"Pop and Drop!"

Hi There! I am blessed to come from a long line of musicians and singers. I play the guitar, steel pan, and African drums, and you can even catch me singing alto in a choir from time to time…hahaha. Seeing my daughter, nieces, and nephews continue our family’s musical legacy is a beautiful thing to witness.

Recently, one of my nephews released his soca song for Grenada’s biggest cultural event, carnival (Spice Mas). His song, "Let De Mas Play," is a testament to his talent and passion. I am incredibly proud of him, and our entire family shares in that pride. For Spice Mas 2024, his music will make the whole island come alive, continuing the vibrant musical tradition that runs through our family.

Alright, let’s dig in!

Last week, the markets experienced a mix of highs and lows. Major U.S. equity indexes reached new heights early in the week, propelled by the tech sector, only to stumble towards the weekend. Nvidia's significant decline was a notable event, shedding over $220 billion in market cap. Despite this, the S&P 500 managed to extend its streak without a significant sell-off, marking a sense of resilience reminiscent of the pre-2008 financial crisis era. European and Asian markets showed mixed reactions, with political and economic factors playing key roles. Meanwhile, the commodities market saw varied performances, and the crypto sector faced notable liquidations.

Stocks and Equities:

• Major Index Performance:

  • S&P 500: Despite a stumble towards the end of the week, the S&P 500 managed a modest gain of 0.61%, reaching its 31st record close of the year last Tuesday.

  • Nasdaq: Ended the week relatively flat, with a slight increase of 0.03% after setting new highs earlier in the week.

  • Dow: Up by approximately 1.45%, rebounding after being the only major index in the red the previous week.

  • Russell 2000: Small-cap stocks rallied, with the Russell 2000 advancing nearly 0.8%.

Tech Sector:

• Big tech continued to drive market movements. The competition for the world's largest company title between Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA) was a focal point, with each company hovering around the $3 trillion market cap mark.

• Nvidia saw a significant decline, losing over $220 billion in market cap.

Fixed Income:

• The Bloomberg Aggregate Index finished lower last week as bond market volatility persisted. U.S. Treasury yields rose, influenced by mixed economic data and a strong 20-year Treasury auction.

• In corporate credit, $131.5 billion in new debt was added to the Bloomberg Corporate Index, while $35.6 billion was added to the Bloomberg High Yield Index in May.

Commodities:

• Oil: West Texas Intermediate (WTI) crude futures rose approximately 2.6%.

• Gold: Despite a sharp decline following Friday’s PMI data, gold showed recent strength supported by central bank buying.

• Metals: Platinum gained steadily, while copper dipped slightly.

• Agriculture: Agricultural commodities such as cotton, sugar, and wheat futures declined.

U.S. Economic Recap:

• Restaurant Spending: Fell in May, indicating potential downside risks to consumer spending in Q2.

• Residential Construction: Slowed down, with housing starts falling to 1.277 million units annualized in May.

• Retail Sales: Rose 0.1% in May, but categories like furniture sales and restaurant spending declined.

Global Market Recap:

• European Markets:

  • The STOXX 600 gained 0.8% as European markets started to recover from political uncertainties in France.

  • The Swiss National Bank (SNB) cut rates by 0.25% to 1.25% and the Bank of England (BoE) held rates steady.

• Asian Markets:

  • Mixed performance, with Hong Kong and Taiwan seeing gains, while Japan’s Nikkei and greater China experienced declines. India’s Sensex and Nifty 50 set record highs mid-week.

Cryptocurrency Highlights:

• The SEC closed its investigation into Ethereum 2.0, a significant development for the crypto industry.

• The crypto market saw a drop with altcoin liquidations surpassing $440 million.

Here are other key highlights from last week:

• Fetch and SingularityNET AI-tokes surged over 30%.

• SEC commissioner acknowledged the benefits of securities tokenization.

• Doodles will migrate avatar creation ‘Stoodio’ to Ethereum Layer-2 Base.

• Aptos Labs, NBCUniversal partner for Web3 fan experiences and gaming

This is busy week in the markets!

Key U.S. Economic Data to Watch:

• Tuesday:

  • Consumer Confidence: June CB Consumer Confidence dipped to 100.4 from 101.3 in May

• Wednesday:

  • New Home Sales: May sales plunged by -11.3% M/M to 619,000

  • 2024 Fed Bank Stress Test Results: All 31 banks passed the test, indicating resilience against a severe recession

• Thursday:

  • Q1 GDP

  • Jobless Claims

  • Durable Goods Orders

  • Pending Home Sales

• Friday:

  • Core PCE Inflation

  • Chicago PMI

  • Consumer Sentiment

Fed Speakers:

• Monday:

  • FOMC Member Waller: Offered welcoming remarks at the 2024 International Journal of Central Banking Conference in Rome, Italy. He emphasized the importance of collaboration in central banking.

