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Market Insights

Market Insights - Week 24

Bas Kooijman

As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.

In a week of subdued trading preceding the Federal Reserve's policy meeting and rate announcement, the S&P 500 Index transitioned into a bull market, climbing more than 20% from its mid-October lows. This shift in market dynamics was remarkable, as the week showcased a broadening of market gains, with small-caps outpacing large-caps, and value shares exceeding the performance of growth stocks. Furthermore, an equally weighted S&P 500 Index edged up, surpassing its capitalization-weighted counterpart for the first time in eight weeks, marking the most significant margin since late March.

In the backdrop, several impactful investment conferences and events unraveled, such as the Paris Air Show and various conferences focusing on energy and consumer stocks. These events played a vital role in shaping market sentiment. Among the major headlines was Apple's annual developer's conference, where the tech giant unveiled its latest product, a virtual reality headset. Despite the initial negative investor reaction to the headset's hefty $3,500 price tag, Apple's stock recouped some losses later in the week.

Despite the relatively light economic agenda, the optimism index, published by TechnoMetrica Market Intelligence and Investor's Business Daily, remained steady. However, there was a dip in the gauge measuring Americans' outlook for the next six months, reaching its lowest level since November. This dip followed the Labor Department's report of weekly jobless claims increasing to 261,000, exceeding expectations and marking the highest level since October 2021. On the brighter side, continuing claims fell to their lowest in four months.

Data released on Tuesday revealed a considerable contraction in the services sector. Nonetheless, this downturn in services also signaled a sustained decrease in service prices. The Institute for Supply Management's gauge of prices paid for services dropped to its lowest level since May 2020, indicating virtually stalled growth in the services sector.

The Federal Deposit Insurance Corporation (FDIC) continued to liquidate the municipal bonds it obtained after assuming control of three large regional banks. On the other hand, the corporate bond market witnessed a surge of issuance, doubling expectations but meeting adequate demand.

Overall, these market changes resulted in a slight positive alteration in the market indexes. The Dow Jones Industrial Average (DJIA) increased by 2.20% to close at 33,876.78. The S&P 500 closed at 4,298.86, indicating an 11.96% change year-to-date. The Nasdaq Composite increased by 26.68% to close at 13,259.14. The S&P MidCap 400 rose by 4.61% to close at 2,542.37, and the Russell 2000 increased by 5.93% to close at 1,865.71. These figures are reflective of the market's resilience in the face of uncertainty, showcasing its dynamic nature and adaptability.

Across the pond, in Europe, there was a sense of caution due to upcoming central bank meetings. The European Central Bank officials signaled that borrowing costs would likely rise again in June, and there seemed to be less unanimity about implementing rate increases in subsequent months. This cautious sentiment reflected in the stock indexes, with Germany's DAX easing 0.63% and France's CAC 40 Index falling 0.79%, while Italy's FTSE MIB gained 0.35%.

In Japan, markets hit a 33-year high, with the Nikkei 225 Index gaining 2.4% and the broader TOPIX Index up 1.9%. This upturn was supported by an upward revision to Japan's first-quarter economic growth and optimism surrounding the services sector.

The oil market demonstrated a fascinating oscillation this week as Saudi Arabia announced a substantial cut in its oil production by 1 billion barrels per day for July. This equates to a reduction of roughly 10% of the nation's production capacity and, intriguingly, may be extended. This action follows an OPEC consensus to continue existing production limits until the end of 2024. Simultaneously, rumors of resumed U.S.-Iran talks on nuclear enrichment and oil exports momentarily dropped prices, though the White House refuted such claims. In the face of these tumultuous events, the oil prices seemed to return to a semblance of normalcy, ending the week with little change.

As we look forward to the coming week, market participants will closely monitor developments in international oil markets, central bank decisions, and corporate earnings, as the markets continue to demonstrate resilience and adaptability in the face of evolving macroeconomic conditions.

Bas Kooijman

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