Bull market continues as earnings surge, Palantir shines in AI growth, and markets rebound. Get insights and stay ahead with top stock picks for your portfolio.
Market Update - October 14, 2024: Key Insights and Analysis
Today’s market movements reflect the continued volatility and growing complexity of the global economy. Here are five crucial updates for investors to note:
Chinese Stock Rebound:
After suffering its worst week since July, Chinese stocks rebounded today following Beijing's announcement of more fiscal support. This optimism was further boosted by a growth forecast upgrade from major financial institutions, indicating faith in China's efforts to revitalize its economy.
Bitcoin Rises, Oil Prices Drop:
Bitcoin surged to a two-week high, suggesting renewed interest in the cryptocurrency. On the other hand, oil prices dipped slightly, while S&P 500 futures remain largely unchanged. Notably, the US bond market is closed today, limiting some activity.
Corporate Hedging Amid Election Uncertainty:
With the US election approaching, corporate treasurers are increasing their foreign-exchange hedges to protect against potential currency volatility. Businesses are cautious, trying to navigate the uncertain political landscape.
Sovereign Defaults:
The S&P anticipates more sovereign bond defaults in the coming years. Rising debt levels and borrowing costs are putting pressure on nations, raising concerns about the sustainability of government finances globally.
Nobel Prize in Economics:
The Nobel Prize in Economics has been awarded to two MIT researchers and one from the University of Chicago for their groundbreaking work on how institutions form and influence prosperity. Their research underscores the importance of institutional frameworks in fostering economic growth.
Earnings Season Begins
Earnings season is back on Wall Street, giving investors a real look at how corporate America is faring amid economic uncertainties. With major firms releasing their earnings, the results so far have been promising. JPMorgan and Wells Fargo exceeded expectations last Friday, pushing the S&P 500 above the 5,800 mark for the first time.
This week, the focus will be on companies like Goldman Sachs, United Airlines, and Netflix, which are expected to provide insights into the current health of the US economy, particularly household spending and business investments. Investors are also closely watching how Big Tech’s AI-driven earnings are evolving, especially as AI adoption accelerates across industries.
US companies have maintained their reputation for consistently surpassing earnings expectations, even during times of economic challenges. This trend explains the sustained growth of the S&P 500 in recent years. Despite inflationary pressures, aggressive interest rate hikes, and political headwinds, corporate America has remained resilient.
However, as earnings forecasts project a 4% increase in Q3—slower than in the previous year—investors are starting to question how long companies can keep up this performance. The outlook for 2025 appears even more ambitious, with expectations of a 14% earnings increase. Hitting these targets would elevate post-pandemic growth rates above historical norms, but rising economic pressures suggest caution is warranted.
As corporate profits now make up 15% of US GDP—levels seen only twice before the pandemic—there is growing concern that the current growth trajectory may not be sustainable. Investors should remain optimistic but also prepare for potential slowdowns.
Casino Stocks Slump
US casino stocks experienced a premarket slump following the election of a new Macau leader, who has pledged to reduce the influence of the gambling industry. Major casino operators, including Las Vegas Sands and Wynn Resorts, saw their shares dip. The UK gambling sector was also affected, with Entain’s stock falling 15% amid reports that the government may impose higher taxes on the industry.
This Week’s Economic Calendar
Looking ahead, several key earnings reports and economic data releases are expected to shape the market:
Earnings:
Major financial institutions like Bank of America, Citigroup, and Morgan Stanley are set to release their earnings. In Europe, LVMH and ASML will provide insights into the luxury and semiconductor markets, while Taiwan Semiconductor is also expected to report results.
Economic Data:
Thursday will bring important US data, including retail sales figures, which are forecast to show steady growth, while manufacturing remains sluggish. Friday’s housing starts data will likely indicate cooling residential construction, reflecting broader economic challenges in the housing market.
European Central Bank:
The ECB is expected to cut interest rates for the third time this year, despite earlier indications that policymakers would hold rates steady. This move highlights the central bank’s concerns about slowing economic growth in the eurozone.
China’s Economic Outlook
China remains in focus, as new data expected this Friday is projected to show that the economy is still falling short of its 5% growth target for 2024. This has put pressure on the Chinese government to introduce further measures to support economic recovery, particularly as investors remain cautious after a series of underwhelming policy announcements.
The CSI 300 Index saw a 2% gain today, as Chinese authorities assured markets that more funding would be allocated to tackle the housing crisis and provide relief to local governments. However, investors are still watching closely to see if the promised reforms will materialize.
US Bull Market Turns Three
As the US bull market enters its third year, Big Tech remains the dominant force, with the so-called "Magnificent 7" stocks outperforming the broader market by a significant margin. The S&P 500 has climbed about 60% over the past two years, closely matching historical averages for post-war bull markets.
However, some analysts are concerned about the future. Historically, the third year of a bull market tends to see more moderate gains, with large caps and growth stocks continuing to outperform. Investors are increasingly hedging against a potential market downturn, reflecting broader concerns about market fragility.
Tesla’s Rollercoaster Ride
Tesla (TSLA) has been at the center of investor attention after a disappointing robotaxi event last week. The lack of clarity surrounding the rollout of the new autonomous vehicles led to a significant selloff, wiping out more than $60 billion from Tesla’s market value in one day. The stock has since partially recovered but remains under pressure.
Analysts have raised concerns that Tesla’s lofty valuation may not be justified by its current earnings growth, which has slowed in recent quarters. As competition in the electric vehicle market intensifies, Tesla faces increasing challenges to maintain its leadership position. Investors will be closely watching the company’s Q3 earnings report later this month for further clues about its future prospects.
Palantir’s Rise and CEO Alex Karp Palantir Technologies (PLTR) continues to shine
Palantir Technologies (PLTR) continues to shine with its stock up 162% year-to-date. The company’s success is partly attributed to its unique leadership under CEO Alex Karp. Unlike typical Silicon Valley executives, Karp, who holds a Ph.D. in social theory, takes a more philosophical approach to running the company. He has been vocal about the need for tech companies to support their countries, criticizing those who prioritize profits over national defense.
Palantir has solidified its place as a major player in big data analytics, providing software to both government agencies and private corporations. The company’s biggest client is the US government, which accounts for 41% of its revenue. Palantir’s AI-driven software has helped organizations like the FBI and CIA streamline operations, and demand for its services continues to grow.
The company’s Q2 earnings surpassed expectations, with revenue rising 27% year-over-year and adjusted earnings reaching 9 cents per share. Palantir’s future growth prospects remain strong, driven by continued demand for its AI platform. With its Q3 earnings set to be released on November 4, investors are eager to see if Palantir can continue its upward trajectory.
Author’s Analysis
Today's market reflects both opportunity and uncertainty. China’s renewed commitment to fiscal support has revived some optimism, while earnings season in the US is showcasing the resilience of corporate America. However, the underlying pressures of rising debt levels, geopolitical tensions, and an unpredictable US election cycle are creating a fragile environment for investors.
Palantir’s success story is a bright spot, illustrating the increasing importance of AI-driven businesses in shaping the future of industries. However, the broader market remains vulnerable to external shocks, from geopolitical tensions to changes in fiscal policy. Investors should remain vigilant and consider strategies to hedge against potential downturns.
For those seeking to protect and grow their wealth in these uncertain times, adopting a diversified investment strategy is key. Companies are still performing well, but expectations for future growth are high, and the potential for market corrections looms.
Note: If you’re wondering how to protect and grow your wealth in this uncertain economy, subscribe to the Estimatedstocks Model Portfolio for free to get market-beating stock picks.
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