  • FOMC Member Daly: Highlighted the set of challenges faced by the Federal Reserve. She noted the need to be cautious about not loosening policy too early or holding it too long, stressing that restrained demand, rather than improved supply, is necessary to achieve the 2% inflation goal.

• Tuesday:

  • FOMC Member Cook: Addressed issues in commercial real estate, particularly for smaller banks. She mentioned the potential appropriateness of reducing interest rates at some point, expecting gradual improvement in inflation this year with more rapid progress in 2025.

  • FOMC Member Bowman: Expressed her view that no Fed rate cuts are likely in 2024, shifting potential cuts to 2025.

• Friday:

  • FOMC Member Barkin: Scheduled to speak at the Global Interdependence Center's conference in Paris, focusing on economic interdependence and policy implications.

  • FOMC Member Bowman: Will participate in a virtual panel discussion at the Ronald Reagan Presidential Foundation and Institute Leadership Council Conference, providing further insights into her economic outlook.

Earnings Releases:

Notable earnings releases this week are outlined in the chart below. Watch out for Micron (MU) and Nike (NKE).

Key Global Economic Events this week:

• Germany: Ifo Business Climate

• Canada: CPI and GDP

• Australia: CPI

• Japan: Tokyo CPI

• China: Manufacturing and Non-Manufacturing PMI

Trading Tip:

If the high price of the entire week is achieved on Friday, expect higher prices the next week!

Week 6/16/24 - 6/22/24 Recap

Special Tools and Strategies

Understanding Bank Stress Tests and the 2024 Fed Results

On Wednesday June 26, 2024, during extended market hours, the Federal Reserve released the highly anticipated 2024 Bank Stress Test results. These stress tests are important for assessing the resilience of our financial institutions under hypothetical severe economic conditions. They determine whether banks have sufficient capital to weather potential economic shocks, such as deep recessions or market crashes. This year's results offer valuable insights into the stability of the banking sector and what to look for in future economic scenarios.

What Is a Bank Stress Test?

A bank stress test evaluates a bank's ability to withstand severe economic shocks, such as recessions or market crashes. Banks with $50 billion or more in assets are required to undergo these tests by their internal risk management teams and the Federal Reserve. Implemented widely after the 2008 financial crisis, these tests ensure banks have sufficient capital reserves to handle financial turmoil.

How a Bank Stress Test Works

Stress tests simulate adverse scenarios, such as:

• Interest rate changes

• Rising unemployment

• GDP declines

• Stock market crashes

• Commodity price fluctuations

• Currency depreciation

• Housing market crashes

These tests focus on credit risk, market risk, and liquidity risk to assess a bank's financial health during crises.

Advantages and Disadvantages of Bank Stress Tests

Advantages:

• Ensures banks can handle economic shocks.

• Promotes transparency and public confidence.

Disadvantages:

• May require excessive capital retention, restricting credit availability.

• Lack of transparency in test requirements and timing.

2024 U.S. Bank Stress Test Results

The Federal Reserve's 2024 stress test results, released on Wednesday, showed all 31 tested banks remained above minimum capital requirements despite absorbing nearly $685 billion in projected losses. Key findings include:

• Scenario: Severe global recession, 40% drop in commercial real estate prices, 36% decline in house prices, and a peak 10% unemployment rate.

• Capital Ratio Decline: Aggregate CET1 capital ratio projected to drop from 12.7% to 9.9%.

• Losses: $175 billion in credit card losses, $142 billion in commercial and industrial loan losses, and nearly $80 billion in commercial real estate losses.

• Exploratory Analysis: Additional stresses confirmed banks' resilience, remaining above capital requirements.

Vice Chair for Supervision Michael S. Barr noted that while the test resulted in higher losses than last year, it demonstrated that large banks have sufficient capital to manage severe economic scenarios.

These results highlight the stability and preparedness of the banking sector to withstand significant economic shocks.

Disclaimer: This newsletter is strictly educational. The information this report provides does not constitute investment, financial, trading, or any other advice. You should not treat any of the report’s content as such. Please be careful and do your research.