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In the Global Week Ahead, the net of macro events gets cast widely.
The hefty market weight of tech mega-caps should concern traders.
OPEC’s leader Saudi Arabia reduced output 1 million barrels per day, from July.
Within the Asia-Pacific region? There is likely more pain for consumers and businesses in Australia, in the face of a hawkish central bank head there.
These are some of the macro topics preoccupying risk markets, as they approach the halfway point of 2023.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) This is the narrowest stock market rally, so far, in this new century!
Some investors are growing concerned about how gains in the S&P500 have become increasingly concentrated in a handful of mega-cap stocks.
The combined weight of five stocks — Apple, Microsoft, Google-parent Alphabet, Amazon and Nvidia — now accounts for 25% of the S&P500’s market value, a trend recently supercharged by the AI buzz.
Data from Deutsche Bank shows the equal-weighted S&P500 index, a barometer of the average stock, trailing the S&P500 by its biggest margin since 1999.
A rally driven by a handful of stocks raises questions about the health of the broader market and risks igniting volatility if investors ditch those mega-cap holdings.
(2) A new bet emerges. What central banks will start rate-cutting first?
Emerging market central banks were quick to tighten policy in early 2021 when price pressures accelerated, front-running major developed central banks, including the Fed.
Now they appear to be once again first out of the starting blocks as rate cuts move higher up the agenda.
Hungary became the first European bank to lower rates in May, following Uruguay, which kicked off the Latin American rate-cut cycle in April while Sri Lanka stunned markets with a 250-basis point rate cut on June 1.
But the picture is mixed: Polish policymakers are seen holding rates at 6.75% on Tuesday even if expectations are rising for a cut later in the year. Markets might have to wait until 2024 for India, where the next decision is due on Thursday. Russia is expected to keep its rate at 7.5% on Friday.
(3) Sunday, OPEC members met amid slumping oil prices.
The Organization of the Petroleum Exporting Countries (OPEC) and partners met last Sunday to discuss oil production.
Saudi Arabia will reduce how much oil it sends to the global economy, taking a unilateral step to prop up the sagging price of crude after two previous cuts to supply by major producing countries in the OPEC+ alliance failed to push oil higher.
The Saudi cut of 1 million barrels per day, to start in July, comes as the other OPEC+ producers agreed in a meeting in Vienna to extend earlier production cuts through next year.
The price of oil, meanwhile, is now roughly half what it was in March 2022, after Russia invaded Ukraine, around $72 a barrel.
(4) A Japanese Yen intervention watch is on the front burner.
The yen has fallen over 5% since early March to six-month lows against a resilient dollar.
It's enough to make Japanese officials uneasy, with top currency diplomat Masato Kanda warning Japan will closely watch currency moves and won't rule out any options.
Currency intervention is viewed as a distant prospect, but traders will likely pay attention to policymaker comments in coming days after officials from the finance ministry, BOJ and Japan's financial watchdog met on Tuesday. Such meetings can be a prelude to further action.
And it's not just Japan traders on intervention watch. Sweden's crown is at its weakest against the dollar and euro in over a decade, adding to inflationary pressures.
A weak currency is a problem, but intervention would be a last resort, says central bank Deputy Governor Per Jansson.
Such resolve could well be put to the test.
(5) The Reserve Bank of Australia (RBA) head remains hawkish.
The Reserve Bank of Australia says the inflation fight is far from won, and the public should brace itself for more pain.
That could be as soon as the next meeting on Tuesday, with markets laying about 30% odds for a hike.
The economy had been showing signs of cooling until this week, when a reading of consumer prices jumped much more than forecast for April, sending stocks to a two-month trough.
Rates are already at an 11-year peak after a surprise hike last month, which RBA governor Philip Lowe justified by saying he wanted to send a clear message to households and businesses that the central bank will do whatever it takes.
Policymakers need to keep an eye on top trading partner China too, where a sputtering post-pandemic recovery risks eroding Australian ore and energy exports.
