US stock futures remained stable on Tuesday as the market recovers from a holiday weekend and investors await major retail company earnings reports.
Meanwhile, China announced its biggest-ever reduction in the benchmark mortgage rate on Tuesday, as authorities sought to prop up the struggling property market
The 25-basis point cut to the five-year loan prime rate (LPR) was the largest since the reference rate was introduced in 2019 and far more than analysts had expected. The largest interest rate cut cycle in history has begun in China. The cut will directly impact the real estate sector by lowering mortgage costs.
The People’s Bank of China kept the one-year loan prime rate (LPR) constant at 3.45% as predicted, but significantly dropped the five-year LPR by 25 basis points to 3.95%, the first time the five-year rate was cut since May 2023.
The 5-year LPR drop is likely intended to promote the property market’s recovery and may boost buyer affordability by cutting mortgage rates. However, banks were already experiencing record-low net interest margins in the third quarter of 2023, and they were charged with providing loans to distressed property developers. The 5-year LPR drop could put further pressure on Chinese bank profitability.
Last week, the Dow shed 0.11%, the S&P 500 lost 0.42% and the Nasdaq Composite dropped 1.34%. Those moves came as hotter-than-expected US inflation data further dented sentiment around early and deep interest rate cuts from the Federal Reserve this year.
US Tech 100 Index traded at 17615 this Tuesday, February 20th, decreasing 160 or 0.90 percent since the previous trading session. Looking back, over the last four weeks, US100 lost 1.64 percent. Over the last 12 months, its price rose by 46.06 percent.
According to data released on Friday, producer prices in the United States increased by 0.3% last month, exceeding estimates of 0.1%, while the core PPI rose by 0.5%, much exceeding the expected 0.1%. Previous statistics also revealed that the consumer price index rose 3.1% on an annualized basis, much beyond expectations and the Fed’s 2% target. Investors are now looking forward to Walmart and Home Depot earnings releases on Tuesday for hints on consumer spending.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta
Some investors and analysts are concerned that a speculative bubble is building due to the dominance of Meta, Microsoft, and Nvidia, as well as Apple, Alphabet, Amazon
But Nigel Green, deVere Group CEO, one of the world’s largest independent financial advisory and asset management organisations, says it is currently more indicative of “a fundamental shift”, primarily propelled by advancements in artificial intelligence
Nigel Green comments: “Nvidia, in particular, has been making headlines with an astonishing 50% surge in its stock value within the first two months of the year. However, labelling this surge as a bubble requires a nuanced understanding of the underlying factors driving these unprecedented gains.
Rather than a speculative mania, the market’s response to the Magnificent Seven seems to be grounded in the transformative power of AI, which is reshaping entire industries, enhancing productivity, and paving the way for the creation of new ones.
At the heart of this paradigm shift is the increasing integration of AI technologies across various sectors.
Meta’s focus on the metaverse
CNBC reports that according to new Deutsche Bank analysis, the so-called “Magnificent 7” now has more financial power than practically any other large country in the globe.
The meteoric rise in the profits and market capitalizations of the Magnificent 7 U.S. tech behemoths — Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla — outstrip those of all listed companies in almost every G20 country, the bank said in a research note Tuesday. Of the non-U.S. G20 countries, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.
According to Deutsche Bank analysts, the combined market capitalization of the Magnificent 7 would make it the world’s second-largest country stock exchange, more than doubling that of Japan, which is ranked fourth. They said that Microsoft and Apple both have market capitalizations comparable to all combined listed companies in France, Saudi Arabia, and the United Kingdom.
Nvidia will release profits for the fiscal fourth quarter of 2024 on Wednesday, February 21. Analysts predict that Nvidia’s income would more than triple from the same period last year, owing to a boom in demand for artificial intelligence chips. Investors are likely to look for growth in Nvidia’s data center division, which increased earnings in the prior quarter. Nvidia could potentially reveal additional information about its stated ambitions to build a new bespoke chip unit.
Elsewhere, Capital One agreed to buy Discover Financial for $35.3 billion in an all-stock transaction that would create a payments behemoth with over 100 million consumers. The purchase price is a 26.6% premium to Discover’s closing share price on Friday.
After the acquisition, Capital One stockholders will own approximately 60% of the combined business.