Waiting For A Fed Rate Cut To Buy Stocks May Be A Mistake(Again)

Economic

Stocks

Summary:

Markets are back to fighting a battle that most participants suggest can never be won.

Investors are betting that the Federal Reserve is likely to implement the first of two rate cuts this fall, even as the central bank has stressed that it's not ready to declare victory in the war against inflation.

The Fed kept its benchmark lending rate at between 5.25% and 5.5%, the highest in more than two decades, following a two-day meeting in Washington. The parley was highlighted by a benign inflation report that showed price pressures in the world's biggest economy eased during May.

Fed Chairman Jerome Powell told reporters in his post-decision news conference that while all the Fed officials who submitted new growth and inflation projections for the June meeting, "most" were unmoved by data showing the slowest monthly price increase in four years and the lowest core reading since 2021.

The Fed's Summary of Economic Projections, which distill those forecasts into what's known as the dot plots, point to only one rate cut this year, compared with the three cuts forecast in March. Officials see modestly faster inflation pressures over the back half of the year.

"We have stated that we do not expect it will be appropriate to reduce the target range for the Federal Funds Rate until we have gained greater confidence that inflation is moving sustainably toward 2%," the central bank's inflation target, Powell told reporters in Washington on June 13. "So far this year, the data have not given us that greater confidence."

Fed's Powell needs 'more good data' before cutting rates

"The most recent inflation readings have been more favorable than earlier in the year, however, and there has been modest further progress toward our inflation objective," he added. "We will need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%."

A corresponding slide in producer prices, which ultimately feeds into the Fed's preferred PCE Price Index inflation gauge, may have assuaged some Fed officials. Core prices remained flat in May while the headline reading actually declined 0.2%.

Ian Shepherdson of Pantheon Macroeconomics suggests that the Producer Price Index data, along with the softer May CPI print, could deliver a core PCE reading of 0.1%, well south of the 0.32% average recorded over the first four months of the year.

"Meanwhile, the outlook for slower rent gains, falling wage inflation, and margin compression at retailers suggests that the core PCE deflator will continue to rise more slowly than the Fed predicted this week, laying the foundations for the first rate cut to come in September and multiple easings this year," he added.

Cracks in the job market

The Labor Department's report on weekly jobless claims seems to confirm at least some of that thesis. The latest update showed 242,000 Americans filed for unemployment benefits in the period through June 8, an increase of 13,000 from the prior period and the highest overall tally since August of last year.

Rate traders, who saw their bets on a September cut whipsaw last week after a stronger-than-expected May employment report, revived their hopes of an autumn rate reduction following Thursday's dataset.

CME Group's FedWatch now suggests a 67.7% chance of a quarter-point rate cut in September, with similar odds for a follow-on move in December.

“Jobless claims are showing cracks in the job market as inflation cools and the Fed has stayed hawkish, but they have to be careful of fighting the last war," said David Russell, global head of market strategy at TradeStation.

"The dovish case is building. Policymakers were behind the curve fighting inflation in 2021," he added. "We have to hope they won’t repeat the same mistake, but in the opposite direction, in 2024.”

That once again puts markets squarely at odds with the Fed's June forecast. And that in turn sets up another "don't fight the Fed' conundrum heading into the summer on the back of records for the S&P 500 and Nasdaq stock indexes and multi-month lows for benchmark Treasury bond yields.

Keep up the Fed fight?

"Every data point that falls into the 'easing inflation' bin increases the odds of a rate cut before the end of the year," said Chris Larkin, managing director for trading and investing at E-Trade From Morgan Stanley.

"But as we’ve seen, the Fed isn’t inclined to read too much into one month’s numbers," he added. "In the meantime, the question is whether the stock market can maintain its momentum if it starts to expect more data like this."

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance in Charlotte, says the main impact the Fed can have on markets now is a surprise change of signaling from rate cuts to rate hikes — "and they show no signs to do this."

"Ultimately, the stock market is uninhibited by a pause (and will continue looking forward to cuts). And this morning’s data further strengthens the case that the Fed’s next move will be a cut (either in late 2024 or early 2025). So we expect the market to continue making records in the near future," he added.

The S&P 500 in fact is up more than 13% this year, with a 3.2% gain for the second quarter. The index hit an all-time closing high of 5,420.63 points on June 13.

