Market 12/11: AI potential and interest rate expectations for 2024

10-year bond auction - 4.296% higher than market 4.282% for $37 billion

Today's noon 10-year bond auction was not very surprising as although buying demand from foreign investors was still very high, yields were still pushed up due to macroeconomic events in the coming days. 10Y off the open market was pushed up to nearly 4.3% before investors brushed off concerns about today's auction results and pulled 10Y yields back to 4.258% just 30 minutes later.

AI potential drives Big Tech stocks to dominate S&P 500

Magnificent 7 group (group of 7 large technology companies) has contributed 3/4 of S&P 500's gain this year, with Nvidia being the only megacap delivering significant surge results.

However, high valuations mean the stocks are trading at an average of 32 times earnings → Pressure on Big Tech growth.

According to Goldman Sachs report, while the market climbed, hedge funds took profits on quite a few Mag 7 stocks.

Big Tech valuations are returning to peak levels, while stock prices are rising faster than these companies' earnings estimates.

→ The market still rates technology companies' growth prospects quite highly.

Nearly 70% of brokers recommend buying tech stocks, showing optimism about growth performance.

FYI: List of industries easily affected by AI.

Today, Mag 7's market cap value unexpectedly dropped more than $300 billion ahead of FOMC, however S&P 500 has not seen a significant drop yet.

Market and economists' expectations for 2024 interest rate path

The market is predicting interest rates could drop by about 1-1.25% in 2024.

However, according to Financial Times survey, economists think rates will only drop by about 0.5% in 2024.

Most economists expect Fed to cut later than the market expects.

However, looking at unemployment, economists do not think a soft landing will occur.

56% say the unemployment rate will surge above 5%.

FYI: CPI forecast for November tomorrow from some financial institutions

JPMORGAN, MORGAN STANLEY: 3%

BANK OF AMERICA, BARCLAYS, CITIGROUP, HSBC, TD SECURITIES, SCOTIABANK: 3.1%

Some other news:

Macy's retail giant stock surged 15% after receiving a buyout offer for $5.8 billion.

Central banks bought more than 1,000 tons of gold in 2023.

- Gold is a good store of value when USD value declines → Central banks seem to expect USD to continue declining in the future.

Eurozone faces first recession since Covid period due to recession from Germany - Europe's largest economy.

- Inflation not reaching ECB's 2% quarterly target leads economists to cut inflation forecasts until September 2024.

Unpayable debts in commercial real estate - 2024 challenges from Europe to Asia:
- Commercial real estate investment activity in Asia-Pacific region dropped 22% YoY, the lowest since Q2/2010.

Bitcoin price dropped more than 5% in just a few minutes, hitting today's low of 41,500 USD.

Banks, including Wells Fargo, are being investigated for imposing pricing disparities on mortgage loans based on unfair criteria such as race and gender.