Wednesday Sep 13 2023 05:51
10 min
On Tuesday, major U.S. stock indices held steady following a winning session on Monday.
During regular trading on September 11, the Dow Jones Industrial Average (USA30) saw a 0.25% increase, marking its third consecutive day of gains. Similarly, the S&P 500 (USA500) and Nasdaq Composite recorded gains of 0.67% and 1.14%, respectively, for their second consecutive winning day. Of the 11 S&P sectors, nine ended the day with higher values, with consumer discretionary, communication services, and consumer staples leading the way.
These upward movements were driven in part by Tesla's (TSLA) impressive 10.1% surge, prompted by a bullish upgrade from Morgan Stanley, and Qualcomm's (QCOM) 3.9% gain, attributed to its announcement of a deal to supply Apple (AAPL) with 5G modems for smartphones until 2026. Additionally, Meta Platforms (META) saw a 3.2% rise, fueled by reports of its work on a new artificial intelligence model that could rival OpenAI’s GPT-4.
Investors are currently awaiting data on U.S. small businesses, set to be released later today, although much of their attention is directed towards the upcoming key inflation reports scheduled for later in the week. In extended trading, Oracle (ORCL) faced a 9% decline after falling short of revenue forecasts in its latest earnings report.
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EV manufacturer Tesla rose over 10% in trading on Monday after investment bank Morgan Stanley upgraded the Elon Musk-led firm to overweight from equal weight, on optimism that its supercomputer Dojo — which can process data from Tesla vehicles on the road to train AI models for self-driving cars — potential to significantly enhance the adoption of "robotaxis" and network services, boosting Tesla’s market value by as much as $500 billion.
“We believe that Dojo can add up to $500bn to Tesla's enterprise value, expressed through a faster adoption rate in Mobility (robotaxi) and Network Services (SaaS),” Morgan Stanley analysts wrote in a client note.
“Although Dojo is still early in its development, we believe that its applications long-term can extend beyond the auto industry. Dojo is designed to process visual data which can lay the foundation for vision-based AI models such as robotics, healthcare and security. In our view, once Tesla makes headway on autonomy and software, third party Dojo services can offer investors the next leg of Tesla’s growth story,” added Morgan Stanley analyst Adam Jonas.
Following the release of the Morgan Stanley note, Tesla shares spiked above $272 mid-day.
Markets.com Chief Market Analyst Neil Wilson issued harsh criticism of the bank’s upgrade in a column on Tuesday:
Inflation in the United States has been on a consistent downward trend since the summer of 2022. However, the U.S. is now approaching the Federal Reserve's (Fed) target of 2% annual core inflation. In July, the Consumer Price Index (CPI) — the inflation benchmark used by Fed — showed core inflation at 4.7% year-on-year. With the release of August's CPI figures this Wednesday, the consensus anticipates a 0.2% increase in core inflation compared to the previous month, which is the same as July's reading.
This development has provided some optimism to the equity market, as it suggests that the August report is unlikely to contain significant surprises that would alter expectations of the Federal Reserve maintaining its current interest rates at the meeting scheduled for September 20, just a week away.
According to the CME Group's FedWatch Tool, there is a 93% probability that rates will remain unchanged in the range of 5.25% to 5.5%. The tool also suggests a high probability — exceeding 50% — that the central bank will refrain from raising rates in both the November and December meetings. As a result, despite some Fed officials publicly discussing the possibility of a higher terminal rate, the equity market now perceives the rate-hiking cycle as effectively over.
The consensus forecast for the monthly headline CPI has increased from 0.2% in July to 0.5% in August, mainly due to the rising cost of gasoline. As long as the core monthly CPI remains below 0.2%, the stock market is likely to respond positively. Any deviation above this consensus could potentially lead to a significant decline in the S&P 500 index.
On Thursday, U.S. retail sales data for August is expected to show a 0.2% month-on-month growth rate — a decrease from the 0.7% growth observed in July. The market views slower growth positively as it implies a lower likelihood of inflationary pressures.
Lastly, Friday will bring the preliminary Michigan Consumer Sentiment Index for September. Analysts are aiming for a reading of 69.5, which is consistent with August's figure but lower than the reading of 71.6 seen in July. A higher reading typically benefits the U.S. dollar (USDX) and reflects positively on the strength of the U.S. economy.
In an overview posted on September 11, FXStreet analyst Clay Webster pointed to several key readings to watch for the S&P 500 this week:
The results of a Reuters poll published on August 23 indicated that the S&P could end the year at 4,496, according to the median forecast of 41 surveyed strategists.
In a projection from early August, analysts from Oppenheimer Asset Management told Marketwatch that they expect the S&P 500 to reach a new all-time high by the end of 2023. The firm’s year-end S&P 500 prediction was raised from the previous target of 4,400, set in December, to 4,900, according to a team of analysts led by Oppenheimer’s Chief Investment Strategist John Stoltzfus.
“Our price target assumes that the resilience exhibited by the U.S. economy will continue along with a high level of sensitivity by the Federal Reserve in raising its benchmark rates further to slow the inflation rate toward its 2% target,” Stoltzfus and his team wrote on August 1.
In late July, Citigroup analysts raised their S&P 500 target for the end of this year by 600 points to 4,600 — a revision they said reflects the increased chances of a “soft landing” for the U.S. economy.
The S&P 500 is up over 16% so far in 2023 after falling 19% in 2022, according to Marketwatch data.
The S&P 500 is a stock market index tracking the performance of 500 of the largest publicly traded companies in the United States, weighted by market capitalization. Companies in the S&P 500 index account for approximately 80% of total U.S. stock market capitalization (the total market value of each company’s outstanding shares).
S&P Dow Jones Indices — the firm responsible for compiling the index — selects the companies in the S&P 500 based on their market value, liquidity, and industry group representation. It includes stocks from industries like manufacturing, finance, utilities, and transportation. Since the middle of 1989, the composition has been flexible, and the number of companies in each category has varied. The index is market capitalization-weighted, meaning it attributes more weight to companies that are valued higher in the stock market.
When considering indices and shares for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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