equities to vulnerability

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34.

Why the Fed might need to 'get on with it' and cut rates

2024-06-19 10:00:52 by Josh Schafer from Yahoo Finance

The Federal Reserve has projected just one interest rate cut this year. The latest round of monthly data has some economists worried it won't come soon enough.

Retail sales data for May revealed that the pace of consumer spending is cooling down from last year, easing concerns about an economy running too hot in the fight against inflation. In the labor market, while last month's job additions came in higher than expected, the unemployment rate hit 4%, its highest level since January 2022. Overall, Citi's Economic Surprise Index, which measures the extent to which data has come in better than forecast, is hovering near its lowest level in more than a year.

Inflation data for May, meanwhile, was more promising than expected. The headline Consumer Price Index (CPI) increased at its slowest pace since July 2022. When combining that data with a reading on wholesale prices in May, economists believe the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, increased at its slowest pace of the year during May.

With inflation falling and the economy slowing, Renaissance Macro's Neil Dutta believes it's time for the "Fed to get on with it" and begin cutting interest rates soon. This, Dutta says, will help protect the Fed's other mandate in addition to price stability: maximum employment.

"The momentum behind core inflation is probably going to continue softening from here," Dutta told Yahoo Finance. "Then I think for the Fed, the trade-offs with the labor market are becoming a little bit more onerous."

Dutta points out that any sign of weakness in the labor market has so far been regarded as a sign of rebalancing after the pandemic threw supply and demand out of whack.

Federal Reserve Chair Jerome Powell has acknowledged as much.

"We see gradual cooling, gradual moving toward better balance [in the labor market]," Federal Reserve Chair Jerome Powell said on June 12 after the central bank's most recent policy meeting. "We're monitoring it carefully for signs of something more than that, but we really don't see that."

But what concerns Dutta, and the economics team at Goldman Sachs, is where the data usually heads from here. The job openings rate is now in line with pre-pandemic levels. If it were to decline further, a pickup in the unemployment rate would usually accompany the downward trend, Dutta said, referencing the Beveridge curve.

As work from the Federal Reserve highlights, the dots on the Beveridge curve moving further along the right axis (as seen in the chart below highlighted in red) would come with diminished chances of a soft landing and, possibly, recession.

"I just don't think the Fed wants to really push the weakening in labor demand that much more," Dutta said.

He added, "The Fed knows that. It's not like the risk at this point is for the unemployment rate to unexpectedly go down. The most likely distribution of outcomes is that it's stable or it goes higher."

To be clear, Dutta and other economists are more concerned about how the economic data could spiral from here rather than where it sits today. Many aren't overly concerned about the current trends quite yet.

Deutsche Bank chief US economist Matthew Luzzetti told Yahoo Finance the "risks" in the labor market are there. But at this point, it looks more like the spending power of the US consumer is slowing toward a normal pace, not trending toward a drop-off.

"While there are some strains, particularly for parts of the households, I would be surprised if you saw a slowing in the labor market and a slowing in the consumer that was enough to get them to cut by September," Luzzetti said.

Federal Reserve Board Chair Jerome Powell takes questions during a news conference at the Federal Reserve in Washington, Wednesday, June 12, 2024. (AP Photo/Susan Walsh)

From a stock perspective, investors have taken the current Fed outlook in stride. The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) have been on a string of record closes. Three equity strategists just boosted their year-end outlooks for the S&P 500 as tech companies continue to perform better than expected.

But one of those strategists, Citi US equity strategist Scott Chronert, highlighted that the economy's "fraying" around the edges will continue to be a point of interest for investors moving forward after corporate executives were "cautiously optimistic" during first quarter earnings calls.

"We're going to be watching that pretty closely," Chronert told Yahoo Finance. "I think, in general, what we're going to see as we go into the Q2 reporting period is a little bit more evidence that the lagging effects of Fed rate hikes to this point are starting to weigh on fundamental activity. So, we have to be aware of that."

Some are worried that in exercising caution on inflation, the Fed could inadvertently wait too late to move and hurt the economy. With excess savings dwindling and credit card delinquencies rising, Allianz chief economic adviser Mohamed El-Erian told Yahoo Finance that small businesses and lower-income households, which are already struggling amid higher rates, could be left out to dry.

El-Erian argued that the balance of risks for the Fed if it waits until the end of the year to cut "is in favor of them being too late and the economy slowing more than it should."

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

35.

Why the Vanguard Total Stock Market Index Fund ETF Isn't Suited for the Age of AI

2024-06-19 10:00:00 by George Budwell, The Motley Fool from Motley Fool

As the development of artificial intelligence (AI) systems continues to advance at a torrid pace, this emerging technology is poised to disrupt the global economy and transform entire industries. It's a revolution sure to create winners and losers -- companies that fail to adapt will be left behind.

As such, broad-based index funds like the Vanguard Total Stock Market Index Fund ETF (NYSEMKT: VTI) may not be the best choices for investors today.

A hand holding an AI hologram. — Image Source: Getty Images.

AI's disruptive potential and economic impact

AI has the potential to disrupt virtually every economic sector, industry, and sub-industry, from healthcare and finance to manufacturing and transportation. As AI-powered software systems and robotics become part of everyday life, they will fundamentally change the way businesses operate. Those companies that most successfully leverage AI to improve efficiency, reduce costs, and create new products and services will likely gain significant competitive advantages.

However, this disruptive potential also poses significant risks for companies that are ill-suited for this next phase of technological evolution. Companies in legacy industries such as retail, many forms of insurance, and fossil fuels, for example, may struggle to keep pace with the rapid changes brought about by AI. Many may find themselves rendered obsolete, leading to job losses and economic disruption.

Rethinking diversification: The limitations of broad-based index funds in the age of AI

In light of AI's transformative potential, investors may need to reconsider their allocations to broad-based index funds like the Vanguard Total Stock Market Index Fund ETF. While this popular fund provides exposure to more than 3,700 U.S. companies across all economic sectors, it may not be the optimal choice for the age of AI.

On one hand, the Vanguard Total Stock Market Index Fund ETF is heavily tilted toward information technology stocks: Because it is weighted by market cap, eight of its 10 largest holdings are core AI stocks like Microsoft, Nvidia, Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Alphabet.

However, approximately 71% of its remaining holdings are spread across various sectors, some of which may face significant challenges in adapting to this new technological landscape.

Given that technology will dominate most aspects of our daily lives and potentially rebalance the world order, investors may need to rethink the benefits of the broad diversification inherent in funds like the Vanguard Total Stock Market Index Fund ETF.

Why? Despite numerous tech executives and experts in the space publicly warning the world about the impending changes over the next two to three years, a sense of disbelief still persists among the general population.

This sentiment is likely to shift this fall with the rollout of OpenAI's next iteration of ChatGPT, the introduction of Apple Intelligence, and the launch of Amazon's Alexa Plus. Apple Intelligence, in fact, is likely to be an eye-opening moment for a large fraction of the populace thanks to the popularity of the company's iconic iPhone. And the emergence of relatively affordable advanced robotic systems soon thereafter will only add fuel to the fire.

