Category: Stock Market

  

Adani Group shares took a $2.4 billion hit on Monday following fresh allegations from Hindenburg Research, which accused the head of India’s Securities and Exchange Board (SEBI), Madhabi Puri Buch, of having connections to offshore funds linked to the conglomerate. 

While Adani stocks recovered from earlier losses of over $13 billion, the company’s market value still dropped by 1% by the end of the trading day. 

This marks the latest chapter in an ongoing battle between Hindenburg and Adani that began 18 months ago when the U.S. short-seller accused the Indian giant of misusing tax havens. Adani Group has denied the claims, calling them baseless, while Buch dismissed them as “character assassination.” Despite the denials, investor confidence remains shaky, with most Adani companies closing lower, except for Adani Green, which gained 1%. 

The ongoing turmoil comes as Adani prepares for a $1 billion share sale, a crucial move after shelving a larger offering last year.

Toronto’s stock market saw a moderate rise on Monday, with the S&P/TSX Composite Index up 0.4% at midday, reaching 22,387.31. Gains in the materials and energy sectors offset losses in health services, manufacturing, and consumer discretionary stocks. The S&P/TSX 60 index also edged up by 0.2%, standing at 1,342.40.

Bank of Nova Scotia shares declined by 4% to C$61.12 following the announcement of a $2.8 billion investment in U.S.-based KeyCorp. While the move expands the bank’s presence in the U.S., analysts suggest it might fuel speculation of a full acquisition, which has met with mixed reactions from investors.

In other market news, Barrick Gold’s shares surged 8.7% to C$25.98 after posting strong second-quarter results. Crew Energy’s shares soared nearly 74% to C$6.78 on news of its C$1.3 billion acquisition by Tourmaline Oil. Meanwhile, Osisko Mining shares jumped 63% to C$4.80 following a $1.57 billion buyout offer from Gold Fields, a South African mining company.

Traders should prepare for a significant pullback in the stock market due to uncertainties surrounding the US presidential campaign, corporate earnings, and Federal Reserve policies, according to Mike Wilson of Morgan Stanley.

“I think the chance of a 10% correction is highly likely sometime between now and the election,” Wilson said in an interview with Bloomberg Television on Monday. He anticipates a volatile third quarter.

The S&P 500 Index started the week at record highs and could set its 35th closing record of the year if it finishes Monday in positive territory. The benchmark has gained 17% since January, driven by expectations of two Fed rate cuts this year and excitement around artificial intelligence. Even Wilson, historically bearish, has softened his stance.

However, more Wall Street professionals are becoming cautious as the third quarter approaches—a typically turbulent period—amid signs that the rally might be overheating.

Scott Rubner of Goldman Sachs expects a challenging two-week period starting in August if corporate earnings disappoint. Andrew Tyler from JPMorgan Chase’s trading desk expressed slightly less confidence due to weakening economic data. Scott Chronert of Citigroup also warned of a potential pullback.

“Your likelihood of upside from now until year-end is very low, much lower than normal,” Wilson said, estimating a 20% to 25% chance that stock prices will end the year higher than they are now.

Wilson’s previously bearish outlook for 2023 didn’t materialize, leading him to raise his S&P 500 target to 5,400 points by mid-2025 from 4,500 through December. Despite this, the index has already surpassed that level, marking a dramatic shift in his outlook.

Bearish views have proven risky for equity strategists as US stocks continue to set records. Marko Kolanovic, a notable skeptic, recently left JPMorgan.

“In the beginning of the year, we moved away from being too bearish. But at the end of the day, this is a tough gig,” Wilson said. “That’s not an excuse, it’s what we get paid to do. Sometimes we get it right, sometimes we get it wrong. It doesn’t put any pressure on me to do my job any differently.”

Wilson emphasized that his role is to provide clients with solid analysis and frameworks for investment decisions, a process that won’t change.

Wilson believes a market pullback could create buying opportunities, advising investors to focus on individual stocks rather than indexes. He and his team recommend high-quality growth stocks, large-cap companies with strong balance sheets, and firms that can deliver on earnings. While momentum will continue, finding affordable shares in these categories is challenging.

“If they were to come in 10%, then we’d probably get interested again,” Wilson said.

This week, investors are set to scrutinize earnings reports from several major companies, with Tesla’s (TSLA) Tuesday announcement expected to be a significant highlight.

Other prominent firms reporting include Alphabet (GOOG), Visa (V), Verizon Communications (VZ), IBM (IBM), and AT&T (T). The pharmaceutical sector will also see updates from AbbVie (ABBV), AstraZeneca (AZN), and Bristol Myers Squibb (BMY).