Should the Fed opt to cut rates in September, as market bets suggest, it would mark the end of the longest gap on record — 420 days — between the most recent Fed rate hike and the first rate reduction.

Jeff Buchbinder, chief equity strategist at LPL Financial, notes that the average S&P 500 gain during a Fed pause is 6%, citing data collected over the past five decades.

Longer pauses, however, have produced better results: Buchbinder says the average gain over the past six policy gaps, going back to 1989, has been slightly more than 13%.

The broadest benchmark of U.S. blue-chip shares has gained more than 13.5% since the Fed hiked rates on July 26 of last year, while the tech-heavy Nasdaq has gained 24.8%.

Clark Bellin, president and chief investment officer at Bellwether Wealth in Lincoln, Neb., sees more gains ahead "as the market starts to price in a world of disinflation and continued corporate earnings growth.

"The stock market is forward-looking, and even though inflation is still elevated, it's looking ahead to a time when inflation is lower," he added.

Source：TheStreet

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Glendon

Economic

Zillow Group (ZG), the online real estate giant, has seen its stock price plummet in recent years. This article delves into the key factors that have contributed to this decline, offering insights for investors to understand the present and future of Zillow stock.

The IBuyer Fiasco: A Short-Lived Gamble

In 2019, Zillow embarked on an ambitious plan to become a major player in the iBuyer market. This involved directly purchasing homes, renovating them, and then reselling them. However, the venture proved disastrous. Zillow underestimated the complexities of home valuations, repairs, and market fluctuations. The company faced significant losses and ultimately exited the iBuyer market in 2021, taking a major financial hit and damaging investor confidence.

Shifting Revenue Streams: From Listings to Mortgages and Rentals

Following the iBuyer debacle, Zillow has shifted its focus towards other revenue streams. Their core business remains online real estate listings, generating income through advertising and lead generation for real estate agents. However, Zillow is also trying to expand into new areas like mortgages and rentals. These initiatives are still in their early stages, and their success in generating significant revenue is uncertain.

The Legal Landscape: A Potential Headwind

A recent court ruling and a legal case against the National Association of Realtors (NAR) have cast a shadow over Zillow's core business model. The case challenged the traditional practice of home sellers paying realtor commissions for buyers. While Zillow itself isn't directly impacted, a potential shift in commission structures could lead to lower demand for Zillow's advertising services from real estate agents, impacting their revenue stream.

The Competitive Threat: A Crowded Marketplace

The online real estate market is becoming increasingly competitive. Established players like Realtor.com and Redfin, along with innovative startups, are vying for market share. Zillow needs to maintain its technological edge and user experience to stand out in this crowded landscape.

Growth Concerns: A Hurdle for Investors

Zillow is not yet consistently profitable. While the company boasts a large user base, translating that into sustainable and significant revenue growth remains a challenge. Investors are wary of the company's future prospects without a clear path to consistent profitability.

Looking Ahead: Can Zillow Recover?

Zillow's future trajectory remains uncertain. Here are some factors to consider:

Success of New Ventures: The success of Zillow's expansion into mortgages and rentals will be crucial for future revenue growth.Resolution of Legal Challenges: The outcome of the legal battle surrounding realtor commissions could significantly impact Zillow's core business model.Innovation and Differentiation: Zillow needs to continuously innovate and differentiate its platform to maintain its competitive edge in the crowded online real estate market.Investing in Zillow: A Calculated Risk

Zillow stock might present an opportunity for risk-tolerant investors who believe the company can overcome its challenges and achieve sustainable growth. However, careful consideration of the factors mentioned above is crucial before making any investment decisions.

Conclusion: Zillow's Stock Decline - A Learning Experience

Zillow's stock price decline serves as a valuable learning experience for investors. It highlights the importance of thorough research, understanding a company's business model and potential risks, and carefully evaluating future growth prospects before investing.

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Glendon

Economic

CrowdStrike Holdings, Inc. (NASDAQ: CRWD) has emerged as a prominent player in the cybersecurity industry, offering cutting-edge solutions to protect organizations from ever-evolving cyber threats. As investors seek opportunities in the rapidly growing cybersecurity market, CrowdStrike's stock has garnered significant attention. In this comprehensive review, we will delve into the company's business model, financial performance, competitive landscape, and growth prospects, providing a holistic assessment of CrowdStrike as an investment opportunity.