Zacks #1 Rank (STRONG BUY) Stocks
There are three very large sized stocks on the top of our #1 list to look into…
(1) NVIDIA (NVDA - Free Report) : This is a $398 stock. It is found in the Semiconductor-General industry.
This company’s stock has a market cap of $982.3B.
I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of A.
NVIDIA Corp. is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence (AI)-based solutions that now support high performance computing (HPC), gaming and virtual reality (VR) platforms.
NVIDIA’s GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores, which are necessary to run deep learning algorithms. The company’s GPU platforms are playing a major role in developing multi-billion-dollar end-markets like robotics and self-driving vehicles.
NVIDIA is a dominant name in the Data Center, professional visualization and gaming markets where Intel and Advanced Micro Devices are playing a catch-up role. The company’s partnership with almost all major cloud service providers (CSPs) and server vendors is a key catalyst.
The company's GPUs are also getting rapid adoption in diverse fields ranging from radiology to precision agriculture. The company’s GPUs power the top two supercomputers in the world, located at Oak Ridge and Lawrence Livermore National Laboratories in the United States, as well as the top supercomputers in Europe and Japan. In all, NVIDIA powers 136 of the TOP 500 supercomputers.
Santa Clara, CA-based NVIDIA reported revenues of $26.97 billion in fiscal 2023, slightly up from $26.91 billion in fiscal 2022. Beginning first-quarter fiscal 2021, NVIDIA started reporting revenues under two segments – Graphics and Compute & Networking.
Graphics includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems.
Compute & Networking comprises Data Center platforms and systems for AI, HPC and accelerated computing; DRIVE for autonomous vehicles; and Jetson for robotics and other embedded platforms. Mellanox revenues included in this segment beginning second-quarter fiscal 2021. Graphics and Compute & Networking accounted for 44% and 56% of fiscal 2023 revenues, respectively.
(2) Meta Platforms (META - Free Report) : This is a $272 stock in the Internet Software industry.
This company’s stock has a market cap of $678.4B.
I see a Zacks Value score of D, a Zacks Growth score of B, and a Zacks Momentum score of F.
Meta Platforms is the world’s largest social media platform. The company’s portfolio offering evolved from a single Facebook app to multiple apps like photo and video sharing app Instagram and WhatsApp messaging app owing to acquisitions. Along with in-house developed Messenger, these apps now form Meta’s family of products used by almost 3.74 billion people on a monthly basis as of Dec 31, 2022.
Meta uses metrics like daily active users (DAUs) and monthly active users (MAUs) to measure Facebook’s user base. As of Dec 31, 2022, DAUs and MAUs were 2 billion and 2.96 billion, respectively. A newly introduced metric: the family daily active people (DAP) that measures daily users of its family of products, was 2.96 billion.
Headquartered in Menlo Park, CA, Meta generated revenues worth $116.61 billion in 2022. Advertisement accounted for 97.5% of revenues. Marketers buy ads that can appear on multiple platforms including Meta, Instagram, Messenger and third-party applications and websites.
Meta, thanks to its huge user base gained a significant market share in the advertising space wherein it faces tough competition from Google, Twitter, Amazon and Snapchat-parent Snap. Meta also faces significant competition from the likes of Apple (messaging), YouTube (advertising and video), Bytedance (social media) and Tencent (messaging and social media).
Meta's core app enables people to connect, share, discover and communicate with one other on mobile devices and personal computers. User engagement on core Meta platform is fostered by News Feed that displays an algorithmically-ranked series of stories and advertisements customized for each user.
Instagram is a community for sharing photos, videos and messages, enabling people to discover interests that they care about. People can express themselves through photos, videos and private messaging via Instagram Feed and Stories.
Messenger helps people to connect with friends, family, groups and businesses across platforms and devices. WhatsApp is a simple, reliable and secure messaging application, used by people and businesses around the world to communicate in a private way. Meta also offers virtual reality (VR) products through its Oculus division.
