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Markets Tread Water Amid Bank Downgrades and Lackluster Earnings…

Dumaine Investments Weekly Market Update – August 23, 2023

• After two consecutive weeks of declines, stocks have traded flat over the last week as markets digest rising long-term rates, mixed economic data, and the final stages of earnings season. Investors hoping for a rebound from a rough first half of August had to tap the brakes as disappointing earnings from big retailers combined with bank rating downgrades dampened enthusiasm. On Monday, S&P downgraded ratings for several US banks including KeyCorp and Comerica, two weeks after Moody’s cut ratings for ten American lenders. Many depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs,” S&P wrote in a note summarizing the moves. Non-interest-bearing deposits have fallen 23% in the past five quarters as Fed rate hikes prompted consumers to seek higher deposit rates elsewhere.

• Nvidia’s highly anticipated earnings announcement will come after market hours Wednesday, and will be heavily scrutinized as a bellwether for the generative AI thematic and the tech sector more broadly. While the options market is pricing in a 10% increase in the stock – on an assumption revenue will beat forecasts – anything less than an exceptional result could trigger a sharp selloff for Nvidia with knock-on effects in broader markets. Next, investors will shift their focus to Federal Reserve Chairman Jerome Powell’s keynote annual speech on Friday at Jackson Hole. His speech will be closely dissected for clues to the Fed’s next moves on interest rates. A string of stronger-than-expected economic data have recently raised concerns that the Fed may not yet be done with its current rate-hike cycle.

• As the outlook for China continues to darken, global investors have offloaded the equivalent of more than $10 billion of Chinese blue-chip stocks in under 13 days. The most-sold stocks in the latest rout were among the largest companies in the benchmark CSI 300 Index, which has extended its loss this month to almost 8% — among the worst performances in equity markets globally.

DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.