U.S. stocks surged to new record highs during the shortened trading week, driven by positive economic data that bolstered investor confidence in potential interest rate cuts by the Federal Reserve. The latest employment figures for June exceeded expectations, indicating a stronger job market. However, downward revisions for April and May, along with a slight increase in the unemployment rate and slower wage growth, suggest a cooling of overall economic conditions.
Adding to concerns about a potential economic slowdown, the Institute for Supply Management Services Purchasing Managers Index contracted in June, reaching its lowest level since May 2020. This further supports the notion that the U.S. economy may be entering a cooling phase.
Technology and consumer discretionary stocks were the top performers of the week, driven by the belief that “bad news is good news” as higher rate-cut expectations fuel growth stocks. The combined market capitalization of the top seven tech stocks, including Microsoft Corp., Apple Inc., NVIDIA Corp., Alphabet Inc., Amazon Inc., Meta Platforms Inc., and Tesla, Inc., has surpassed $16 trillion. Notably, Tesla had its best week in terms of market performance since January 2023.
In a separate development, Federal Reserve Chair Jerome Powell emphasized the unsustainable nature of the U.S. debt path and stressed the importance of fiscal responsibility. He downplayed concerns about potential threats to central bank independence if Donald Trump is reelected in November.
Tesla’s energy division received praise from analysts for its strong performance and potential growth driven by advancements in artificial intelligence. Analysts noted significant market share gains and increased demand for energy storage solutions, which have boosted Tesla’s overall market position.
However, veteran investor Ed Yardeni issued a warning about the AI market, stating that it exhibits “hallmarks of an inflating bubble.” Yardeni highlighted massive investments in AI startups and profit expectations that surpass realized earnings, advising caution due to potential overinvestment risks.
In the cryptocurrency market, Bitcoin experienced its worst trading week since August 2023, entering a bear market after dropping more than 20% from its highs. Gold enthusiast Peter Schiff expects further declines for Bitcoin, cautioning HODLers and Bitcoin ETF buyers about potential losses as prices drop below critical levels.
As the second half of 2024 approaches, Goldman Sachs has identified 10 reasons why stock risks may rise. The investment bank highlights various factors that could impact market performance in the coming months.
Overall, the U.S. stock market’s record-breaking performance, coupled with mixed economic indicators and warnings about potential risks, underscores the complex and dynamic nature of the current financial landscape.