(3) Caterpillar (CAT - Free Report) : This is a $209 stock in the Construction and Mining industry.
This company’s stock has a market cap of $106B.
I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of C.
Caterpillar, known for its iconic yellow machines, is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors - infrastructure, construction, mining, oil & gas and transportation, the company is considered a bellwether of the global economy.
Since 1925, Caterpillar’s product portfolio has evolved and boasts 20 brands and generated revenues of $51 billion in 2021. It has more than 4 million products with an extensive dealer network of 165 dealers spanning 191 countries.
Caterpillar started using telematics in the 1990s and reached its target of 1 million connected assets in 2019. It currently has more than 1.2 million connected assets. The combination of innovation, and cutting-edge technology, coupled with the formidable reputation, set Caterpillar apart from its peers.
Caterpillar is the 68th largest company on the S&P 500 Index, with a market capitalization of around $111 billion. It holds the 8th position in the Dow Jones Industrial Average, with a 4.2% weight. It is also a member of the S&P 500 Dividend Aristocrat Index.
Key Global Macro
On Monday, the U.S. ISM services PMI for May should be 51.5, after a prior 51.9 print.
On Tuesday, the Euro Area’s retail sales growth for April should be -1.8% y/y, better than the prior print at 3.8% y/y.
The RBA’s Lowe gives a speech.
On Wednesday, Mainland China’s exports for May should be up +11.5% y/y, after a +8.5% y/y rise in the month prior. Imports for May should be up +4.2% y/y, after a -0.8% y/y decline seen in the month prior. Is a trade recovery taking hold here?
There is a Bank of Canada policy rate decision. 4.5% on the policy rate may be paused.
On Thursday, Euro Area GDP growth for Q1 should be confirmed at +1.3% y/y.
On Friday, we get the latest Baker-Hughes oil rig counts. This has been soft of late.
Conclusion
When just a few major mega-cap tech stocks float the major U.S. share indices, it provides a major deflection of trader and media focus — from underlying macro news.
Is that good or bad?
That is a tough question to answer. Answer well, at least.
Warm Regards,
John Blank Zacks Chief Equity Strategist and Economist
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A Narrow Stock Market Rally: Global Week Ahead
In the Global Week Ahead, the net of macro events gets cast widely.
These are some of the macro topics preoccupying risk markets, as they approach the halfway point of 2023.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) This is the narrowest stock market rally, so far, in this new century!
Some investors are growing concerned about how gains in the S&P500 have become increasingly concentrated in a handful of mega-cap stocks.
The combined weight of five stocks — Apple, Microsoft, Google-parent Alphabet, Amazon and Nvidia — now accounts for 25% of the S&P500’s market value, a trend recently supercharged by the AI buzz.
Data from Deutsche Bank shows the equal-weighted S&P500 index, a barometer of the average stock, trailing the S&P500 by its biggest margin since 1999.
A rally driven by a handful of stocks raises questions about the health of the broader market and risks igniting volatility if investors ditch those mega-cap holdings.
(2) A new bet emerges. What central banks will start rate-cutting first?
Emerging market central banks were quick to tighten policy in early 2021 when price pressures accelerated, front-running major developed central banks, including the Fed.
Now they appear to be once again first out of the starting blocks as rate cuts move higher up the agenda.
Hungary became the first European bank to lower rates in May, following Uruguay, which kicked off the Latin American rate-cut cycle in April while Sri Lanka stunned markets with a 250-basis point rate cut on June 1.
But the picture is mixed: Polish policymakers are seen holding rates at 6.75% on Tuesday even if expectations are rising for a cut later in the year. Markets might have to wait until 2024 for India, where the next decision is due on Thursday. Russia is expected to keep its rate at 7.5% on Friday.
(3) Sunday, OPEC members met amid slumping oil prices.
The Organization of the Petroleum Exporting Countries (OPEC) and partners met last Sunday to discuss oil production.