Business Overview

CrowdStrike is a pioneer in the field of cloud-delivered endpoint protection, offering a comprehensive platform called the Falcon Platform. This platform provides a wide range of cybersecurity solutions, including endpoint security, cloud workload protection, identity protection, data protection, and threat intelligence.

The company's innovative approach to cybersecurity leverages the power of cloud computing and artificial intelligence (AI) to deliver real-time protection and threat detection. CrowdStrike's lightweight agent technology enables seamless deployment across various endpoints, including desktops, servers, and mobile devices, ensuring comprehensive coverage for its clients.

Financial Performance and Growth Trajectory

CrowdStrike has demonstrated remarkable financial performance, driven by strong demand for its cybersecurity solutions. In its most recent fiscal year, the company reported revenue of $1.72 billion, representing a year-over-year growth of 53%. This impressive growth is a testament to the increasing adoption of CrowdStrike's products and the company's ability to capitalize on the growing cybersecurity market.

The company's subscription-based revenue model, which accounts for a significant portion of its total revenue, provides a recurring and predictable revenue stream, enhancing its financial stability and enabling long-term growth projections.

CrowdStrike's strong financial performance has been accompanied by robust profitability metrics. The company's gross margins have consistently remained above 70%, reflecting the scalability of its cloud-based solutions and efficient operational model.

Competitive Landscape and Market Position

The cybersecurity market is highly competitive, with established players and emerging startups vying for market share. However, CrowdStrike has carved out a unique position by offering a comprehensive, cloud-native platform that addresses a wide range of cybersecurity needs.

CrowdStrike's Falcon Platform has gained significant traction among enterprises, government agencies, and organizations of all sizes, enabling the company to capture a substantial market share in the endpoint security and cloud workload protection segments.

The company's strong brand recognition, continuous innovation, and strategic partnerships with industry leaders such as Amazon Web Services (AWS) and Google Cloud Platform (GCP) have further solidified its position in the market.

Strengths of CrowdStrike

Leading-Edge Technology: CrowdStrike's cloud-native architecture and AI-powered security solutions are considered best-in-class. Their focus on real-time threat prevention positions them well in the ever-evolving cybersecurity landscape.

Strong Customer Base: CrowdStrike boasts an impressive roster of clients, including Fortune 500 companies and government agencies. This strong customer base indicates the trust and value they deliver.

Recurring Revenue Model: CrowdStrike's subscription-based model generates recurring revenue, providing predictability and stability for future growth.

High Growth Potential: The cybersecurity market is expected to experience significant growth in the coming years, and CrowdStrike is well-positioned to capitalize on this trend.

Weaknesses of CrowdStrike

Valuation: CrowdStrike currently trades at a high valuation compared to its earnings. This could make the stock susceptible to a correction if the company doesn't meet aggressive growth expectations.

Competition: The cybersecurity space is becoming increasingly competitive, with established players and emerging startups vying for market share. CrowdStrike needs to maintain its technological edge to stay ahead of the curve.

Limited Profitability: While growing rapidly, CrowdStrike is not yet consistently profitable. Investors should consider their risk tolerance when evaluating the stock.

Growth Opportunities and Catalysts

CrowdStrike's growth prospects are supported by several key catalysts and opportunities:

Increasing Cyber Threats: As cyber threats continue to evolve and become more sophisticated, the demand for advanced cybersecurity solutions is expected to rise, driving growth for CrowdStrike's offerings.

Cloud Adoption: The accelerating adoption of cloud computing and the shift towards remote work have amplified the need for robust cloud security solutions, playing into CrowdStrike's strengths.

Expansion into Adjacent Markets: CrowdStrike has been actively expanding its product portfolio to address adjacent markets, such as identity protection, data protection, and security orchestration and automation, broadening its total addressable market.

International Expansion: While CrowdStrike has a strong presence in the United States, the company is actively pursuing international expansion opportunities, tapping into the global demand for cybersecurity solutions.

Strategic Acquisitions: CrowdStrike has demonstrated a willingness to acquire complementary technologies and companies to enhance its product offerings and accelerate growth.