In addition to corporate earnings, the June report on the personal consumption expenditures (PCE) index will be released, providing critical insight into whether inflation continues to decline. This data will be the Federal Reserve’s last update on prices before its late July meeting. Investors will also receive the first estimate of the second-quarter gross domestic product (GDP).

Key Earnings to Watch

Corporate earnings from top tech, telecom, and pharmaceutical companies will be closely monitored, with several high-profile second-quarter reports due this week.

Tesla’s report on Tuesday is highly anticipated, following a better-than-expected quarterly delivery report that has boosted its shares. Tesla is expected to show second-quarter revenue close to what it posted in the same period last year.

Alphabet will also report on Tuesday, aiming to improve on its previous quarter’s 15% revenue increase, which included the announcement of its first dividend for shareholders. IBM and ServiceNow will report on Wednesday.

Major telecom companies are in focus as well, with Verizon Communications set to provide its financial update on Monday. AT&T will report on Wednesday amid ongoing challenges related to a data breach, while Comcast is scheduled for Tuesday.

In the pharmaceutical sector, AbbVie’s earnings are due after the company warned of increasing competition for its popular arthritis drug Humira. AstraZeneca, Bristol Myers Squibb, and Thermo Fisher Scientific will also deliver their quarterly updates.

Visa’s earnings report on Tuesday will offer insight into how consumers are coping with current credit conditions. Investors will also watch for earnings from consumer brands like Coca-Cola, which reports on Tuesday, to gauge whether shoppers are still willing to pay higher prices. Other consumer brands reporting this week include Colgate-Palmolive, 3M, and Unilever.

Economic Data and Fed Outlook

Key inflation data will be released on Friday, with the personal consumption expenditures (PCE) index expected to show whether price growth continued to slow in June. This data is crucial as Federal Reserve officials have indicated a growing confidence that the annual rate of price increases is approaching their 2% target. The Fed has maintained high interest rates to combat inflation spikes from 2022 and 2023, and is looking for more positive news on price levels before considering rate cuts.

Friday’s PCE report is the last major economic data point before the Federal Open Market Committee (FOMC) meets at the end of July. While most investors and economists believe the Fed will wait until September to make a move, some argue that a rate cut could be justified in July if the inflation report is favorable. However, Federal Reserve officials are in a blackout period this week, prohibiting public comments ahead of the next FOMC meeting.

Investors will also receive the first estimate of second-quarter GDP figures on Thursday. A strong June retail sales report has led some economists to anticipate stronger-than-expected GDP data.

Additional economic data this week includes June updates for new and existing home sales, consumer sentiment, retail and wholesale inventories, and the June advance international trade report, which will update the U.S. trade deficit.

Investors are placing bets on stocks that could benefit if former President Donald Trump returns to the White House. The speculation has intensified following an assassination attempt on the Republican candidate and a debate that dealt a blow to Democratic President Joe Biden, which analysts believe have increased the chances of a Republican victory.

Trump’s social media company, Trump Media & Technology Group (DJT), isn’t the only stock experiencing a surge. Trump has hinted at his policy preferences, saying, “Drill baby drill, and close our borders,” during the Republican convention.

Private Prisons Surge on Immigration Stance

Private prison companies have seen significant gains, driven by Trump’s tough stance on illegal immigration. Shares of GEO Group (GEO), a Florida-based private prison investor, have risen over 28% in the past month. CoreCivic (CXW), which manages private prisons and detention centers in the US, has seen its stock climb more than 27%.

Energy Sector Anticipates Regulatory Relief

Energy stocks are poised to benefit from Trump’s promise of fewer restrictions on permits and drilling. Despite geopolitical factors playing a significant role in energy stock performance, a Trump presidency could lower permitting costs and boost profitability for oil companies, according to Matt Stephani, president of Cavanal Hill Investment Management. ExxonMobil (XOM) and EQT Corporation (EQT) are among the companies expected to gain from potential policy changes. Additionally, coal producer Peabody Energy (BTU) and steel company Nucor (NUE) have seen their stocks rise by roughly 7% since the June debate, anticipating increased US manufacturing.

EV Market Faces Uncertainty

Trump has vowed to scale back Biden’s clean energy initiatives, including electric vehicle mandates. While this could challenge the broader EV market, analysts suggest Tesla (TSLA) might still thrive due to Elon Musk’s close relationship with Trump. Higher tariffs on China could also reduce competition from cheaper Chinese EV manufacturers.

Cryptocurrency Sector Gains Momentum

Bitcoin (BTC-US) has risen roughly 10% since the assassination attempt on July 13, hovering near $65,000 per token. Trump’s recent embrace of cryptocurrency, including accepting campaign donations in Bitcoin and planning to speak at the Bitcoin Conference in Nashville, has boosted crypto-related stocks like Riot Platforms (RIOT), MicroStrategy (MSTR), and Coinbase (COIN), which have surged 35%, 21%, and 16%, respectively.

