After a meteoric climb in the first quarter, US equity markets finally began to come back down to earth this week. The question now is whether this week’s retreat is the start of a more dramatic pullback.
Just the previous Friday, the S&P 500 charged to a new all-time high, joining its cousin the Dow Jones Industrial Average in making history early this year. The thesis behind the bull-market run has been built on massive liquidity from the US Federal Reserve, solid corporate earnings and steadily improving economic indicators.
These strengths until now have more than offset some of the gloomy issues shadowing the global economy, such as the eurozone crisis and severe US budget spending cuts.
The Dow Jones Industrial Average closed on Friday at 14,565.25, trading sideways over the week with a dip of 0.1 percent.
The tech-rich NASDAQ Composite Index settled at 3,203.86, down 1.9 percent, and the S&P 500, the broad measure of the equities markets, finished at 1,553.28, down 1 percent.
The week that just ended threw a damper on the bull argument after a series of economic indicators came in weaker than expected.
The Institute for Supply Management (ISM) published data showing growth in the manufacturing and service sectors slowed last month.
The mediocre ISM figures were joined by poor reports from payrolls processing firm ADP on private-sector hiring and the US Department of Labor on unemployment claims.
However, the biggest disappointment of all came on Friday, when the Department of Labor reported the US added just 88,000 jobs last month, less than half the 192,000 forecast by analysts. The stock market plummeted on the report, but had sharply pared its losses by the close of trade.
“Markets have shrugged off a lot of negative news lately, but that might not be the case going forward,” IHS Global Insight economist Paul Edelstein said.
Still, Edelstein said markets will also be encouraged by the Fed’s stimulus policies and strong recent results in the US housing and consumer markets.
US automakers General Motors, Ford and Chrysler this week reported their best US sales performances since 2007.
“I would expect more volatility,” Edelstein said. “I’m not ready to say we’re in for a market correction, something like a 5 to 10 percent decline.”
However, Peter Cardillo of Rockwell Global Capital said the recent economic signs were consistent with a general slowdown due to the federal budget cuts.
“Data after data we’ve been getting has been weaker,” Cardillo said. “So there’s no question the economy is stalling here and is beginning to weaken.”
Cardillo predicted the market would pull back by 6 to 8 percent in the next month or so.
The first part of next week lacks major economic indicators. The Fed on Wednesday publishes the minutes from its March 19 and 20 monetary policy meeting.
On Friday, there will be fresh reports on retail sales, consumer confidence and wholesale inflation.
Next week also kicks off the quarterly earnings season, with Alcoa reporting after the market close on Monday.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to