Risks and Considerations

While CrowdStrike presents an attractive investment opportunity, it is essential to consider potential risks and challenges:

Competition: The cybersecurity market is highly competitive, and CrowdStrike faces intense competition from established players and emerging startups, which could impact its market share and pricing power.

Cybersecurity Landscape Evolution: The cybersecurity landscape is constantly evolving, and CrowdStrike must continuously innovate and adapt its solutions to stay ahead of emerging threats and maintain its competitive edge.

Valuation Concerns: CrowdStrike's stock trades at a premium valuation, reflecting high growth expectations. Any deviation from these expectations could lead to significant volatility in the stock price.

Regulatory and Compliance Risks: As a provider of cybersecurity solutions, CrowdStrike operates in a highly regulated environment, and any changes in regulations or compliance requirements could impact its operations and financial performance.

Conclusion

CrowdStrike has established itself as a leading player in the cybersecurity industry, offering innovative and comprehensive solutions to protect organizations from cyber threats. The company's strong financial performance, robust growth prospects, and strategic positioning in the cloud security market make it an attractive investment opportunity.

However, investors should carefully consider the potential risks and challenges associated with the cybersecurity landscape, competition, and valuation concerns. Conducting thorough due diligence and maintaining a diversified portfolio are essential when investing in CrowdStrike or any other stock.

Ultimately, CrowdStrike's ability to continue delivering cutting-edge solutions, expanding its market reach, and capitalizing on emerging opportunities will determine its long-term success and potential for generating sustainable returns for investors.

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Warren Takunda

Cryptocurrency

Bitcoin faces new lower BTC price targets after dropping as much as 8% over the last seven days. How Low Can the Bitcoin Price Go?_1

BTC/USD daily chart. Source: Binance

Traders and analysts are debating whether the market may drop further — and how low it can go.

Could Bitcoin price drop to $63,000?

After a failed attempt to climb above $70,000 on June 12, the BTC has retraced toward the $66,000 demand zone.

At the time of publication, the price of the leadingcryptocurrency was exchanging hands at $66,842, down 4% over the last 24 hours, according to data from CoinMarketCap.

Popular analyst Mark Cullen utilized the Elliott Wave method to demonstrate that a final down move could come imminently, taking Bitcoin to around $63,000.

“Bitcoin is sweeping the weekend highs and then continuing with the downside move,” Cullen said in a June 11 post on X, adding that “there is still more to go.”

“Bitcoin hits the first target red box. The question now is how the CPI and FOMC impact price?” How Low Can the Bitcoin Price Go?_2

BTC/USD chart. Source: Mark Cullen

Fellow analyst Matthew Hyland noted that BTC/USD was trading above a key support level at $67,000, which appeared to be the first line of defense before the price prints lower lows.

Sharing a chart in an X post, Hyland explained that the price is consolidation on longer timeframes, which “favors a continuation” of the uptrend. However, if the price drops below the said level, the analyst sets a lower target for BTC around the $64,700 level.

The $63,000 to $65,000 demand zone would put BTC price action at its lowest since mid-May and could represent one of the largest drawdowns from the current all-time highs of around 15%.

Bitcoin price loses key moving average

Continuing, MN Capital founder Micheal van de Poppe examined BTC’s price action on the daily timeframe for insights into the nature of support the coin enjoyed on the downside.

Uploading a chart to X, van de Poppe noted that BTC/USD had lost the support of its 50-day exponential moving average (EMA), which is currently at $67,011.

He further explained that the price still held “a crucial level of support” above $66,000, where the 100-day EMA currently sits.

A closer look at the daily chart below shows that BTC also lost this support during today’s drawdown, increasing the odds of deeper drops.

BTC/USD daily chart. Source: Binance

The 200-day EMA at $64,000 now presents the last line of defense for BTC and could be where the downside could be capped in the short term.

The downward trend displayed by the relative strength (RSI) and the price strength at 44 suggested that the market conditions favored the downside.

Interestingly, data from Coinglass shows significant liquidity building up between $63,000 and $65,500 over the last 30 days

Bitcoin liquidation heatmap. Source: Coinglass

Source: Cointelegraph

Risk Warnings and Disclaimers

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Samantha Luan

Economic

The Senate win was a major boost for Milei, who won a shock election last year pledging to overhaul the embattled South American country's economy. He wants to privatize public firms, strengthen executive powers and boost incentives for investment.

