Market Update – 24th July 2024.

24th July 2024

On Monday, US markets opened on a high note, following President Joe Biden’s announcement on Sunday that he would be withdrawing from the US presidential race. Biden’s decision, while not entirely unexpected, has introduced a new level of unpredictability into the political landscape, yet markets have appeared to take the news in their stride, with the S&P 500 rising over 1% at the closing bell.

The market’s relatively calm reaction is attributed to Vice President Kamala Harris’ strong position in the Democratic presidential primary having already secured enough support from delegates to secure nomination, whilst the current lack of significant policy deviation between Harris and Biden has alleviated investor concerns.

In the wake of Biden’s announcement Democratic funding has surged, reflecting a rallying of support for Harris. She now faces the challenge of securing voter confidence for the November 5th election. As the political landscape evolves, market participants will be closely monitoring Harris’ campaign strategies and voter response. For now, the market’s positive response indicates a cautious optimism about the continuity of Biden’s policies under Harris’ potential leadership.

This week, economic data has been sparse, but significant developments in China have captured attention. On Monday, China’s central bank announced a cut in lending rates, aiming to bolster the economy. The one-year loan prime rate (LPR) was reduced from 3.45% to 3.35%, while the five-year LPR was lowered from 3.95% to 3.85%.

The one-year LPR is crucial as it serves as the benchmark for most new and outstanding loans in China, while the five-year LPR impacts mortgage pricing. These rate cuts indicate a strategic move by the Chinese government to stimulate borrowing and spending in an effort to reinvigorate economic activity.

The rate cuts come in the wake of the Chinese Communist Party’s third plenum, a closed-door meeting of the Central Committee which laid the groundwork for the nation’s policy direction, addressing critical challenges facing the country.

Officials released a detailed 50 page roadmap that outlines long-term strategies, including creating a “first-rate business environment” that will safeguard the rights and interests of foreign investors. The latest policy measures send a clear signal of the government’s determination to tackle economic challenges and boost growth momentum.

Investor focus shifted sharply to Alphabet Inc. and Tesla Inc. as both tech giants released their quarterly earnings reports after the closing bell yesterday.

Tesla’s earnings report revealed a miss on analyst expectations, with revenue showing a modest increase compared to the same period last year. However, the automaker’s core auto revenue fell by nearly 7%, a decline steeper than anticipated.

Alphabet Inc., reported impressive second-quarter earnings with $84.7 billion in revenue, primarily driven by robust performance in its Search and Cloud divisions. However, YouTube ad revenue fell short of expectations, casting a shadow on the otherwise strong results.

The market is now looking ahead to next week, when Microsoft, Amazon, and Meta are slated to release their earnings, to gauge whether the tech momentum can continue.

Still to come this week, key PMI data from the UK, Europe and the US,  The Bank of Canada’s interest rate decision, US GDP, durable goods orders and the all important PCE on Friday.

Nicola Tune, Portfolio Specialist