AI-fueled U.S. Tech Rally Halted After Two Months, European Markets Closed Higher

Alexander Garcia
24 Jun, 2024
Miami

Market indexes struggled to advance on Monday as investors turned cautious after a two-month market rally fueled by artificial intelligence-linked stocks paused. 

The S&P 500 index and the Nasdaq Composite fell following the advance in the last eight of the nine consecutive weeks, and for the year, both indexes are up 15% and 19.2%, respectively. 

Market heavyweight Nvidia declined 6% and extended three-day loss to more than 12% after investors turned cautious following the rapid rise of the stock this year. 

For the year so far, Nvidia jumped 150% as of this afternoon trading, as the stock scaled back from its peak f $135.58 last Tuesday. 

The yield on the 10-year Treasury held steady ahead of a flood of economic data later this week, and crude oil prices hovered near a two-month high. 

This week, investors in the U.S. are looking forward to the release of international trade balances, durable goods orders, and the third and final estimate for first quarter GDP growth.

Investors are also awaiting the release of consumer spending and income and the PCE price indicator for May, the preferred measure of inflation by the Fed’s policymakers.

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.1% to 5,458.93, and the Nasdaq Composite fell 0.8% to 17,540.03. 

The yield on 2-year Treasury notes edged lower to 4.75%, 10-year Treasury notes decreased to 4.26%, and 30-year Treasury bonds edged higher to 4.41%.

WTI crude oil decreased $0.01 to $80.58 a barrel, and natural gas prices fell 2 cents to $2.69 a thermal unit.

Gold increased by $6.32 to $2,328.32 an ounce, and silver declined 1 cent to $29.55. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 105.48.

 

U.S. Stock Movers

RXO soared 10.6% to $22.35 after the trucking company said it plans to acquire Coyote Logistics, a freight brokerage business, from UPS for $1.03 billion. 

"The addition of Coyote’s customer base will diversify RXO’s vertical mix and will increase the number of customers that do more than $1 million in business with us by approximately 80%. 

This acquisition will provide RXO with both immediate and long-term opportunities for revenue and earnings growth and will generate significant returns for shareholders," said Drew Wilkerson, chief executive of RXO. 

UPS jumped 0.4% to $137.30. 

Apple Inc. declined a fraction to $207.49 after regulators in the European Union said that the company is in breach of the new Digital Markets Act. 

The regulators said that Apple's App Store rules "prevent app developers from freely steering consumers to alternative channels for offers and content." 

Resmed Inc. declined 6.2% to $193.02 on the news last week that Eli Lilly's tirzepatide weight loss drug lowered the severity of obstructive apnea. 

Eli Lilly rose 0.4% to $887.64. 

 

European Markets Rebound Amid French Political Uncertainty 

European markets headed higher as investors looked ahead to the first round of the French election this weekend, and bond yields showed elevated stress. 

Early polls indicate French President Emmanuel Macron's party is likely to lose its grip on power amid growing uneasiness about immigration, the high cost of living, and economic uncertainty. 

Meanwhile, investors are worried that the rise of far-right parties in the French parliament is likely to alter the government's domestic economic priorities and plans to lower the budget deficit to meet the 2% target set by the European Union. 

On the economic front this week, Germany and France are scheduled to release their jobless rates, and the central banks of Sweden and Turkey are expected to hold their rates steady.

In addition, France, Italy, and Spain are set to release their inflation data ahead of France’s first-round election on June 30.

 

Europe Indexes and Yields

The DAX index increased by 0.9% to 18,325.58; the CAC-40 index rose by 1.0% to 7,706.89; and the FTSE 100 index rose by 0.5% to 8,281.55. 

In the previous week, the DAX index jumped 0.2%, the CAC-40 index rose 0.9%, and the FTSE 100 index advanced 1%. 

The yield on 10-year German bonds edged lower to 2.41%. French bonds inched lower to 3.13%; the UK gilts edged lower to 4.08%; and Italian bonds increased to 3.91%.

The euro edged lower to $1.072; the British pound inched higher to $1.266; and the U.S. dollar weakened to 89.30 Swiss cents.

Brent crude increased $0.94 to $86.18 a barrel, and the Dutch TTF natural gas fell by €0.53 to €34.93 per MWh.

 

Europe Stock Movers

Argenx soared 6.4% to €395.60 after the Belgian drug company won approval from the U.S. drug regulator for its treatment for chronic inflammatory demyelinating polyneuropathy, a condition that causes chronic weakness in muscles. 

Prudential PLC surged 6.6% to 753.20 pence after the UK-based insurance company launched a $2.2 billion stock repurchase program. 