As the AI revolution unfolds, investors may want to adopt a more targeted approach to portfolio construction, focusing on companies and sectors that are built to thrive in this new era. While broad-based index funds have served investors well in the past, the age of AI may justify heavier concentrations in tech and tech-adjacent fields.

Capitalizing on the AI revolution with tech-oriented ETFs

Tech-oriented exchange-traded funds (ETFs) like the Invesco QQQ Trust (NASDAQ: QQQ), the Vanguard Growth ETF (NYSEMKT: VUG), or the Vanguard Information Technology ETF (NYSEMKT: VGT) would be ideal ways to play this trend.

The Invesco QQQ, which tracks the Nasdaq-100 index, offers exposure to many of the leading technology companies at the forefront of AI.

The Vanguard Growth ETF focuses on large-cap U.S. growth stocks and its portfolio includes many of those same companies. However, it sports a broader mix of assets than the Invesco QQQ.

For investors seeking a highly concentrated tech fund, the Vanguard Information Technology ETF may be an attractive option. As of this writing, Microsoft, Apple, and Nvidia make up approximately 46% of its portfolio.

As the age of AI unfolds, investors may want to consider reducing their broad market exposure and increasing their allocations to these and similar tech-oriented ETFs. These funds' heavier tilts toward the businesses best positioned to benefit from AI make them attractive growth and hedging vehicles for the coming era of ultra-smart machines.

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Why the Vanguard Total Stock Market Index Fund ETF Isn't Suited for the Age of AI was originally published by The Motley Fool

36.

XLK Rebalancing to Reverse Apple, Nvidia Stock Positions

2024-06-18 21:30:00 by Kent Thune from etf.com

Profit - Loss - Money - Rebalance

The Technology Select Sector SPDR Fund (XLK), the second-largest technology sector exchange-traded fund by assets under management, will dramatically shift the weighting for two of its top holdings on Friday.

XLK, which has $72 billion in assets under management, will increase its allocation in Nvidia from roughly 5% to more than 20% and drop its allocation of Apple from about 21% to 5%, reversing the stocks’ positions in the ETF with Nvidia becoming the second largest holding.

“XLK will be a forced seller of ~$11 billion worth of $AAPL and a forced buyer of almost $10 billion worth of $NVDA in a rebalance... assuming Nvidia remains larger than Apple at market close on Friday,” Bloomberg research analyst James Seyffart wrote in a post on the social media platform X.

Microsoft will retain the top weighting in the index, State Street Global Advisors, the fund’s issuer, confirmed. XLK’s rebalancing follows Nvidia's (NVDA) recent market capitalization surpassing Apple's (AAPL). The tech sector fund passively tracks the performance of its benchmark index, the Technology Select Sector Index, which holds a basket of technology companies.

The weighting of each company in XLK must reflect their weighting in the index. So XLK must now purchase Nvidia Shares and sell Apple on Friday to mimic their new weightings in the index that the fund tracks.

NVDA vs AAPL: Market Impact of XLK Rebalancing

The rebalancing of the XLK ETF this Friday is likely to cause upward pressure on Nvidia's stock price and downward pressure on Apple's price, based on similar reallocations. However, the exact impact is difficult to predict and will depend on various market factors.

The impact on stock prices depends on how the broader market reacts to the rebalancing. Investors anticipating the rebalancing may have already adjusted their holdings, meaning the price movements might be smaller than expected.

The price movements might be more prominent in the short term, around the time of the rebalancing. In the long run, the stock prices will likely be driven more by the companies' individual performance and overall market conditions.

37.

AI enthusiasm prompts 3 Wall Street banks to raise stock market forecasts

2024-06-18 10:00:27 by Josh Schafer from Yahoo Finance

The excitement surrounding artificial intelligence has yet to run its course on Wall Street.

Three analysts recently upgraded their forecasts for the S&P 500 (^GSPC) amid early signs that investments in generative AI are driving earnings growth at large-cap tech companies.

On Sunday, Evercore ISI's Julian Emanuel boosted his year-end price target for the S&P 500 to 6,000 from 4,750, noting the "AI revolution is in the early innings." Emanuel's target is the highest on Wall Street.

Goldman Sachs' equity strategy team boosted its year-end target to 5,600 from 5,200 on Friday. Goldman highlighted that increasing earnings expectations for Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Nvidia (NVDA) have "offset the typical pattern of negative revisions to consensus EPS estimates."

Citi's equity strategy team, led by Scott Chronert, struck a similar tone, boosting its end target to 5,600 from 5,100 on Monday. The analysts noted that the market would have trended toward their prior target had it not been for outsized performance from large-cap tech.

"The generative AI influence as an ongoing incremental growth driver is permeating the US equity environment right now," Chronert wrote.

More than two-thirds of the S&P 500's nearly 15% gain this year is attributed to the "Magnificent Seven" stocks: Tesla (TSLA), Apple (AAPL), Alphabet, Microsoft, Amazon, Meta, and Nvidia, according to Citi.

If this "megacap exceptionalism" continues, Goldman's model shows the S&P 500 could end the year at 6,300. This would likely come from "continued revenue beats from those companies relative to what analysts expect."

Barclays head US equity strategist Venu Krishna currently holds a 5,300 call on the S&P 500 but also noted that continued outperformance from tech provides upside risk to his target and could result in a bull-case scenario with the S&P 500 ending the year above 6,000.

Krishna told Yahoo Finance that he's been asked for more than a year whether a small group of stocks can continue to drive the market higher.

"The answer is yes, it is possible," Krishna said. "We are in that environment."

FILE - A sign for a Nvidia building is shown in Santa Clara, Calif., May 31, 2023. A lower stock price can actually be a boon for investors in some rare cases. When companies announce splits to their stocks, as Nvidia recently did, they have historically gone on to beat the broad market in the next year. Though a stock split doesn’t guarantee an ensuing rise in price. (AP Photo/Jeff Chiu, File) — A sign for a Nvidia building is shown in Santa Clara, Calif., May 31, 2023. (AP Photo/Jeff Chiu, File)

Market concentration

The top-heavy market has some concerned that the rally is too narrow. However, strategists say this shouldn't deter investors.

Snider noted it's important for investors to remember that if the trend of large-cap tech leading the S&P 500 higher continues, a narrow rally with only a few stocks leading the market higher is a feature, not a bug, of the benchmark index.

"This is part of the beauty of the S&P 500 ... When a few companies perform really well, they can drag up the whole index," Snider said. "And we're seeing that right now."

There is also risk AI enthusiasm has driven stock valuations too high. JPMorgan chief market strategist Marko Kolanovic, who has stuck by Wall Street's most bearish year-end S&P 500 target of 4,200, noted on June 3 that equity valuations are "rich" while sentiment is "near highs."

And Kolanovic has a point. Emanuel at Evercore ISI pointed out that with the S&P 500 trading above 20 times its forward earnings estimates, the index is "expensive" on a historical basis. But what sticks out to Emanuel is how long stocks can stay at those levels.

The S&P 500's forward price-to-earnings ratio crossed 20 143 days ago, per Emanuel. In the 2021 economic reopening frenzy, the S&P 500 traded at similar valuation levels for 614 days. During the dot-com boom, the S&P 500 lasted at those levels for 737 days.

Emanuel notes this shows that "high valuations can remain higher for longer." And with that could come further returns.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

38.