Saudi Arabia will reduce how much oil it sends to the global economy, taking a unilateral step to prop up the sagging price of crude after two previous cuts to supply by major producing countries in the OPEC+ alliance failed to push oil higher.
The Saudi cut of 1 million barrels per day, to start in July, comes as the other OPEC+ producers agreed in a meeting in Vienna to extend earlier production cuts through next year.
The price of oil, meanwhile, is now roughly half what it was in March 2022, after Russia invaded Ukraine, around $72 a barrel.
(4) A Japanese Yen intervention watch is on the front burner.
The yen has fallen over 5% since early March to six-month lows against a resilient dollar.
It's enough to make Japanese officials uneasy, with top currency diplomat Masato Kanda warning Japan will closely watch currency moves and won't rule out any options.
Currency intervention is viewed as a distant prospect, but traders will likely pay attention to policymaker comments in coming days after officials from the finance ministry, BOJ and Japan's financial watchdog met on Tuesday. Such meetings can be a prelude to further action.
And it's not just Japan traders on intervention watch. Sweden's crown is at its weakest against the dollar and euro in over a decade, adding to inflationary pressures.
A weak currency is a problem, but intervention would be a last resort, says central bank Deputy Governor Per Jansson.
Such resolve could well be put to the test.
(5) The Reserve Bank of Australia (RBA) head remains hawkish.
The Reserve Bank of Australia says the inflation fight is far from won, and the public should brace itself for more pain.
That could be as soon as the next meeting on Tuesday, with markets laying about 30% odds for a hike.
The economy had been showing signs of cooling until this week, when a reading of consumer prices jumped much more than forecast for April, sending stocks to a two-month trough.
Rates are already at an 11-year peak after a surprise hike last month, which RBA governor Philip Lowe justified by saying he wanted to send a clear message to households and businesses that the central bank will do whatever it takes.
Policymakers need to keep an eye on top trading partner China too, where a sputtering post-pandemic recovery risks eroding Australian ore and energy exports.
Zacks #1 Rank (STRONG BUY) Stocks
There are three very large sized stocks on the top of our #1 list to look into…
(1) NVIDIA (NVDA - Free Report) : This is a $398 stock. It is found in the Semiconductor-General industry.
This company’s stock has a market cap of $982.3B.
I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of A.
NVIDIA Corp. is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence (AI)-based solutions that now support high performance computing (HPC), gaming and virtual reality (VR) platforms.
NVIDIA’s GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores, which are necessary to run deep learning algorithms. The company’s GPU platforms are playing a major role in developing multi-billion-dollar end-markets like robotics and self-driving vehicles.
NVIDIA is a dominant name in the Data Center, professional visualization and gaming markets where Intel and Advanced Micro Devices are playing a catch-up role. The company’s partnership with almost all major cloud service providers (CSPs) and server vendors is a key catalyst.
The company's GPUs are also getting rapid adoption in diverse fields ranging from radiology to precision agriculture. The company’s GPUs power the top two supercomputers in the world, located at Oak Ridge and Lawrence Livermore National Laboratories in the United States, as well as the top supercomputers in Europe and Japan. In all, NVIDIA powers 136 of the TOP 500 supercomputers.
Santa Clara, CA-based NVIDIA reported revenues of $26.97 billion in fiscal 2023, slightly up from $26.91 billion in fiscal 2022. Beginning first-quarter fiscal 2021, NVIDIA started reporting revenues under two segments – Graphics and Compute & Networking.
Graphics includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems.
Compute & Networking comprises Data Center platforms and systems for AI, HPC and accelerated computing; DRIVE for autonomous vehicles; and Jetson for robotics and other embedded platforms. Mellanox revenues included in this segment beginning second-quarter fiscal 2021. Graphics and Compute & Networking accounted for 44% and 56% of fiscal 2023 revenues, respectively.
(2) Meta Platforms (META - Free Report) : This is a $272 stock in the Internet Software industry.
This company’s stock has a market cap of $678.4B.
