Symax Fintech Daily Market Insights 22.12.23

As the gulf between the five largest US companies and everyone else widens to exceedingly worrying levels, volatility among the rest of the top 50 in the S&P 500 are at a 10-year high.

• The 50 most valuablecompanies in the benchmark moved up or down on average nine places this year, tied for the most since at least 2013.
• It suggeststhat as the S&P 500’s top-heavy skew worsens, there’s increasing competition for investor funds in the rest of the index. BB

The likely run of Fed rate cuts ahead probably won’t last as long as its predecessors, nor will it deliver as much in the way of rate cuts. That’s one key hurdle to further outsized stock gains next year.

The 2000-2003 pivot lasted the longest and took borrowing costs to a then-record low, resulting in a comparatively modest gain for the US benchmark. Meanwhile, the 2007-2008 u-turn delivered nearly as many rate cuts in half the time, resulting in a bigger rally. That episode was, of course, also marked by the historic dawn of the era of near-zero interest rates that would persist for a good part of the following decade.

Then there was the 2019-2020 pivot, which delivered less than half of the rate cuts that we saw over 2007-2008 but saw double the gains for the S&P 500. That was likely a result of the accompanying fiscal stimulus provided by the government to cushion the economy against the blow of the Covid pandemic.

This time around, the Fed pivot pales in comparison on several fronts. The 75 basis points of reductions mapped out by officials for 2024 is but a fraction of the easing seen in previous pivots. If the central bank validates markets’ expectations for more than 150 basis points of cuts, that’s still a far cry from the magnitude of past u-turns we’ve seen this millennium.

Even if we look further ahead the horizon of Fed projections, policymakers are ultimately seeing about 250 basis points of reductions by 2026, or the next 36 months — a slower clip compared with previous episodes.

Put all of that in the context of the S&P 500’s currently very lofty valuations, as noted by my colleague Tatiana Darie, and one gets a sense that a Fed pivot this time around may not be as much of a “Fed put” as stock bulls would hope.BB

Data due Friday morning are set to bolster the case for lower US interest rates in the coming quarters. The figures include the Federal Reserve’s preferred inflation gauges — the personal consumption expenditures price index and the measure excluding food and energy — which are expected to see a softening toward target levels. That follows third-quarter gross domestic product data that was revised lower on Thursday, further supporting the prospect of Fed cuts. BB

The UK and Switzerland signed an agreement to recognize each other’s laws and regulations in financial services, easing post-Brexit market access for firms including banks, insurers and asset managers. Chancellor of the Exchequer Jeremy Hunt and his Swiss counterpart Karin Keller-Sutter signed the treaty to seal mutual recognition in Switzerland’s capital Bern on Thursday. Both governments have been working on the accord for more than three years. BB

The US Commerce Department will begin gathering information on Chinese production of legacy semiconductors — chips that aren’t cutting-edge but are still vital to the global economy — as it looks to track how deeply reliant US companies have become on the technology from China. The department will survey more than 100 companies in autos, aerospace, defense and other sectors to understand how they procure and use legacy chips, according to a Commerce official.

Elon Musk lashed out at the regulatory burden faced by publicly traded companies and how passive investing is stoking volatility in a discussion with Cathie Wood, the tech investor. The complaints add to a litany of grievances Musk has raised over the years about the tradeoffs of tapping public markets to build some of his many ventures.  BB

Tencent and NetEase plunged after Chinese regulators moved to curb excessive spending and rewards in online gaming. The move wiped out roughly $54 billion of Tencent’s value while Netease slumped a record 28%. 

Nike slumped 12% postmarket after forecasting slightly lower sales in the fiscal third quarter on faltering demand in China and EMEA. It’s looking for up to $2 billion in cost savings by dismissing workers and streamlining products. Under Armour, Foot Locker and Dick’s Sporting Goods fell. BB

Apple has stopped selling the Apple Watch Series 9 and Ultra 2 in the US on its online store, days ahead of a ban tied to a patent dispute. The gadget maker previously said it would end sales at its about 270 physical retail stores in the US on Dec. 24. The ban was imposed by the US International Trade Commission, which ruled that Apple violated two health-technology patents related to blood oxygen sensing held by Irvine, California-based Masimo Corp. The watch disruption is the latest bad news for Apple, whose sales have dropped for four straight quarters—the longest such streak in two decades. BB

Nike said it’s looking for as much as $2 billion in cost savings by firing workers and simplifying its product assortment amid a weaker sales outlook. The sportswear and sneaker giant said it will incur restructuring charges of $400 million to $450 million in the current quarter, “primarily associated with employee severance costs.” Nike sales in the key Greater China region have recently come in lower than expected. BB