Risk appetite persisted after weak ADP employment data (152K vs 175K) and the employment component of the US Services PMI. Survey respondents cited “adjusting our hiring and capital investment strategies and managing borrowing,” “feeling the slowdown,” “hiring is slowing, prices are rising slightly,” and “high interest rates are reducing capital investment and slowing major facility upgrades,” leading the market to ignore the strongest headline non-manufacturing ISM index in 9 months (53.8 vs 51).
The Bank of Canada's 25 basis point interest rate cut is seen as the beginning of the upcoming easing cycle. Federal funds futures pricing shows that there will be two complete interest rate cuts before the end of the year. The probability of a September interest rate cut has also risen to more than 60%. With the Fed's interest rate cut expectations fully returning, the 10-year U.S. Treasury yield is currently below 4.30%, the 2/10s curve has inverted again, and the spread has returned to the recent low of -45 basis points.
As yields fell, the Nasdaq rose another 2% yesterday and the SPX rose 1.1%, approaching all-time highs again. With a series of weak employment indicators in the past two weeks and expectations of weak non-farm payrolls on Friday, ETF investors have poured $58 billion into US stocks this month, bringing year-to-date inflows to $315 billion, and the traditional stock market adage "Sell in May And Go Away" has completely failed to come true.
Incredibly, Nvidia's dominance of the market continues to expand, with its daily trading volume almost equal to the next nine stocks combined.
Finally, stocks are also poised to enter a friendly first half of July, the most seasonally positive two-week period for stocks, with data going back to 1928. Cryptocurrency is no slouch either, with ETF inflows continuing to accelerate, with another $333 million yesterday following Tuesday's $886 million inflows. Will prices see more all-time highs? Are there any bears left? Enjoy it while you still can, folks!
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