Equities rally as US data softens

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Equities rally as US data softens – Stock Markets

12:53 chiều giờ GMT, 16 Tháng 5 2024- Achilleas Georgolopoulos

US stock indices reach new highs as chances of a Fed rate cut jump
Extra focus on US retailers’ earnings
Utility stocks record the strongest monthly rally since 2022
Could US car manufacturers benefit from the new EV tariffs?

Equity markets continue their advance boosted by the softer US data. In particular, Wednesday’s weaker US inflation report is keeping the door firmly open to a Fed rate cut during the summer, supporting the current risk appetite, despite the fact that most Fed speakers are still preaching patience.

US stock indices are enjoying strong gains so far in 2024 with the S&P 500 index leading the way with an 11% increase. However, European indices are outperforming their US counterparts with the DAX 40 index being around 13% higher this year. This is quite intriguing considering the evident economic divergence between the US and the euro area economies during 2024. Despite the recent positive signs, it is clear that the euro area is still lacking growth momentum compared to the US.

US retail sales slowing

Wednesday’s session also included a weaker set of US retail sales. The Fed is extremely interested in the strength of domestic demand, which is partly responsible for the recent stickiness in inflation figures. In the current earnings reporting period, Amazon saw a decent increase in sales revenues while Walmart revenues jumped by 6%. The remaining key retailers report over the next fortnight.

The consumer staples sector is one of the laggards of the US 500 index sectors in 2024, but it has been outperforming the consumer discretionary sector. This could reveal an increasing pressure from high inflation on households’ spending.

Utilities rally aggressively

Drilling down the data and the S&P 500 utilities sector is recording a very strong rally during May, pushing its 2024 positive advance to around 14%. It is the best monthly performance for this sector since March 2022, benefiting from sizeable dividends, and it takes place despite the relatively elevated US treasury yields. This rally could be an early sign that investors are expecting the current soft patch in the US to become more entrenched over the next months, and consequently allow the Fed to possibly announce more than one rate cut in 2024.

Could US car manufacturers benefit from the new EV tariffs?

The party campaigns for the November US elections are in full swing with the latest announcements from the US President Biden focusing on China. A new package of increased tariffs, which includes a 100% tariff of Chinese-made electric vehicles, comes as an answer to Trump’s intention to increase tariffs on all Chinese imports. President Biden’s aim is to protect US manufacturers with Tesla in need for a boost considering its underperformance against its main rivals.