"Without a doubt it was the best day economically for the government," said Argentine analyst Christian Buteler, citing the approval of the bill, a twin fiscal package also being green-lit and the extension until 2026 of a currency swap line with China.

A currency swap line is a loan agreement between central banks that gives the receiving country access to an agreed amount of funds in foreign currency such as dollars, Chinese yuan or euros.

"The approval of the laws in the Senate, beyond the tightness of the votes or the changes made, underscores the government's ability to govern despite coming into power with a (legislative) minority. That is very positive," he said.

Sovereign bonds in the local over-the-counter market were up an average 2.4%, a sovereign risk index fell sharply, while the black market peso strengthened over 3% to 1,245 per dollar after hitting a record low in the past week.

The local S&P Merval stock index seesawed throughout the day, but ended up 2.4% after a bout of profit taking.

The narrow overnight Senate wins came as protesters set fires and clashed with police in the streets outside Congress, with some citizens fearing it would leave them further exposed to rising unemployment and consumer prices.

Thys Louw, portfolio manager at asset manager Ninety One, said the bill's passage was the first step in a "very tight, very noisy, very long process" ahead.

"It wasn't perfect, but I do think it was a step forward in views around governance and for the ability to govern," he said.

Even so, Argentina is far from out of the woods, analysts cautioned. The lower house still needs to approve individual measures before Milei can officially pass his first law.

"We could see a sustained rebound in the Merval (main stock index) if Mr. Milei's objectives are met and lead to a decline in country risk and a recovery in sovereign bonds," said Andres Abadia, chief Latam economist at Pantheon Macroeconomics. "For now, though, uncertainty remains elevated, so caution is warranted."

Source：Reuters

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Economic

Forex

Central Bank

BoJ meeting held no surprises

The yen is under pressure again today as the Bank of Japan kept its interest rate unchanged and decided to trim its bond buying programme but postponed the announcement of the new size of bond purchases until the July meeting. Governor Ueda tried to moderate the market reaction at the press conference, but the market is mostly interested in actual announcements.

As a result, the US dollar/yen pair is trading higher and much closer to the late April intervention levels. Should this upward pressure continue, BoJ officials might not hesitate to act, although their usual plan is to verbally intervene before starting the calls to yen dealers.

Dollar in charge again

The dollar has almost completed a 150bps round trip against the euro, erasing most of the underperformance recorded on Wednesday due to the US CPI report and the moderately hawkish Fed meeting. The market is currently assigning a 72% probability of a rate cut in September, but as made evident by Chairman Powell, the data has to justify the decision.

The calendar is lighter today, but the market is expected to exploit any news that supports its cause. Therefore, today's import and export price indices could, on the margin, be worth a few pips in euro/dollar. But the market's attention will probably be on the preliminary University of Michigan consumer sentiment print and the various Fed speakers. The former is a key measure of consumer appetite, and it would be interesting to see if the recent correction has legs. Interestingly, Fed doves Goolsbee and Cook will be on the wires today.

Euro remains driven by political developments

The euro continues to suffer from political shenanigans following the European election results. The market's focus remains on France with the first round of the parliamentary election being just two weeks away. Political instability brings back memories of the European crises in the 2010s, but the economic situation is clearly much better now.

US equities continue their journey higher

In the meantime, US stock markets continue to record new highs and to diverge from the key European equity indices. The Nasdaq is up 3% this week, its best weekly performance since late April, and 16% higher thus far in 2024. On the contrary, both the DAX 40 and the CAC 40 indices remain on the back foot with around 3% losses this week. For the French index, this month could be the weakest one since May 2023.

Football in focus

Markets aside, the 2024 European Football Championship starts today in Germany. It will probably be an "action-packed" period for sports fans since the 2024 Summer Olympic Games, which will be held in Paris, France, also commences in late July. Apart from their aims on the pitch, both Germany and France aim to benefit economically from hosting major sporting events amidst the political crises.

There is usually a positive impact on consumer spending and tourism revenues not only during such events but also in subsequent years. This positive impact could prove more potent if the national team wins the European Football Championship trophy. The ECB will probably be on the lookout for any impact on retail sales and overall consumer appetite.