Investors can't afford to miss the AI rally: Morning Brief

2024-06-18 10:00:14 by Myles Udland from Yahoo Finance

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

The chart of the day
What we're watching
What we're reading
Economic data releases and earnings

Wall Street strategists continue to chase the S&P 500 higher.

The latest? Julian Emanuel at Evercore ISI, who now sees the index rising to 6,000 by the end of this year amid an AI revolution still in its "early innings."

Emanuel sees earnings returning to growth this year and next, alongside stock market history that suggests valuations can remain elevated longer than investors expect, driving the index another 11% higher this year.

But the price targets and the market's path to them — in Evercore's bull scenario, the S&P 500 might reach 7,000 by the end of next year; in a bear scenario, we're back down to 4,750 — are less significant than the nudge this piece of research gives to all clients: You must have an answer when asked about your AI strategy.

For the last year, AI has been cited across the Street as the most important catalyst pushing markets higher. This came as the Federal Reserve delayed rate cuts, inflation has been slow to return to 2%, and the US economy outperformed expectations.

And as this bull market continues, Emanuel expects volatility to increase as AI becomes an even larger thematic driver for stocks.

"Convexity is a 'must own' in a Tech driven Bull Market that is going to get more volatile," Emanuel wrote. As a result, his team recommends a "strangle" options position on the Nasdaq, buying calls and puts at prices higher and lower than current prices, respectively.

Yet the details of this trade are less important than the thrust of Emanuel's reminder to clients.

Which is that you must have an AI trade.

President and CEO of Nvidia Corporation Jensen Huang delivers a speech during the Computex 2024 exhibition in Taipei, Taiwan, Sunday, June 2, 2024. (AP Photo/Chiang Ying-ying)

The trade can be as simple as an options position that offers some upside reward and downside protection. Elsewhere, Emanuel's team mentions "AI Revolutionaries" and "Small Cap Standouts" as other possible portfolio tilts for the current environment.

As always, portfolio managers will work within their mandate to make the best decisions for clients. What any one strategist thinks about the S&P 500's direction in the next six months is just part of that calculation, now or at any other time.

What isn't practical, however, is to see yourself out of the AI discussion — to tell your stakeholders we're not interested, or not prepared, or not ready to find a way to bring AI into our process. For investors and everyone else.

When 2023 began, investors were bracing for recession and Wall Street was less than excited about the stock market's prospects. The surprising consensus that congealed among the investor class in late 2022 was that stocks would keep dropping in early '23 as the economy contracted. In the second half of the year, investors expected the market to rebound as the economy returned to growth.

Instead, the market ripped higher right from the get-go. AI took over the Street, while earnings, the lifeblood of long-term stock market returns, were flat.

Investors caught flat-footed in a rally fueled by the unexpected mania for chatbots, cloud storage, and massive amounts of computing power had some leeway to explain to clients why they hadn't foreseen the Nasdaq gaining 40%.

In June 2024, those excuses have worn thin.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

39.

Fed, Powell Lay Out Inflation Expectations

2024-06-17 18:04:00 by Mark Vickery from Zacks

Wednesday, June 12th, 2024

This trading session was, in some ways, the story of two shoes dropping. The first, ahead of today’s open, was the Consumer Price Index (CPI) for May, which came in better than expected: 0.0% month over month (decidedly not inflationary), and +3.3% on the year-over-year Inflation Rate: 20 basis points (bps) below the April tally. The second shoe to drop is the latest Federal Open Market Committee (FOMC) meeting the afternoon, where the Fed unsurprisingly kept interest rates unchanged from the 5.25-5.50% level we’ve had since last summer.

The Fed sees economic activity continuing at a solid pace. Job gains are still considered strong. Progress on inflation has been made, albeit modestly. The committee maintains its +2% inflation objective, and says it sees a better balance on inflation metrics than a year ago — largely due to restrictive interest rate policy. In 2022, the Fed raised rates +425 bps, and another +100 bps in 2023. We’re still awaiting the first move of 2024, obviously.

The Fed continues to remark that the economic outlook is still uncertain. It still says it won’t start cutting interest rates until inflation moves more “sustainably” toward +2%. In today’s statement, the monetary policy body also said it would make adjustments to current policy if new economic risks emerge. You might read this as, “We’re going to keep everything tight for now, but if something breaks, we will respond.”

In the press conference directly following the FOMC release, Fed Chair Powell articulated these positions. He began by once again saying the body only makes decisions meeting by meeting, and are not going to get ahead of themselves — least of all in speculating on what month rates might finally start coming down. We’re “very data dependent,” Powell said. “We saw today’s CPI report as progress and building confidence, but it does not warrant changing policy at this time.”

The Fed’s favored inflation metric is the PCE report, which comes out at the end of this month. PCE stands for Personal Consumption Expenditures, of course, and the +2.7% reported for April he said “is a good place to be.” Powell said that no one on the committee has any interest rate hikes as their base-case scenario, going forward. “It’s pretty clear policy is restrictive and having the effects we’d hoped for.”

The main sticking point for Powell, and presumably the rest of the Fed, is the relative ambiguity of falling inflation rates. He noted that the labor force supply has come up “quite a bit,” with both job openings and quits coming down. Unemployment has elevated 60 bps over the past year — and this remains consistent with the “soft landing” scenario the Fed has been attempting to conjure for more than two years now. “We’re getting good results here,” Powell said. “It’s just gonna happen more slowly than we thought.”

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40.

Latest inflation data provides potential for 'even greater upside' in the stock market rally

2024-06-17 10:00:54 by Josh Schafer from Yahoo Finance

After a rough start to 2024, the latest inflation data may very well mean more fuel for the current stock market rally.

"Inflation falling continues to be one of the primary factors behind the bull market in stocks," Julian Emanuel, who leads Evercore ISI's equity, derivatives, and quantitative strategy, wrote in a note to clients.

On Sunday, Emanuel boosted his year-end price target for the S&P 500 (^GSPC) to 6,000 from 4,750. Emanuel cited the promising inflation path and the “early innings” of the AI trade when moving his year-end target to the highest on Wall Street.

The S&P 500 and Nasdaq (^IXIC) hit four straight record closes last week as investors digested softer-than-expected inflation readings for both consumer and wholesale prices.

UBS Investment Bank's chief US equity strategist Jonathan Golub, who holds one of the highest S&P 500 year-end targets on the Street at 5,600, believes this week's inflation data and what it could mean for eventual interest rate cuts "provide the potential for even greater upside" to his year-end outlook.

Golub's confidence is increasing because inflation is showing its most significant progress toward the Fed's 2% goal since the start of the year. That is fueling hopes for rate cuts — and sending Treasury yields, a noted headwind for stocks over the past year, lower.

The May Consumer Price Index (CPI) showed "core" CPI, which excludes volatile food and energy categories, increased by 0.2% month over month, the lowest reading since June 2023. Meanwhile, the "core" Producer Price Index (PPI), which excludes the volatile food and energy categories, was unchanged in May from the prior month, below economists' expectations for a 0.3% increase.

Combining the various metrics, economists believe this points to a positive reading of the Fed's preferred inflation gauge within the Personal Consumption Expenditures (PCE) index later this month.

Rate cuts?

Bank of America US economist Stephen Juneau wrote that Thursday's PPI supports their view that "disinflation is the most likely path forward" and points to an "A+ report" for May core PCE. BofA estimates core PCE increased 0.16% month over month in May.

"The May CPI and PPI data are favorable for our view that the Fed will be reducing its policy rate later this year," Juneau wrote. "We see recent inflation data as greatly reducing the likelihood that the Fed has to raise rates and view labor market data as indicating that the probability of fast rate cuts is also low.

"An easing cycle that begins in September remains a possibility, particularly if shelter inflation were to moderate further in the next couple of months."

The inflation data seems to have cheered investors in the face of the Fed's latest Summary of Economic Projections (SEP), which showed the median forecast for rate cuts fell to just one cut in 2024. Markets are now more firmly pricing in two interest rate cuts this year than they had entering the week.

Some attribute this to when the data was released. The CPI report came just hours before the Fed released its — and while Fed Chair Jerome Powell noted that officials are allowed to change their forecast after an economic data release, "most people don’t."

Additionally, the Fed's call was close, with just one more official favoring one cut rather than two. Between the narrow majority and the second positive inflation reading of the week coming after the Fed had already wrapped its meeting, Wall Street strategists believe the Fed's forecast may already be stale.

"Honestly, if [the inflation data] happened a week earlier, I think that might just have been enough to keep another two people on the two-rate-cut bandwagon," JPMorgan Asset Management chief global strategist David Kelly said at a media roundtable on Thursday.

Kelly said the recent data added to the case that inflation is falling slowly toward the Fed's 2% target. And unless the US economy is hit by an unexpected shock to reverse course, "the soft landing continues," Kelly said.

FILE - Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, May 1, 2024. On Wednesday, June 12, 2024, the Federal Reserve will end its latest meeting by issuing a policy statement, updating its economic and interest-rate projections and holding a news conference with Powell.(AP Photo/Susan Walsh, File) — Does he reserve the right to change his mind on rate cuts? Federal Reserve Board Chair Jerome Powell (AP Photo/Susan Walsh)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

41.

Stocks enter shortened trading week near record highs: What to know this week

2024-06-16 11:00:34 by Josh Schafer from Yahoo Finance

Stocks concluded last week on a hot streak as softer-than-expected inflation data fueled investor optimism around interest rate cuts.

The Nasdaq Composite (^IXIC) rose more than 3% while the S&P 500 (^GSPC) popped nearly 1.5%. The S&P 500 ended the week above 5,400 for the first time ever. The Nasdaq and S&P 500 both closed at record highs for four straight days. Meanwhile, the Dow Jones Industrial Average (^DJI) slid more than 0.7%.

A quieter week ahead will greet investors, with no major corporate news expected and the May retail sales report leading the economic calendar. Updates on activity in the manufacturing and services sectors, as well as weekly jobless claims, will also be in focus.

Markets will be closed on Wednesday for the Juneteenth holiday.

Inflation moving back in the right direction

The May Consumer Price Index (CPI) showed "core" CPI, which excludes volatile food and energy categories, increased by 0.2% month over month, the lowest reading since June 2023. Meanwhile, the "core" Producer Price Index (PPI) was unchanged in May from the prior month, below economists' expectations for a 0.3% increase.

Economists believe all this points to a positive reading of the Fed's preferred inflation gauge within the Personal Consumption Expenditures (PCE) index later this month.

Bank of America US economist Stephen Juneau wrote Thursday's PPI supports his view that "disinflation is the most likely path forward" and points to an "A+ report" for May core PCE. BofA estimates core PCE increased 0.16% month over month in May.

He added, "An easing cycle that begins in September remains a possibility, particularly if shelter inflation were to moderate further in the next couple of months."

'Stick the landing'

Inflation is declining and economic growth slowing, but the Fed sees just one interest rate cut this year. A growing number of Wall Street economists are nervous the central bank may be walking too fine of a line with its most restrictive interest rate policy in more than two decades.

The fear among those economists is that there are already signs of softening in the economy, like a pickup in the unemployment rate, that could rapidly worsen if the Fed holds rates high for too long. That's why investors will closely watch the initial weekly jobless claims release on Thursday morning. In the most recent release last week, weekly jobless claims unexpectedly hit 242,000, marking a 10-month high.

Allianz chief economic adviser Mohamed El-Erian told Yahoo Finance the balance of risks for the Fed if it waits to cut in December "is in favor of them being too late."

Renaissance Macro's head of economics Neil Dutta wrote in a note to clients that there is plenty of reason to believe further disinflation remains in the pipeline. Dutta argues this will call for a shift in the Fed's rhetoric. The risk, Dutta said, is if the Fed doesn't shift from its current stance.

"At the end of the day, unemployment is up and core inflation is down," Dutta wrote. "The policy implication of that is clear ... Time to get on with it and stick the landing."

The New York Stock Exchange is shown on Wednesday, June 12, 2024 in New York. U.S. markets are up modestly ahead of a decision by the Federal Reserve on interest rates and the government's latest data on consumer prices.(AP Photo/Peter Morgan) — The New York Stock Exchange is shown on Wednesday, June 12, 2024, in New York. (AP Photo/Peter Morgan)

Retail reading

A key reading on how consumers are holding up amid higher rates is expected on Tuesday with the monthly retail sales report for May.

Economists expect that retail sales increased 0.3% from the prior month, which would mark a rebound in spending after sales unexpectedly came in flat in April.

"We suspect consumption is headed for a more modest pace of growth in the second half of the year," Wells Fargo's team of economists led by Jay Bryson wrote in a note to clients on Friday. "The personal saving rate has turned lower, consumer credit growth has slowed as delinquencies have increased, and growth in real disposable income has faded amid a moderating labor market."

The economists added, "These mounting headwinds have weighed on discretionary spending, which will likely keep a lid on retail sales growth in the coming months."

A bull market tailwind returns

After a rough start to 2024, the latest inflation data may very well add fuel to the current stock market rally.

The S&P 500 (^GSPC) and Nasdaq (^IXIC) hit four straight record closes last week as investors digested softer-than-expected inflation readings for both consumer and wholesale prices. The print helped markets remain optimistic about two interest rate cuts this year despite the median forecast from Federal Reserve officials favoring one cut in its Summary of Economic Projections (SEP) on June 12.

UBS Investment Bank's chief US equity strategist Jonathan Golub, who holds one of the highest S&P 500 year-end targets on Wall Street at 5,600, believes this week's inflation data and what it could mean for eventual interest rate cuts "provide the potential for even greater upside" to his year-end outlook.

Weekly calendar

Monday

Economic data: Empire manufacturing, June (-13 expected, -15.6 prior)

Earnings: Lennar (LEN)

Tuesday

Economic data: Retail sales, month-over-month, May (+0.3% expected, 0% previously); Retail sales ex auto and gas, May (+0.3% expected, -0.1% previously); Industrial production month-over-month, May (0.4% expected, 0% prior)

Earnings: KB Home (KBH)

Wednesday

Economic data: NAHB housing market index, June (45 expected, 45 previously); MBA Mortgage Applications, week ending June 14 (+15.6.%)

Earnings: Markets are closed for the Juneteenth holiday.

Thursday

Economic data: Initial jobless claims, week ending June 15 (242,000 previously); Housing starts month-over-month, May (+1.1% expected, +5.7% prior); Building permits month-over-month, May (+1.4% expected, -3% prior); Philadelphia Business Outlook, June (4.5 expected, 4.5 prior); Import prices, month-over-month, April (+0.2% expected, +0.4% previously)

Earnings: Accenture (ACN), Kroger (KR)

Friday

Economic data: Leading index, May (-0.3% expected, -0.6% previously); S&P Global US manufacturing PMI, June preliminary (51 expected, 51.3 prior); S&P Global US services PMI, June preliminary (53.4 expected, 54.8 prior); S&P Global US composite PMI, June preliminary (54.5 prior)

Earnings: CarMax (KMX), FactSet (FDS)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance

42.

Billionaires Are Selling Nvidia Stock and Buying 2 Magnificent Index Funds Instead

2024-06-16 09:12:00 by Trevor Jennewine, The Motley Fool from Motley Fool

Several hedge fund billionaires trimmed their positions in Nvidia (NASDAQ: NVDA) during the first quarter, and patched the holes in their portfolios by purchasing the Invesco QQQ Trust (NASDAQ: QQQ) and/or the iShares Bitcoin Trust (NASDAQ: IBIT), two index funds with significant growth prospects.

Steven Cohen of Point72 Asset Management sold 304,505 shares of Nvidia, reducing his stake by 55%. He also started a small position in the Invesco QQQ Trust, a growth-focused index fund that tracks the Nasdaq-100 index.
Israel Englander of Millennium Management sold 720,004 shares of Nvidia, reducing his stake by 35%. He also started a sizable position in the iShares Bitcoin Trust (NASDAQ: IBIT), an index fund that tracks the cryptocurrency Bitcoin.
Ken Griffin of Citadel Advisors sold 2.4 million shares of Nvidia, reducing his stake by 68%. He also increased his stake in the Invesco QQQ Trust by 74% and started a small position in the iShares Bitcoin Trust.
David Shaw of D.E. Shaw sold 1.4 million shares of Nvidia, reducing his stake by 38%. He also started a small position in the iShares Bitcoin Trust.

Investors should not interpret those trades to mean Nvidia is a bad investment, but the index funds warrant further consideration because all four hedge fund managers have excellent track records. In fact, Citadel, D.E. Shaw, and Millennium Management are the three most profitable hedge funds in history, and Point72 ranks thirteenth on that list, according to LCH Investments.

Here's what investors should know about the Invesco QQQ Trust and the iShares Bitcoin Trust.

The Invesco QQQ Trust: A growth-focused index fund

The Invesco QQQ Trust measures the performance of the Nasdaq-100 index, which itself tracks the 100 largest stocks listed on the Nasdaq Stock Exchange. The Invesco QQQ Trust is a growth-focused index fund heavily weighted toward the technology sector. The 10 largest holdings are listed by weight below.

Apple: 8.6%
Microsoft: 8.6%
Nvidia: 8.4%
Broadcom: 5.2%
Alphabet: 5.3%
Amazon: 5%
Meta Platforms: 4.6%
Costco Wholesale: 2.5%
Tesla: 2.3%
Netflix: 1.9%

The Invesco QQQ Trust returned 171% over the last five years, compounding at 22% annually. Those gains are mind-boggling and may not persist over the next five years. However, investors can reasonably assume the index fund will outperform the S&P 500 over long periods of time. It has done so in the past, and there is no reason that should change in the future. For instance, the Invesco QQQ Trust compounded at 14.6% annually during the last two decades, while the S&P 500 compounded at 10.3% annually during the same period.

The Invesco QQQ Trust bears an expense ratio of 0.2%, meaning investors will pay $20 per year on every $10,000 invested in the fund. All things considered, the Invesco ETF is a good option for risk-tolerant investors comfortable with volatility, especially those that hope to outperform the broader stock market.

The iShares Bitcoin Trust: A cryptocurrency index fund

The iShares Bitcoin Trust is an exchange-traded fund (ETF) that tracks the price of Bitcoin. It is one of several spot Bitcoin ETFs approved by the Securities and Exchange Commission earlier this year. Many pundits view that development as a game-changer for the cryptocurrency.

Spot Bitcoin ETFs offer direct exposure to Bitcoin without the hassle or fees associated with cryptocurrency exchanges. Investors can simply purchase the iShares Bitcoin ETF (or another spot Bitcoin ETF) through their existing brokerage account. That could unlock demand from retail and institutional investors that have so far remained on the sidelines.

Indeed, the iShares Bitcoin Trust reached $10 billion in assets faster than any ETF in history, according to The Wall Street Journal. Additionally, more than 400 institutional investors had purchased positions in the iShares Bitcoin Trust as of March 31, and those positions were collectively worth more than $3 billion. In short, it appears the fund is indeed unlocking demand among institutional investors, and that could ultimately drive the price of Bitcoin much higher.

For instance, Tom Lee of Fundstrat Global Advisors believes the cryptocurrency could reach $500,000 by 2029, and Cathie Wood of Ark Invest thinks Bitcoin could hit $3.8 million by 2030. Those estimates imply upside of 657% and 5,657%, respectively, and both analysts attribute their confidence in part to the recent approval of spot Bitcoin ETFs.

Investors should bear in mind that cryptocurrencies are a volatile and risky asset class. But Bitcoin surged 635% over the last five years, its price compounding at 49% annually. That stunning performance easily outstrips the average among other asset classes like bonds, equities, precious metals, and real estate.

History may or may not repeat itself over the next five years, but the iShares Bitcoin Trust bears a reasonable expense ratio of 0.25%, and risk tolerant investors should consider buying a small position today, given that Bitcoin is about 11% below its all-time high.

Should you invest $1,000 in Invesco QQQ Trust right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bitcoin, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Billionaires Are Selling Nvidia Stock and Buying 2 Magnificent Index Funds Instead was originally published by The Motley Fool

43.

XLK, Technology ETFs Jump on Cooler Inflation

2024-06-13 12:00:00 by Kent Thune from etf.com

Growth - Chart - Up Trend - Stocks

Technology ETFs led the surge of higher prices Wednesday as rate-sensitive exchange-traded funds climbed sharply higher on cooler-than-expected data in May’s CPI report.

Renewed hopes for a rate cut from the Fed by September helped to lift growth stocks by as much as 2.5%, as measured by the Technology Select Sector SPDR Fund ETF (XLK).

Rising hopes also lifted the S&P 500, the Nasdaq Composite Index and the Nasdaq-100 to all-time highs, helping to push the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ) to respective price highs.

The boost in investor sentiment appeared to be primarily driven by the first zero print, or no monthly change in the CPI, in the current cycle.

This unexpected lull suggests that inflation can move closer to the Fed’s preferred 2% yearly growth rate.

Later Wednesday, investors received a glimpse into the Fed’s rate policy for 2024, as its “dot plot” projected one rate cut this year, meeting investors’ adjusted expectations.

Of the central bank’s Federal Open Market Committee members, four plotted no rate cuts this year, seven see one cut, and eight see two cuts.

Why Lower Rates Are Good for Technology ETFs

Technology ETFs tend to rise in price when investors expect interest rates to fall. The fundamental reason for this is that when interest rates drop, the value of a growth stock's future earnings increases, making them more attractive to investors and potentially leading to faster stock price appreciation.

Tech companies typically invest heavily in research and development and future growth, rather than paying out dividends to shareholders currently. When interest rates are low or expected to fall from higher levels, investors tend to become interested in the steady returns offered by bonds (which become less attractive) and are more willing to invest in riskier assets like growth stocks, potentially driving their price up.

It's important to remember that this is a general trend and not a guarantee. There are other factors that can affect the price of technology ETFs, and past performance is not necessarily indicative of future results.

WWDC, Nvidia Market Cap, XLK Holdings

In addition to friendlier news on the interest rate front, XLK is getting a boost from this week’s Worldwide Developers Conference (WWDC), an information technology event held annually by Apple Inc. Their new AI-driven “Apple Intelligence” has boosted AAPL stock, which is the top holding in XLK with over 20% allocation.

Also noteworthy for XLK investors, Nvidia’s market cap is set to surpass Apple’s; thus, XLK may be preparing for an allocation weight change in the fund’s holdings. The chipmaker’s weight could jump above 20% from 6% in an XLK rebalance, according to estimates from Bloomberg.

44.

Major ETFs in Positive Territory as Fed Leaves Rates Intact

2024-06-12 17:50:54 by James Rubin from etf.com

Federal Reserve building

Equity and fixed income ETFs were little changed after the U.S. central bank left interest rates untouched for a seventh consecutive time amid ongoing concerns about inflation, even as the widely watched Consumer Price Index (CPI) earlier Wednesday showed prices cooling in May.

The bank's Federal Open Markets Committee held the Federal funds rate—the short-term interest rate commercial banks charge one another for borrowing and lending their excess reserves—between 525 and 550 basis points, where it has been since last July.

The largest stock ETFs by assets under management, the SPDR S&P 500 ETF Trust (SPY) and Vanguard 500 Index Fund (VOO) slipped a few fractions of a percentage point after the 2 p.m. announcement but were up about 1% in Wednesday trading. Rate sensitive funds—the bond market proxy, iShares 20+ Year Treasury Bond ETF (TLT) and growth stock proxy Invesco QQQ Trust (QQQ)—were up similarly on the day.

"In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent," the Fed said in a statement. "In considering any adjustments to the target range..., the Committee wil carefully assess incoming data, the evolving outlook, and the balance of risks."

The Fed's announcement came just hours after the May Consumer Price Index (CPI) registered no gain from the previous month and dropped slightly to 3.3% on an annual basis from April's 3.4.%—slightly lower than analysts had forecast, although the latter number was well above the central bank's 2% target. The report followed less than two weeks after the Personal Consumption Expenditures report held steady after months of disappointing readings.

In comments later, Fed Chair Jerome Powell said that FOMC members had considered the CPI before announcing its decision. "When there's an important data print during the meeting, we make sure people remember that they have the ability to update," Powell said. "Some people do. Most people don't."

He noted that the bank will be eyeing Thursday's release of the May Producer Price Index (PPI) and the personal Consumption Expenditures index (PCE) later in the month.

Investors have been seeking hopeful economic signals that would allow the Fed to begin reducing interest rates without the risk of spurring inflationary pressure. The likelihood of a rate cut was less than a percentage point in the days leading up to the two-day FOMC meeting that began Tuesday, according to the CME Fed Watch tool.

Rate Cut Probability Rises

Still, the probability of a 25-basis point rate cut in September spiked past 60% Wednesday after lingering well below 50% prior to the latest CPI. The CME analysis, based on Fed funds futures pricing data, had been showing the first cut more likely coming in November with multiple cuts totaling 75 basis points occurring by April 2025. That scenario veered starkly from the outlook at the top of this year, when a steady decline in inflation had analysts expecting at least one rate cut before July.

But surprisingly stubborn inflation readings starting in January and a robust jobs market, which is linked to inflationary pressure, has led the Fed to become more cautious.

In his remarks, Powell noted that "recent inflation readings have been more favorable than earlier in the year," but he would not commit to a timeline for rate cuts. "We want to gain further confidence," Powell said. "Certainly, more good inflation readings will help with that. It's going to be not just the inflation rating readings. It's going to be the totality of the data, what's happening in the labor market, what's happening with the balance of risks, what's happening with growth."

The Fed's intransigence is at odds with a number of other central banks, which have turned dovish. Last Thursday, the European Central Bank cuts its deposit facility rate from 4% to 3.75%, and the bank is expected to cut rates three times this year. The Bank of Canada also cut rates last week.

In its statement, the bank reiterated its commitment to base any rate cuts on data showing a sustainable decline in inflation.

"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent," the bank said. "In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities."

45.

Apple stock surges to record high after AI announcements

2024-06-11 20:05:49 by Josh Schafer from Yahoo Finance

Apple's stock (AAPL) surged 7% on Tuesday to reach a record-high close for the first time in 2024 as investors digested the announcement of its AI platform, Apple Intelligence.

Shares in the iPhone maker fell slightly in premarket trading on Wednesday, down less than 1%.

After the stock fell on Monday during and after the company's WWDC conference, the stock moved higher, notching its best single-day performance since November 2022 as some Wall Street analysts cheered the company's announcements.

"If you look at the signal away from the noise, you realize that this is unprecedented capability that Apple is going to introduce, and it's going to integrate AI into everyday life," D.A. Davidson managing director Gil Luria told Yahoo Finance (video above).

Following Monday's event, Luria upgraded Apple to Buy from Neutral and raised his price target to $230 from $200.

On Monday, Apple announced "Apple Intelligence," its long-awaited foray into the generative AI space. The company said the platform would be integrated across the company's hardware and software products, ranging from the iPhone and Mac to mail, messages, and photos. Apple Intelligence will be available for the iPhone 15 Pro and iPads and Macs running Apple's M1 series chips and newer later this fall.

Key features of the launch include updates to Siri, which will now be able to parse messages for addresses or find photos in a phone's photo library based on voice prompts. Apple also launched new software updates for its iPhones, watches, and computer products.

"Our experience with consumer surveys with prior generations of iPhone launches tell us that the hardware upgrade cycle is more driven by a collection of feature upgrades across diverse applications, which in aggregate will provide ... reasons to upgrade over the next few years," JPMorgan senior analyst Samik Chatterjee wrote in a note to clients on Monday.

He added, "The release of the AI features across Mac, iPads and iPhones will support an upgrade cycle across all the devices."

The announcements capped off a month of excitement for the stock as rumors around some of the news, including a partnership with ChatGPT operator OpenAI, had already been percolating.

After briefly being passed by Nvidia (NVDA), the stock of the iPhone maker is now back as the second-most-valuable company (behind Microsoft) in the world with a market capitalization of more than $3.1 trillion.

Following a slow start to the year amid concerns of slowing iPhone demand, Apple stock is now up more than 15% in the past two months. Analysts like Luria and Chatterjee believe the next iPhone upgrade cycle could be on the horizon as the new AI features are only coming to iPhone 15 pro and later generations.

"As people buy new phones this holiday season, they're going to see this great functionality," Luria said. "They're going to show their friends and family and the product upgrade cycle will happen over the next few months and quarters."

This, Luria argued, should be a key catalyst for the stock moving forward.

"The stock has been flat because there hasn't been revenue growth at Apple," Luria said. "Now, we think that this will allow Apple's overall growth to accelerate from the low single digits into the mid-, maybe even high-single digits over the next year or two. That's what can drive Apple's stock."

CUPERTINO, CALIFORNIA - JUNE 10: Apple CEO Tim Cook delivers remarks at the start of the Apple Worldwide Developers Conference (WWDC) on June 10, 2024 in Cupertino, California. Apple will announce plans to incorporate artificial intelligence (AI) into Apple software and hardware. (Photo by Justin Sullivan/Getty Images) — Apple CEO Tim Cook delivers remarks at the start of the Apple Worldwide Developers Conference (WWDC) on June 10, 2024, in Cupertino, Calif. (Justin Sullivan/Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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46.

On Oddsmaking CPI and the Fed's Decision

2024-06-11 14:37:00 by Mark Vickery from Zacks

Tuesday, June 11th, 2024

Mid-week, we have two potentially very big catalysts for the stock market. First, monthly inflation metrics via the Consumer Price Index (CPI) for May hit the tape ahead of Wednesday's opening bell, then mid-afternoon we get the latest monetary policy statement from the Federal Open Market Committee (FOMC) regarding interest rates. We’re seeing some pairing of these two pending issuances, but let’s see if this is warranted.

CPI numbers have established a higher “floor” than we’ve seen in a couple decades. The Inflation Rate — that is, year over year headline CPI (not core) — two years ago was +9.1%, higher than at any point in the U.S. since November of 1981, based on heavy supply chain problems in the wake of the pandemic clouds lifting. Since June ’22, we have seen the Inflation Rate come down 570 basis points (bps), which is impressive, but only to +3.4% — still notably above the Fed’s target inflation rate of +2%.

The Fed had at first been criticized for moving too slowly. Investment bankers were calling for the Fed to raise rates from 0-0.25% back in the fall of 2021, but Chairman Powell & Co. waited another half a year, and even then only dipped a toe in the water, in the form of a +25 bps hike in March of '22. From there, the Fed moved aggressively but very methodically, growing the Fed funds rate by +425 bps in full-year 2022 and +100 bps in 2023. Obviously, we have yet to move at all in 2024.

At the start of the year, we expected to be headed to a sub-5% Fed funds rate by now. The first rate cut was supposed to happen in March and the second tomorrow, which would have taken our current 5-5.25% rate down to 4.75-5.00% — the first time we’d have a “4-handle” since May of last year. But if we look back at the last time we were above +5% on interest rates, back in the late 00ughts, it was for 15 months. (That was until the clear unraveling in financial markets after years of mortgage-related manipulation.)

Perhaps we feel we’re being starved out with higher interest rates. But relatively recent history shows that we can sustain +5% when the economy is robust, as it continues to prove. Those prior prognostications at the start of 2024 also included the labor market shedding a large number of jobs, which has not happened. Neither have price points crashed through the floor — in fact, though still an annoyance to the average American (see: poll numbers for the 2024 election), the economy appears to be humming along at slightly elevated rates of inflation.

Some people feel a big CPI surprise will change the Fed’s mind tomorrow. Currently, the Inflation Rate is expected to remain steady at +3.4%, with CPI core, year over year, dipping to +3.5% from +3.6% last time around. A big downward surprise on the Inflation Rate, say 50 bps, would take us to a sub-3% level for the first time since March 2021 — prior to the Great Reopening which led to such high rates of inflation in the first place. Even then, however, we’d be at +2.9%: clearly on a downward trajectory but still at least half a point higher than ultimately desired.

Based on trackable consumer habits, this seems unlikely anyway. We do see a month or more of evidence that Americans are now balking at higher price points (from the housing market to summer cinema season), but nothing that would support a major shakeup in CPI data. Even if we do get such a surprise, we’re still going to be a measurable distance from an optimal situation for the Fed to go about cutting rates. If we’re putting odds on this? Forget June, still. July may still be too soon. And September might be too close to the election. But only then will we have stayed at +5% or above for as long as we had the last time.

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47.

CPI Report, Dot Plot Loom Over Rate-Sensitive ETFs

2024-06-11 12:00:00 by Kent Thune from etf.com

Inflation

After last week’s hotter-than-expected jobs report, anticipation is building for this week’s Consumer Price Index (CPI) reading, due before the market opens Wednesday, and the Fed’s rate policy decision and projections to follow that afternoon.

What can investors expect and what will be the impact on rate-sensitive ETFs, such as the bond market proxy iShares 20+ Year Treasury Bond ETF (TLT) and the growth stock proxy Invesco QQQ Trust (QQQ)?

While investors are expecting only a slight downtick in inflation, the greatest potential for market-moving news this week is likely to be Fed chair Jerome Powell’s statement following the CPI report, as well as its dot plot forecasting potential rate cuts in 2024 and beyond.

CPI Report and Dot Plot Expectations

The CPI report is expected to show a slight cooling for May, with an expected increase of 0.1% from the previous month’s headline number, while rising by 3.4% year-over-year, unchanged from April. While slower growth month-over-month may provide some relief to investors, a 3.4% annual increase is still far above the Fed’s 2% target.

The Fed’s “dot plot,” formally known as the Summary of Economic Projections, is expected to show fewer interest rate cuts than policymakers anticipated three months ago, firming investors’ higher-for-longer rate expectations.

The dot plot outlines individual FOMC member forecasts for economic factors like GDP growth, unemployment and inflation over the next few years and the longer term. In other words, the dot plot is a visual representation of how each member expects the federal funds rate to be set over the long run. It's essentially a chart with "dots" representing individual projections for the key interest rate.

TLT, Rate-Sensitive ETF Volatility

As recently as December, investors had expected at least three rate cuts in 2024, which was projected in the previous dot plot. From its price low in October to the end of 2023, investors had bid up the price on the TLT ETF more than 20%, as prices for the rate-sensitive ETF move in the opposite direction of Treasury yields.

With three consecutive months of hotter-than-expected inflation reports in 2024, TLT’s price corrected downward 6% this year, as of the end of last week’s trading.

Growth stocks, which can also benefit from a falling interest rate environment, have also seen similar volatility in the past several months. The QQQ ETF also jumped nearly 20% from October through December. While the tech-heavy ETF is still up 13% year-to-date, thanks to big gains on top holdings like Nvidia, the fund dropped 5% in April over inflation worries.

This volatility is likely to continue until investors can gain a clearer picture of inflation, which may come from this week’s CPI and FOMC dot plot.

48.

The stock market rally has been all about large caps

2024-06-11 08:00:19 by Josh Schafer from Yahoo Finance

Large-cap stocks have been the clear leader in the 2024 stock market rally.

Bespoke Investment Group recently broke the S&P 500's year-to-date performance (^GSPC) into 10 baskets of 50 stocks, organized by the size of their market capitalization value. The top decile of the 50 largest stocks in the index was the only subsector to have outperformed the broader S&P 500 this year.

To Bespoke, this shows the recent trend in markets has generally been "the smaller the stock, the weaker the returns."

The move into large-cap stocks comes as investors have scaled back bets on interest rate cuts from the Federal Reserve this year amid sticky inflation reports.

The larger stocks have shown more resilience to higher interest rates in an environment where many expect rates to be held high for longer than initially expected.

That's partly because large caps have continued to post robust earnings growth. In the first quarter, research from Deutsche Bank chief global strategist Binky Chadha showed earnings for a basket of stocks labeled "Mega-Cap Growth and Tech" grew 39% compared with 5.9% year-over-year growth for the S&P 500. The megacap basket includes the "Magnificent Seven" tech stocks, among a few other big names like Netflix (NFLX), Visa (V), and Adobe (ADBE).

The NVIDIA logo and the Apple logo. (CFOTO/Future Publishing via Getty Images)

CFOTO via Getty Images

This fundamental case has supported large caps when the outlook for interest rates and the trajectory for economic growth have become less certain. Meanwhile, small caps have continued to underperform no matter how interest rates move. Morgan Stanley chief investment officer Mike Wilson wrote in a weekly note to clients on Sunday night that this recent market action has him skeptical there will be a strong case for small-cap outperformance anytime soon.

"We view higher rates as a clear headwind to small caps, but we're skeptical that lower rates offer a comparable benefit — a key reason we remain overweight large caps," Wilson wrote.

He added, "The economy is still expanding and trailing S&P 500 earnings growth is finally reaccelerating again led by large cap, high quality stocks."

The top-heavy AI trade

Bigger stocks are also winning the artificial intelligence trade. Bespoke analyzed a group of AI ETFs to identify nearly 200 stocks that are frequently in indexes related to the AI trade.

The team found that within those indexes, stocks with a market cap over $1 trillion have returned a combined average of 41% this year, while those with market caps under $1 trillion have gained just 0.42% year to date.

Notably, Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Nvidia (NVDA) are the only US stocks with market caps above $1 trillion.

"The early days of the AI boom were pretty broad, but recently it has been the mega-caps, driven primarily by NVIDIA, that has been the only game in town," Bespoke's team wrote in its Monday note.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

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49.

Consumer expectations for stocks hit 3-year high in May

2024-06-10 17:40:31 by Josh Schafer from Yahoo Finance

Consumers are the most bullish they've been on the outlook for stocks since May 2021.

The latest survey of consumer expectations from the Federal Reserve Bank of New York showed the mean perceived probability that stocks will be higher in the next 12 months rose to 40.5% in May, up from 38.7% in April.

The survey also showed consumers' expectations for inflation over the next year fell to 3.2% in May, down from 3.3% in April. Broadly, the New York Fed found households were feeling better about their financial situations, as more respondents reported being "better off than a year ago" while fewer respondents noted they were "worse off."

The upbeat sentiment from consumers comes as stocks are near record highs. The S&P 500 (^GSPC) is up more than 12% this year while the tech-heavy Nasdaq Composite (^IXIC) has risen more than 14%.

An increasingly positive corporate earnings outlook has prompted several analysts to upgrade their year-end S&P 500 targets. The Street-high year-end target for the S&P 500 has moved up to 5,600 from 5,200 at the start of the year.

The enthusiasm raises the question of whether the market is getting frothy. Typically, when Wall Street gets overly bullish, it's often the sign of the peak in a market rally, according to research from Bank of America.

But in a research note on Monday, Bank of America head of US equity and quantitative strategy Savita Subramanian noted that sentiment is "not euphoric." Bank of America's Sell Side Indicator, which tracks Wall Street strategists' recommended allocation to stocks, rose to 55.3% in May, which the bank notes is still "neutral." A reading of 58% or higher would usually be a sell signal.

Bank of America's sell-side indicator shows Wall Street has yet to reach extreme bullishness amid the market rally.

Others on Wall Street are particularly concerned with what's being priced into the current bull case. Markets currently see about two interest rate cuts this year, largely built on a case that inflation will keep declining throughout 2024. RBC Capital Markets head of US equity strategy Lori Calvasina wrote in a note to clients on Monday her team continues to worry that "market participants have gotten a little too optimistic about the timing of cuts."

Calvasina's model projects the S&P 500 should be at 5,300, given the current consensus views on inflation and economic growth. This is about in line with the roughly 5,341 the S&P 500 opened up at on Monday. The risk, Calvasina notes, is if the inflation story continues to prove bumpy and doesn't play out as well as investors currently hope.

"There is some modest downside risk to the US equity market if the Fed does nothing this year and inflation is stickier than expected," Calvasina said.

In this scenario, Calvasina believes the S&P 500 could fall to 4,900, representing a roughly 8% pullback from current levels.

NEW YORK, NEW YORK - NOVEMBER 24: A man sits on the Wall street bull near the New York Stock Exchange (NYSE) on November 24, 2020 in New York City. As investor's fear of an election crisis eases, the DowJones Industrial Average passed the 30,000 milestone for the first time on Tuesday morning. (Photo by Spencer Platt/Getty Images) — A man sits on the Wall Street bull near the New York Stock Exchange (NYSE) on Nov. 24, 2020, in New York City. (Spencer Platt/Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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50.

After Big May, ETFs Headed for 2nd Best Year Ever

2024-06-10 12:00:00 by Jeff Benjamin from etf.com

ActiveETFS

The bullish mood in financial markets led to a big May for domestic equity ETFs, including an especially strong showing for active strategies, and has now put funds on course to reach the second highest level of inflows in their history, according to the author of a State Street Global Advisors report.

The report, which credits the ongoing rally by the technology and communication services sectors for keeping the risk-on mood alive among investors, showed $92 billion moving into ETFs during May, the best ever for the month and ninth-best overall for any month.

Of those inflows, $60 billion went into equity ETFs, including $50 billion into U.S. equity strategies. That trend aligns with the strength of broader markets. The S&P 500 has gained 11.2% year-to-date. this year through May.

Projecting from the $320 billion in inflows that has gone into ETFs so far this year to a full-year total, report author Matthew Bartolini, head of SPDR Americas Research at Boston-based SSGA, said that ETFs would generate $770 billion in 2024. But Bartolini added that this total doesn't account for the "usual 31% bump for second-half inflows," which could put the total at $890 billion, the second highest annual finish behind only the $990 billion in 2021.

Active ETFs Raking in Assets

The SSGA findings showed strong investor appetite for actively managed strategies, with $22 billion moving into active ETFs in May, marking the 50^th consecutive month for inflows into active ETFs.

Through May, active ETFs accumulated more than $108 billion, which represents 33% of all ETF inflows despite representing just 7% of all ETF assets.

“The pace is unlike anything we’ve seen, and active ETFs could hit a record $260 billion if the year-to-date average flow trends continue,” Bartolini said.

The $13 billion into active equity ETFs in May represented the third-highest monthly inflows for the category, according to the report. Active bond ETFs received $7 billion during the month, marking the second-highest monthly inflows for the category and a record 13^th consecutive month with more than $1 billion of inflows.

Alternative-strategy ETFs received $2.7 billion in May for a five-month total of $18.6 billion.