Market Review and Investment Strategy Insights - 2024

Executive Summary

• US Dollar: Strengthened amid receding Fed rate cut expectations and rising risk aversion.
• Gold: Prices fluctuated due to dollar strength and monetary policy uncertainty.
• Crude Oil: Prices weakened due to renewed Russian exports and Ukraine negotiation rumors.
• US Stock Markets: Broad declines led by tech stocks amid valuation concerns and interest rate worries.

Weekly Market Performance

The U.S. Dollar Index experienced a notable surge this week, breaking the 100 mark and reaching a two-week high, closing at 100.17, up 0.91%. This rise was primarily driven by receding expectations of a December rate cut by the Federal Reserve, increased risk-averse sentiment, and mixed employment data contributing to policy uncertainty.

Spot gold prices oscillated, facing downward pressure early in the week due to the stronger dollar. Gold experienced a sharp intraday drop on Monday, plummeting nearly $100, before rebounding quickly on Tuesday fueled by soft ADP employment data. Despite this recovery, gold prices remained constrained by the dollar's strength, settling at $4065.90 per ounce, down 0.47% for the week.

Global crude oil prices generally trended downward this week, facing pressure early in the week due to the resumption of exports from Russia's Novorossiysk port. While there was a brief uptick on Tuesday due to sanctions expectations, prices plunged on Wednesday amid rumors that the U.S. was pushing for peace talks between Russia and Ukraine. Prices continued to decline on Thursday after Ukraine signaled its willingness for talks.

U.S. equity markets faced pressure this week, with the Dow Jones down 1.91%, the S&P 500 down 1.95%, and the Nasdaq down 2.74%. Market performance was initially driven by a downturn in tech stocks on Monday, followed by a further decline on Tuesday due to weak employment data and renewed tech stock sell-offs. Despite a brief rebound on Wednesday fueled by gains in Nvidia and Google, the market experienced a sharp decline on Thursday, with tech stocks experiencing heightened volatility and companies like Micron and Oracle seeing significant drops. Chinese stocks listed in the U.S. also faced pressure.

Investment Insights from Top Banks

• Morgan Stanley: Retracted its forecast for a December Fed rate cut, citing the resilience of the U.S. economy.
• Goldman Sachs: Anticipates central banks will be significant gold buyers in November, supporting a $4900 gold price target by the end of next year.
• Morgan Stanley (Michael Wilson): Foresees a 16% rise for the S&P 500 in the coming year, expecting it to reach around 7800 points by the end of 2026.
• JPMorgan Chase: Believes now is the right time to buy U.S. equities, indicating that the technical flush is over.
• Citadel: Sees the S&P 500 reaching 7000 points by year-end, while the CEO of Muddy Waters Research cautioned against shorting large-cap tech stocks.
• HSBC: Suggests the U.S. dollar may be nearing a bottom, due to a lower probability of the Fed cutting rates in 2026.
• Temasek: Indicates that a weaker U.S. dollar has driven up hedging costs, leading to a shift toward natural hedging.

Key Economic Events

1. September Non-Farm Payrolls Exceed Expectations

The Federal Open Market Committee's October meeting minutes revealed an internal division on whether interest rates should be cut in December. However, the strong September non-farm payrolls report further complicated matters. Following a series of official statements, futures markets increased their expectations for a December rate cut by the Fed to over 70%, nearly double what they were after the non-farm payrolls report.

The minutes indicated that a "significant number" of officials did not see sufficient basis for a December rate cut, outnumbering those who believed a cut was "likely appropriate." However, most officials believe further rate cuts would be necessary in the future.

Fed Vice Chair Jefferson noted increased downside risks facing the labor market, but cautioned that policymakers should be cautious as interest rates approach a neutral level. Several Fed officials expressed concerns about the inflation outlook, with Governor Barr stating that inflation may remain at 3%, warranting caution in cutting rates.

2. NVIDIA's Strong Earnings Met with Stock Market Volatility

NVIDIA's Q3 results, announced after market close on Wednesday, showed revenue up 62% year-over-year to $57 billion, exceeding market expectations. This growth was driven by strong performance in its AI chip business, which saw revenue increase 66% to $51 billion. NVIDIA's Q4 sales forecast, at $65 billion, also surpassed market estimates.

NVIDIA CEO Jensen Huang indicated that the company's AI chip sales were "ridiculously high" and that cloud GPUs were sold out. He emphasized NVIDIA's strong performance at every stage of AI.

However, U.S. equity markets experienced a sharp intraday reversal on Thursday, wiping out over $2.7 trillion in market capitalization. The market volatility index (VIX) closed above 26, the first time since April.

3. Bank of Japan Governor Hints at Continued Tightening Policy

Japanese Prime Minister Takashi Sana met with Bank of Japan Governor Kazuo Ueda on Tuesday. Ueda indicated that the Bank of Japan is gradually adjusting the strength of its monetary easing policy, suggesting it will continue to cautiously raise interest rates. He noted that the mechanism of inflation synchronizing with wage growth is recovering, and that the central bank will make appropriate policy decisions based on data.

4. Trump's 28-Point Peace Plan Rejected by Ukraine

U.S. media outlets revealed a 28-point Ukraine peace plan proposed by the Trump team. The plan involves territorial, military, and diplomatic arrangements, calling for Ukraine to cede more eastern territory, limit army size to 600,000 troops, and agree to never join NATO.

5. Defense and Chip Agreements Add New Dimension to US-Saudi Ties

Saudi Crown Prince and Prime Minister Mohammed bin Salman visited the White House this week and held a meeting with U.S. President Trump. The visit aimed to promote bilateral relations between the U.S. and Saudi Arabia in the areas of military security and economic cooperation. However, there are doubts about the practical implementation of a number of U.S.-Saudi pledges.

6. Trump's Approval Rating Declines

This week, President Trump signed a bill ordering the U.S. Department of Justice to release documents related to the Epstein case. The latest data shows that Trump's approval rating has fallen to 38%.

7. Trump Takes Hard Line, Threatening Military Action Against Three Latin American Countries

President Trump this week escalated his hard line towards Latin America, threatening to expand military operations to include Venezuela, Mexico, and Colombia. He expressed strong dissatisfaction with Mexico, saying he was considering launching raids in Mexico or deploying U.S. troops to solve the drug problem.

8. Google Unveils Gemini 3

Google this week officially announced its Gemini 3 series of AI models.

9. CICC Plans Major Asset Restructuring, Seeking to Merge China Enterprise Securities and Cinda Securities

CICC issued an announcement on Wednesday stating that it plans to merge China Enterprise Securities and Cinda Securities through a share swap.

10. Netherlands Suspends Intervention in Nexperia

On November 19, the spokesperson for the Ministry of Commerce responded to reporters' questions on related Nexperia issues, expressing China's welcome of the Dutch decision to suspend the administrative order, but emphasizing that this is only a first step.