The ADP employment data (152,000 vs 175,000) along with the soft employment component of the US services PMI continue to dampen market risk sentiment. Survey respondents noted adjustments to employment and capital investment strategies, managing borrowing, feeling the economic slowdown, decreasing recruitment with a slight uptick in prices, and a slowdown in capital investment and upgrades to major facilities due to high interest rates. This has resulted in the market turning a blind eye to the strongest overall performance of the non-manufacturing ISM index in 9 months (53.8 vs 51).
The Bank of Canada’s 25 basis point rate cut is seen as the beginning of an imminent easing cycle, with federal funds futures pricing in two full rate cuts before the end of the year. The likelihood of a rate cut in September has also risen to over 60%. With expectations of a Fed rate cut fully back in play, the 10-year US Treasury yield is currently below 4.30%, the 2/10 yield curve has reversed again, and the spread has returned to a recent low of -45 basis points.
As yields fall, the Nasdaq index rose by 2% yesterday, while the S&P 500 index rose by 1.1%, once again approaching historical highs. With a series of weak employment indicators over the past two weeks, the market expects Friday’s non-farm payroll data to also be weak. ETF investors have injected $58 billion into the US stock market this month, with inflows totaling $315 billion since the beginning of the year, completely defying the traditional stock market adage “Sell in May and Go Away.”
Furthermore, Nvidia’s dominant position in the market continues to expand unbelievably, with its daily trading volume almost equivalent to the sum of the next 9 stocks on the list.
Finally, the stock market is gearing up for the friendly first half of July, historically the most positive two weeks for the stock market dating back to 1928. The cryptocurrency sector is also keeping pace, with ETF inflows accelerating. After $8.86 billion flowed in on Tuesday, another $3.33 billion was added yesterday. Will prices reach more historical highs? Are there any bears left standing? Enjoy the ride while it lasts, friends!
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