BACK TO RISING

According to the latest report delivered by Labor Department’s Bureau of Labor Statistics, the consumer price index (CPI) rose more quickly in March than expected, causing inflation to increase and likely prompting the Federal Reserve to maintain interest rates. The CPI, which measures goods and services costs, increased by 0.4% for the month, bringing the 12-month inflation rate to 3.5%. This exceeded economists’ expectations. Energy and shelter costs were primary drivers behind the uptick in the overall index, as while energy prices rose by 1.1%, shelter costs increased by 0.4% and were up 5.7% from a year ago. Additionally, food prices showed a modest increase while used vehicle prices declined, and medical care services saw a slight rise. Moreover, following the release of this data, the stock market opened on the negative side, while the 10-year Treasury yield jumped back above 4.5%.

OUTRUNNING THE BULLS

The cryptocurrency market is currently experiencing heightened speculative interest, resembling the surge seen during the 2021 bull run, as noted in a recent report by the data analytics platform, Glassnode. With the Bitcoin halving event on the horizon, there is increasing anticipation of significant price movements in the near future, and there has been a notable uptick in bullish momentum since October 2023, which has led to heightened liquidity and volatility. Glassnode’s findings underscore the robust demand in spot markets that has bolstered Bitcoin’s performance so far in 2024, reflecting patterns observed during the 2021 bull run. In addition, the Glassnode’s report indicates a market sentiment of euphoria, accompanied by greater profit-taking activities and a surge in Bitcoin flows to and from exchanges since July 2023, surpassing levels seen during the peak of the previous bull market.

UNWAVERING HOPE

While some skepticism lingers after recent Fed comments on interest rates, market participants are still cautiously optimistic about the stock market’s future. This is due to the upcoming earnings season,  which is expected to display strong performances. It is worth noting that despite recent setbacks, the S&P 500 continues to trade near its all-time high, with market experts hesitant to bet against further gains. Earnings for S&P 500 companies are projected to show a healthy 10% increase in the first quarter compared to a year ago, with analysts providing more upgrades than downgrades. This positive outlook on earnings helps ease concerns of a market bubble, even as S&P valuations remain well above the 20-year average. Futhermore, the tech sector earnings are expected to soar by 20%, while economically sensitive sectors are also showing signs of improvement, indicating a broader, healthier rally. Overall, investor confidence remains strong, with a focus on continued earnings growth to sustain the market’s current trajectory.

NVIDIA STRUGGLES

Chip manufacturer Nvidia, recognized for its GPUs leveraged in AI applications, has experienced a 10% decline in its stock price from its recent peak. The company has thrived financially, reporting a significant increase in non-GAAP earnings per share driven by the demand for its chips fueled by generative AI models. Nonetheless, despite its notable performance, Nvidia now faces pressure as its shares have been dropping over the past two weeks, potentially due to profit-taking by investors after a remarkable 200% surge in the last year and the unveiling of a new AI chip by rival Intel. The competitive threat posed by Intel’s more power-efficient and faster AI chip, Gaudi 3, has raised concerns among analysts about Nvidia’s future market share, and they are anticipating a reduction in demand for Nvidia’s stock over time as AI models evolve and customers turn to alternative technologies. Moreover, although near-term projections for Nvidia remain positive, there are growing uncertainties regarding the company’s long-term outlook, with potential cyclical downturns speculated by 2026.

SELLING SHORT

Short sellers are taking significant positions against emerging-market dollar bonds, believing that the recent rally has reached unsustainable levels. The largest U.S. exchange-traded fund for these securities, which is managed by BlackRock Inc.’s iShares JPMorgan USD Emerging Markets Bond ETF, has seen a surge in bearish bets this year – the highest since 2013, as investors question the tightening spread between emerging-market bonds and U.S. Treasuries. This narrowing gap comes on the heels of debt restructuring agreements and financial assistance to struggling nations, prompting concerns about the impact of Federal Reserve rate adjustments and U.S. economic data on valuations. Although the average yield on emerging-market sovereign dollar bonds has held steady at 7.65% this year, risk premiums are at their lowest in years. Moreover, short sellers are now suggesting that valuations have become overly expensive, especially with distressed nations making progress and potential bargains disappearing.