On Wednesday, the S&P 500 index posted a modest gain, reflecting the cautious stance of investors who reassessed their holdings after a first half driven by artificial intelligence. The broad market index closed up 8.60 points, or 0.16%, at 5,477.90. The Dow Jones Industrial Average also rose by 15.64 points (0.04%), closing at 39,127.80. The tech-heavy Nasdaq Composite gained 87.50 points (0.49%), closing at 17,805.16.
The Nasdaq is expected to record an 18.6% gain in the first half, driven by Nvidia’s performance. Despite a down session, the chipmaker closed up 0.3% on Wednesday, following a 7% increase on Tuesday. With a market value of $3.1 trillion, Nvidia dominates the market-cap weighted S&P 500, but its 150% rise in 2024 raises concerns about the limited participation of other stocks in the rally.
Asian markets declined due to sell-offs in tech stocks, disappointed by Micron Technology’s forecasts. The yen stabilized against the dollar at 160.42, after hitting lows not seen since 1986. Finance Minister Suzuki stated that Japan is ready to intervene to support the currency. Meanwhile, the United States, Japan, and South Korea pledged to cooperate on artificial intelligence, security, and semiconductor supply chains.
Interest rates remain a central theme in global markets. In Europe, investors expect the European Central Bank (ECB) to cut the cost of borrowing two more times this year, bringing it to 2.25% by 2025. Olli Rehn, a member of the ECB’s Governing Council, confirmed to Bloomberg that these expectations are correct, indicating a more accommodative monetary policy to support economic growth in the eurozone.
In Australia, the situation is different. Inflation accelerated faster than expected for the third consecutive month in May. The Australian dollar strengthened as markets anticipate that the Reserve Bank of Australia (RBA) will raise interest rates at the next meeting. The Consumer Price Index in Australia rose by 4.0% year-on-year in May 2024, surpassing April’s 3.6% and the 3.8% forecast. This represents the highest level since November 2023, with accelerating prices in electricity, motor vehicle fuel, and leisure services.
The divergences in monetary policies between Europe and Australia reflect different economic conditions. While the ECB seeks to stimulate growth by cutting rates, the RBA might adopt a more restrictive policy to curb rising inflation. These dynamics influence currency and bond markets, with significant movements in currencies and government bond yields.
Meanwhile, despite the recent slump, investors remain confident and use leverage to bet on a continued rally. According to FactSet, the GraniteShares 2x Long NVDA Daily ETF (NVDL) saw a net inflow of $1 billion over the last three trading days. Although daily flow data are not fully comparable to trading movements, it is evident that many buy orders occurred during the fund’s decline. Despite a 25% loss over the past three sessions, the fund recovered 11% in Tuesday afternoon trading.
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