GSK plc increased 0.6% to 1,608.50 pence after a Japanese drug regulator approved the company's Omijara for the treatment of myelofibrosis. 

Valneva SE rose 7.5% to €3.34 after Health Canada, the drug regulator, approved the company's IXCHIQ for the treatment of chikungunya virus in adults. 

Safran SA gained 1.6% to €205.80 after the company entered into an exclusive discussion to acquire Preligens for an enterprise value of €220 million. 

Preligens is the developer of artificial intelligence technology to analyze defense and intelligence industry data. 

 

The Bank of Japan Struggles to Arrest the Yen's Decline, Nikkei 225 Heads Higher 

Stock market indexes rebounded in Monday's trading in Tokyo in the hopes that the weaker yen would boost the earnings of industrial and automotive companies. 

The Nikkei 225 and the Topix index gained more than 0.7% after the yen drifted to a 34-year low.

The yen traded at 159.71 against the U.S. dollar amid the persistently wide yield gap between U.S. and Japanese government bonds.

Currency traders are bracing for another bout of weakness in the yen as the Bank of Japan and the Ministry of Finance struggle to arrest the rapid decline. 

Moreover, foreign investors have become net sellers of Japanese stocks, and the benchmark Nikkei has declined about 5% from its peak on March 22, after the slow progress in the widely publicized corporate governance reform and the unwinding of interlocking stock holdings. 

On the economic front, this week investors are looking forward to the release of industrial production, retail sales, and the jobless rate for May and the metropolitan Tokyo area's June inflation data. 

 

Japan Stock Movers 

Market sentiment was strong in Monday's trading, and banks, technology, and industrial companies were among the leading gainers. 

The Nikkei 225 stock average jumped 0.7% to 38,875.87, and the Topix index gained 0.8% to 2,747.11. 

Tokyo Electron, Advantest, Screen Holdings, and SoftBank gained between 0.5% and 2%. 

Mitsubishi UFJ and Mizuho Financial Group advanced 2.2% and 0.9%, respectively, but Sumitomo Mitsui Financial decreased 0.6%. 

Toyota Motor, Honda Motor, and Nissan Motor declined around 0.5% despite the weaker yen. 

Leading exporters, Mitsubishi Electric, Canon, Nidec, TDK, Fujitsu, and Sony, advanced between 1% and 3%. 

 

China Stocks Fall Amid Rising Capital Outflows and Falling Foreign Direct Investment 

Market indexes in Shanghai and Hong Kong faced selling pressure in Monday's trading as foreign investors continued to lower their stock holdings amid a poor economic outlook. 

The Hang Seng index declined more than 1% and dropped about 10% from its high in March, and foreign investors sold 33 billion yuan of stocks this month. 

Policymakers have struggled to announce concrete measures to revive consumer confidence and support economic growth as the Chinese government struggles with sky-high debt at the national and local levels, limiting the availability of funds. 

Moreover, corporate earnings have been mixed, indicating that depressed market valuations are likely to persist amid a lack of catalysts in the near term. 

Rising tensions with the West also negatively impacted foreign direct investment flow in the first five months of May. 

Between January and May, 21,764 new foreign-invested enterprises were established nationwide, an increase of 17.4%, and foreign capital used was 412.51 billion yuan, or $56.7 billion, a decline of 28.2% from a year ago. 

However, capital use in high-tech manufacturing was 12.7%, an increase of 2.7 percentage points to 50.4 billion yuan. 

Germany increased its investment by 24.2% and Singapore by 16.2% from a year ago, respectively. 

The Chinese yuan declined to 7.28 against the U.S. dollar amid worries about rising capital outflows as foreign investors lighten their domestic stock holdings. 

 

China Stock Movers 

The CSI 300 index increased 0.2% to 3,503.17, and the Hang Seng index declined 0.8% to 17,892.75. 

Midea Real Estate Group soared 70% to HK$6.38 on a proposal to take the company private. 

Haidilao International declined 4.5% to HK$14.42, and the company named Gou Yiqun as its new chief executive, replacing Yang Lijuan. 

Kweichow Moutai fell as much as 2% before recovering to an increase of 1% to ¥1,483.88 on a news report that prices of its popular liquor declined below 2,100 yuan, or about $290. 

SMIC declined 2.2% to HK$18.20, and Trip.com fell 3.2% to HK$373.60. 

Chinese tourist arrivals in Singapore and Malaysia are likely to surpass pre-pandemic levels in 2019, but arrivals in Thailand and Japan are still lagging.