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Cohen

Economic

Political

Stocks

The European stock markets are poised to end the week on a negative note due to political uncertainties, despite a short-lived rebound induced by the Federal Reserve (Fed). In contrast, Wall Street maintained its bullish momentum, driven by a tech rally. Meanwhile, Asian stock markets were affected by declining metal prices and subdued Chinese economic data.

Europe

Major European benchmark indices declined for the week following a surprising surge in far-right power in the EU Parliamentary Elections. The selloff was particularly pronounced in French markets, with the CAC 40 falling by 3.67% from the previous week after President Emmanuel Macron called a snap election. Over the five-day trading period, the Euro Stoxx 600 lost 1.77%, the DAX fell 1.58%, and the FTSE 100 slipped 0.99%

At a sector level, French banking stocks led the broad losses amid investor concerns over potential disruptions to public financial stability following the far-right surge in the EU elections. BNP Paribas SA's shares plummeted nearly 10%, while Credit Agricole's stocks slumped 7.8% from last week. Renewable energy and defence stocks also underperformed due to uncertainties, with TotalEnergies down 4%, Airbus SE falling 5.2%, and Safran slumping 5.4%

Additionally, German auto maker shares were hit by concerns over potential retaliation from China on tariffs. Porsche AG saw a decline of 7.9%, while Volkswagen AG fell 7.3% over the last five trading days. Luxury consumer stocks were also negatively impacted by rising trade tensions, with LVMH sliding 3.5% and Hermes slipping 2.6%.

Technology stocks proved to be the most resilient sector, mirroring Wall Street’s performance. However, major tech shares showed only flat weekly performance, with ASML edging up by 0.15% and SAP climbing 1% from last week

The euro weakened against other peers in the G-10 group due to political turmoil. At 2 am CEST on Friday, the euro fell 0.56% against the US dollar to 1.0741 over the past five trading days. It also weakened against the British Pound by 0.5% to 0.8419 from last week, marking its lowest level since August 2022.

Wall Street

The US stock markets surged to new highs following the Fed’s rate decision, with the Apple-led tech rally contributing to bullish momentum. The S&P 500 gained 1.62% over the five-day trading period, marking its 29th record high of the year on Thursday and surpassing 5,400 for the first time in history. The Nasdaq, which is heavily weighted towards technology stocks, performed particularly well, rising 3.11% from the previous week. In contrast, the Dow Jones Industrial Average lagged behind, declining 0.39% compared to a week ago, weighed down by losses in industrial and banking stocks.

At a sector level, three out of eleven sectors posted gains from a week ago, with technology leading the way, up 5.6%. However, telecommunication, energy, financials, and consumer staples all underperformed, each declining by more than 1%.

Apple’s shares surged 10% over the past five trading days, reclaiming its position as the world’s most valuable company, fueled by its AI adoption announcement on Monday. Nvidia’s shares rose 7% as trading began following its 10-for-1 share split this week. Broadcom’s stocks soared nearly 20% driven by strong quarterly results and the announcement of a 10-for-1 stock split.

The US reported slightly cooler-than-expected inflation data for May. The headline US consumer price index (CPI) rose 3.3% from a year ago, which was slightly below the expected 3.4%. Although the data remained above the Fed’s target of 2%, it indicated that inflation is on a downward trajectory.

The Fed kept the interest rate unchanged at between 5.25% and 5.5%, in line with expectations. However, the dot plot indicated a forecast of only one rate cut for this year and four cuts by 2025. This projection marks a significant decrease from the three cuts projected for 2024 in March. Despite this, the bond markets reacted to the Fed meeting in a dovish manner, with US 10-year government bond yields falling by 20 basis points to 4.24% this week.

Asian Markets

Major Asian stock indices showed mixed performance for the week, with the Australian ASX 200 declining by 1.71%, the Japanese Nikkei 225 increasing by 0.48%, and the Chinese Hang Seng Index slumping by 2.19%.

The Bank of Japan kept the policy rate unchanged as widely expected and signaled a potential reduction in bond purchases at the next meeting. This dovish stance led to a decline in the Japanese Yen and boosted Japanese stock markets, which rallied on Friday.

The Chinese stock markets experienced declines due to disappointing economic data and escalating trade tensions with both the EU and the US. China reported weaker-than-expected CPI data for May, suggesting sluggish domestic consumer demand. However, these figures could prompt the Chinese government to implement additional stimulus measures.