Financials and M&A Stocks Expected to Benefit

Banks, particularly regional ones, could benefit from expected regulatory easing under a Trump administration. Financial firms specializing in mergers and acquisitions, such as Lazard (LAZ), Moelis (MC), and Evercore (EVR), have seen double-digit percentage gains since the late June debate, anticipating a more favorable climate for M&A activities.

Freddie Mac and Fannie Mae Privatization

Trump’s push to privatize government-sponsored mortgage enterprises Fannie Mae (FNM.SG) and Freddie Mac (FHL.SG) has kept these stocks in the spotlight. Freddie Mac has risen more than 60% year to date and over 6% in the past month, while Fannie Mae shares have increased 34% this year and more than 7% in the past month.

As Wall Street continues to react to the shifting political landscape, investors are positioning themselves to capitalize on a potential Trump presidency, which could bring significant changes to various sectors.

A surge in major technology stocks propelled the S&P 500 to new heights, with Federal Reserve Chair Jerome Powell’s congressional testimony failing to dissuade traders from expecting interest rate cuts this year.

For the first time ever, the S&P 500 surpassed the 5,600 mark. Renewed interest in mega-cap stocks led the U.S. equity benchmark to its longest winning streak since November. Nvidia Corp. rose over 2.5%, and Apple Inc. gained on news of plans to increase iPhone shipments by 10% following a challenging 2023. Treasuries remained stable after a successful $39 billion sale of 10-year bonds, with swaps pricing in two Fed cuts in 2024 and increased odds of the first cut occurring in September.

As Wall Street anticipated the consumer price index report, Powell indicated the Fed does not need inflation to drop below 2% before reducing rates but noted that more work remains. He mentioned that the labor market has cooled “pretty significantly” and stated that commercial real estate does not pose a threat to financial stability.

“The key takeaway from his testimony is the Fed’s assessment of the balance of risks is shifting in ways that—if supported and sustained by incoming data—will deliver a rate cut in September,” said Krishna Guha at Evercore.

The S&P 500 rose 1%, marking a seventh consecutive day of gains and its 37th record of the year. Gold and silver mining stocks rallied on expectations of Fed easing, while banks underperformed. Alphabet Inc., Google’s parent company, has reportedly abandoned its efforts to acquire HubSpot Inc., according to sources.

U.S. 10-year yields fell two basis points to 4.28%. Bank of England Chief Economist Huw Pill suggested that the timing of a rate cut remains uncertain, leading traders to reduce bets on an August cut. Oil prices increased as a U.S. holiday boosted demand for gasoline and jet fuel.

“Markets remain remarkably calm despite the flood of data this week, including Fed Chair Powell’s testimony, CPI/PPI reports, and the beginning of earnings season,” said Mark Hackett at Nationwide.

The core CPI, excluding food and energy costs and considered a better measure of underlying inflation, is expected to rise 0.2% in June for the second month in a row. This would represent the smallest consecutive gains since August—a pace more acceptable to Fed officials.

“June’s CPI report looks to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory,” said Anna Wong at Bloomberg Economics. “That should set the stage for the Fed to start cutting rates in September.”

A survey by 22V Research shows 55% of investors expect a “risk-on” market reaction to Thursday’s CPI report, 16% predict a “risk-off” reaction, and 29% expect a “mixed/negligible” response.

“There is optimism about inflation generally,” said Dennis DeBusschere at 22V, adding that the survey also indicated investors believe “CPI is on a Fed-friendly glide path.”

Meanwhile, some trading desks suggest investors should prepare for potential market volatility.

The options market indicates the S&P 500 could move 0.8% in either direction following Thursday’s consumer price report, based on the price of at-the-money straddles, according to Stuart Kaiser, Citigroup’s head of U.S. equity trading strategy. This would be the biggest move for the index since June 12, the day of the last CPI print and interest-rate decision.

Market volatility may increase in the coming days and weeks due to U.S. political uncertainty, comments from the Fed chair, and the start of the second-quarter earnings season, according to Mark Haefele at UBS Global Wealth Management.

For the first time since 2022, S&P 500 earnings might not solely focus on technology, with the quarter’s success depending on sectors outside of the mega-cap tech heavyweights that have driven stocks to all-time highs, according to Bloomberg Intelligence strategists led by Gina Martin Adams.

“While forecasts for the ‘Magnificent Seven’ remain robust, their earnings are expected to slow in the second quarter—just as the rest of the S&P 500 may finally post their first year-on-year growth in at least five quarters,” they noted.

The Magnificent Seven may have already peaked, while the remaining S&P 500 stocks could see their first earnings expansion in at least six quarters, the strategists concluded.