I see a Zacks Value score of D, a Zacks Growth score of B, and a Zacks Momentum score of F.
Meta Platforms is the world’s largest social media platform. The company’s portfolio offering evolved from a single Facebook app to multiple apps like photo and video sharing app Instagram and WhatsApp messaging app owing to acquisitions. Along with in-house developed Messenger, these apps now form Meta’s family of products used by almost 3.74 billion people on a monthly basis as of Dec 31, 2022.
Meta uses metrics like daily active users (DAUs) and monthly active users (MAUs) to measure Facebook’s user base. As of Dec 31, 2022, DAUs and MAUs were 2 billion and 2.96 billion, respectively. A newly introduced metric: the family daily active people (DAP) that measures daily users of its family of products, was 2.96 billion.
Headquartered in Menlo Park, CA, Meta generated revenues worth $116.61 billion in 2022. Advertisement accounted for 97.5% of revenues. Marketers buy ads that can appear on multiple platforms including Meta, Instagram, Messenger and third-party applications and websites.
Meta, thanks to its huge user base gained a significant market share in the advertising space wherein it faces tough competition from Google, Twitter, Amazon and Snapchat-parent Snap. Meta also faces significant competition from the likes of Apple (messaging), YouTube (advertising and video), Bytedance (social media) and Tencent (messaging and social media).
Meta's core app enables people to connect, share, discover and communicate with one other on mobile devices and personal computers. User engagement on core Meta platform is fostered by News Feed that displays an algorithmically-ranked series of stories and advertisements customized for each user.
Instagram is a community for sharing photos, videos and messages, enabling people to discover interests that they care about. People can express themselves through photos, videos and private messaging via Instagram Feed and Stories.
Messenger helps people to connect with friends, family, groups and businesses across platforms and devices. WhatsApp is a simple, reliable and secure messaging application, used by people and businesses around the world to communicate in a private way. Meta also offers virtual reality (VR) products through its Oculus division.
(3) Caterpillar (CAT - Free Report) : This is a $209 stock in the Construction and Mining industry.
This company’s stock has a market cap of $106B.
I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of C.
Caterpillar, known for its iconic yellow machines, is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors - infrastructure, construction, mining, oil & gas and transportation, the company is considered a bellwether of the global economy.
Since 1925, Caterpillar’s product portfolio has evolved and boasts 20 brands and generated revenues of $51 billion in 2021. It has more than 4 million products with an extensive dealer network of 165 dealers spanning 191 countries.
Caterpillar started using telematics in the 1990s and reached its target of 1 million connected assets in 2019. It currently has more than 1.2 million connected assets. The combination of innovation, and cutting-edge technology, coupled with the formidable reputation, set Caterpillar apart from its peers.
Caterpillar is the 68th largest company on the S&P 500 Index, with a market capitalization of around $111 billion. It holds the 8th position in the Dow Jones Industrial Average, with a 4.2% weight. It is also a member of the S&P 500 Dividend Aristocrat Index.
Key Global Macro
On Monday, the U.S. ISM services PMI for May should be 51.5, after a prior 51.9 print.
On Tuesday, the Euro Area’s retail sales growth for April should be -1.8% y/y, better than the prior print at 3.8% y/y.
The RBA’s Lowe gives a speech.
On Wednesday, Mainland China’s exports for May should be up +11.5% y/y, after a +8.5% y/y rise in the month prior. Imports for May should be up +4.2% y/y, after a -0.8% y/y decline seen in the month prior. Is a trade recovery taking hold here?
There is a Bank of Canada policy rate decision. 4.5% on the policy rate may be paused.
On Thursday, Euro Area GDP growth for Q1 should be confirmed at +1.3% y/y.
On Friday, we get the latest Baker-Hughes oil rig counts. This has been soft of late.
Conclusion
When just a few major mega-cap tech stocks float the major U.S. share indices, it provides a major deflection of trader and media focus — from underlying macro news.
Is that good or bad?
That is a tough question to answer. Answer well, at least.
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist