Echoes of Dotcom Bubble Haunt AI-driven US Stock Market

Economic

Stocks

Summary:

A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago...

A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago, raising the question of whether prices have again been inflated by optimism over a revolutionary technology.

AI fever, coupled with a resilient economy and stronger earnings, has lifted the S&P 500 index to fresh records this year following a run of more than 50% from its October 2022 low. The tech-heavy Nasdaq Composite index has gained over 70% since the end of 2022.

While various metrics show stock valuations and investor exuberance have yet to hit peaks reached at the turn of the century, the similarities are easy to spot. A small group of massive tech stocks including AI chipmaker Nvidia symbolize today's market, recalling the "Four Horsemen" of the late 1990s: Cisco, Dell, Microsoft and Intel.

The dizzying run in shares of Nvidia, which gained nearly 4,300% in a recent five-year period, stirred memories of how network equipment maker Cisco surged about 4,500% over five years leading up to its peak in 2000, according to a BTIG comparison of the two stocks.

Valuations have grown as well, though many tech champions appear to be in far better financial shape than their dot-com counterparts of the late 1990s and early 2000s. Other measures, such as investor bullishness, have yet to reach the frothy heights of the turn of the century.

The concern is that the AI-driven surge will end the same way as the dot-com boom - with an epic crash. After nearly quadrupling in just over three years, the Nasdaq Composite plunged almost 80% from its March 2000 peak to October 2002. The S&P 500, which doubled in a similar timeframe, collapsed nearly 50% in that period.

While several internet stocks such as Amazon survived and eventually thrived, others never recovered.

"No one exactly knows what will happen with artificial intelligence," said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, noting the same uncertainty about the eventual long-term winners.

Echoes of Dotcom Bubble Haunt AI-driven US Stock Market_1

Echoing the dot-com boom, the information technology sector has swelled to 32% of the S&P 500's total market value, the largest percentage since 2000 when it rose to nearly 35%, according to LSEG Datastream. Just three companies, Microsoft, Apple and Nvidia, represent over 20% of the index.

However, tech stocks are more modestly valued now than at the peak of the dot-com bubble, trading at 31 times forward earnings, compared to as high as 48 times in 2000, according to Datastream.

Echoes of Dotcom Bubble Haunt AI-driven US Stock Market_2

The difference is clear in the valuations of Nvidia and Cisco, a key provider of products supporting internet infrastructure, whose stock has yet to rescale its peaks of the dotcom boom.

While both stocks have soared, Nvidia trades at 40 times forward earnings estimates, compared to Cisco's 131 level reached in March 2000, according to Datastream.

Echoes of Dotcom Bubble Haunt AI-driven US Stock Market_3

Capital Economics analysts also note that the current rally is being fueled more by solid earnings outlooks rather than growing valuations, a sign that fundamentals are more of a driver this time.

Forward earnings per share in sectors containing today's market leaders - tech, communication services and consumer discretionary - have been growing faster since early 2023 than the rest of the market, a Capital Economics analysis showed. By contrast, expected earnings in the sectors grew at a similar pace to the rest of the market in the late 1990s and early 2000s, while their valuations soared faster than for other stocks.

More broadly, the S&P 500's price-to-earnings ratio of 21 is well above its historical average but below the roughly 25 level reached in 1999 and 2000, according to Datastream.

"Our base case is that this tech bubble won't burst until the valuation of the overall market has reached the sort of level that it did in 2000," Capital Economics analysts said in a note.

Dotcom investors were much more euphoric by some measures. Bullish sentiment in the widely followed American Association of Individual Investors survey, often seen as a worrisome indicator at high levels, reached 75% in January 2000, just months before the market peaked. It recently stood at 44.5%, compared to its historical average of 37.5%. Echoes of Dotcom Bubble Haunt AI-driven US Stock Market_4

Echoes of Dotcom Bubble Haunt AI-driven US Stock Market_4

While an AI bubble is not a foregone conclusion, many investors are wary that metrics could become even more stretched in coming months if U.S. growth remains robust and tech stocks continue charging higher.

"There are a lot of similarities," said Mike O'Rourke, chief market strategist at JonesTrading. "When you have a bubble, usually it's rooted in ... some true, positive, fundamental development that is behind it and that creates that enthusiasm for people to pay any price for things."

Source: Reuters

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Forex

Economic

Yen languishes at 38-year low

The Japanese yen ploughed a fresh 38-year low against its US counterpart on Tuesday, hitting 161.75 per dollar, amid ongoing doubts about the Bank of Japan's ambition to normalize monetary policy and an unexpected pickup in US yields. There's been no letup in the yen's slide over the past month, yet there's been a notable absence of verbal warnings by Japanese officials during this latest phase of depreciation.

Japan's finance minister, Shunichi Suzuki, provided the usual commentary that the government continues to watch the market closely, but there was no explicit intervention warning. Whilst it's possible that Suzuki may not want to take any action until the newly appointed vice president for international affairs, who's in charge of exchange rate policy, takes up his post on July 31, it could also be an indication that the tolerance level for FX intervention has risen.

But in some relief for the yen, the currency was trading slightly firmer against other majors, with the weakness against the dollar mostly down to a stronger greenback.

Dollar extends gains

Although investors have grown more confident lately that the Federal Reserve will be able to slash rates twice this year, the dollar has been in a shallow uptrend since early June, as other central banks are ahead in the race to cut. In recent days, the dollar has been supported by rising Treasury yields, lifted by Donald Trump's improved prospects of winning November's presidential election after Biden's dismal performance in last week's TV debate.

A Trump presidency is seen as cutting taxes, which would likely add to America's already very high national debt.

The reluctance of Fed officials to ease up on their hawkish stance has also been keeping the dollar elevated. Friday's drop in core PCE inflation and yesterday's weaker-than-expected ISM manufacturing PMI were the latest evidence that inflationary pressures are subsiding and that the economy is cooling somewhat.

Fed Chair Jerome Powell is due to participate in a panel discussion with ECB President Christine Lagarde at the ECB's annual forum in Sintra, Portugal, at 13:30 GMT. Any suggestion by Powell that a September rate cut could be on the table might see the dollar pull back.

Euro weighed by politics and CPI fall

As for the euro, the primary focus right now is on France's legislative election, where parties are racing to form alliances ahead of the second vote on Sunday. Although the National Rally party took the lead in the first round, tactical voting could prevent it from forming a government after the second round. With many constituencies facing a three-way runoff, the centrist and left-wing alliances are encouraging their candidates that came third to stand down to give the second-placed candidate a better chance of beating the National Rally candidate.

Although this is more likely to lead to a hung parliament, it might be preferable, for investors, to having the far right in power, hence, the euro could gain on the back of it. Today, however, the euro is on the backfoot following the flash CPI readings that showed headline inflation fell back to 2.5% in June, boosting the chances of another rate cut this year.

Later in the day, the JOLTS job openings out of the US will be watched ahead of Friday's jobs report.

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Samantha Luan

Economic

Cryptocurrency

Early today, a significant market move caught the attention of the crypto community. A Bitcoin whale or institution offloaded $114 million worth of BTC to Binance. Moreover, this transaction rattled the entire market, pushing Bitcoin price lower than $63,000. In addition, fears of another selloff mounted.

Bitcoin Entity Offloads Massive BTC Stash

According to Arkham Intelligence data, at 1:40 UTC+8, a whale or institution transferred 1,800 BTC, valued at $114 million, to Binance. Furthermore, this transfer caused the Bitcoin price to drop from $63,800 to $62,900. In addition, this entity has been active in the market recently.

Previously, it had withdrawn 6,725 BTC, equivalent to $437 million, from Binance and OKX. However, over the past five days, it transferred 3,481 BTC worth a whopping $217 million back to Binance at an average price of $62,300. Currently, the whale or institution still holds 7,867 BTC, worth approximately $494 million.

If the price of BTC rebounds again, the entity might capitalize on the recovered price just like it did today. This could lead to heightened volatility in the market. Moreover, other market participants are also divesting their Bitcoin holdings, raising concerns of a further price drop.

In the last 72 hours, Bitcoin miners have also been selling. They offloaded over 2,300 BTC, valued at approximately $145 million. Furthermore, this increased selling pressure has also contributed to the recent price decline. This selloff is noted as a strategy to limit losses after the fourth Halving event that curtailed block rewards from 6.25 BTC to 3.125 BTC.

Additionally, the German government has been liquidating its Bitcoin holdings. On Monday, July 1, it moved over 1,500 BTC. Out of this, 400 BTC worth over $25 million was sent to exchanges like Coinbase, Kraken, and Bitstamp. Since June, the total BTC selloff by the German government has reached over 2,700 BTC.

These events have led to heightened market activity and volatility. The cumulative effect of whale movements, miner sell-offs, and government liquidations has intensified the downward pressure on Bitcoin price. Moreover, last month, the U.S. government also sold a whopping 4,000 BTC with speculations of another selloff impending.

What’s Next For BTC Price?

CryptoQuant CEO Ki Young Ju commented on the current market situation. He termed the current Bitcoin trend as “boring” but also branded it as an “opportunity” to enter the market. In a post on X, he wrote, “Bitcoin market is boring with less volatility. Less interest from both buyers and sellers. Retail exit liquidity not ready. Ideal time for whales to accumulate $BTC. We’re still in a bull cycle. Boring is an opportunity.” Bitcoin Price Slips Below $63K As Entity Dumps $114M BTC To Binance, What’s Next?_1

Bitcoin Price Slips Below $63K As Entity Dumps $114M BTC To Binance, What’s Next?_1

Ki Young Ju’s observations suggest that the market’s current lack of volatility could be a strategic accumulation period for whales. However, despite the recent sell-offs, he believes the bull cycle is still intact. Furthermore, crypto analyst Ali Martinez provided additional insights.

He noted, “Historically, when #Bitcoin has had a negative June, it tends to bounce back strongly in July. In fact, $BTC has shown an average return of 7.98% and a median return of 9.60% during this month.” Hence, Martinez’s historical analysis implies that despite June’s downturn, BTC could see significant gains in July.

The recent actions by large holders, miners, and governments have created a complex market environment. The whale’s transfer of 1,800 BTC to Binance, along with the significant miner and government sell-offs, has increased selling pressure and volatility.

At press time, the Bitcoin price was down by 0.73% to $62,837.79 on Tuesday, July 2. Whilst, the crypto boasted a humongous market valuation of $1.23 trillion. However, the 24-hour trade volume for Bitcoin clocked a whopping $21.75 billion, potentially due to the huge selloffs.

Source：Coingape

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Warren Takunda

Economic

Stocks

The U.S. dollar hit a near 38-year high to the yen on Tuesday following a surge in Treasury yields as investors contemplated prospects of a second Donald Trump presidency.

Japan's weak currency helped lift the Nikkei above the psychological 40,000 mark for the first time in three months, making the index an outlier as many other regional stock markets struggled.

Crude oil rose, building on a strong rally in the previous session, as the northern hemisphere summer driving season got underway.

The dollar rose as high as 161.745 yen on Tuesday, a level not seen since December 1986.

The currency pair is highly sensitive to U.S. yields and the benchmark 10-year Treasury yield climbed nearly 14 basis points to 4.479% to start the week.

Analysts attributed the move to expectations for Trump winning the presidency, resulting in higher tariffs and government borrowing. The 10-year yield stood at 4.4415% in Tokyo hours.

President Joe Biden's faltering debate performance last week was the trigger behind the yield surge, but an additional catalyst came with the Supreme Court's ruling on Monday that Trump has broad immunity from prosecution over attempts to overturn his 2020 election loss, said Chris Weston, head of research at Pepperstone.

"Bond traders have an eye on Trump's increasing odds of taking the White House, and the market senses Trump 2.0 will be inflationary," Weston said.

The yen's malaise has traders on high alert for Japanese intervention after authorities spent some 9.8 trillion yen ($60.65 billion) in the days spanning late April and early May, when the currency plunged to 160.82 per dollar.

Japanese finance minister Shunichi Suzuki reiterated on Tuesday that officials are watching currency markets with vigilance, but noticeably didn't repeat a warning that they stood ready to act.

"Market participants continued to ignore his comments and appear to be testing the Ministry of Finance's resolve to support the JPY," said Carol Kong, a strategist at Commonwealth Bank of Australia.

"The path of least resistance is therefore further gains in USD/JPY."

As a result, the Nikkei rallied more than 1%, putting it head and shoulders above other major markets in the region.

Hong Kong's Hang Seng added 0.4% amid gains for property stocks, but mainland blue chips were flat, and the tech-heavy Taiwan benchmark dropped 0.74%.

U.S. S&P 500 futures pointed 0.13% lower, following a 0.27% rise overnight for the cash index.

Pan-European Stoxx 50 futures were off 0.12%, after the Stoxx 600 advanced 0.3% on Monday.

The euro gave back some ground to the dollar on Tuesday following a relief rally, with the far-right National Rally (RN) not taking as many votes as some polls had predicted in France's weekend election.

Rival political parties have joined forces to try and prevent the RN from taking a majority in Sunday's second round, bowing out of constituencies where another candidate is better placed. The deadline to drop off the ballot is later on Tuesday.

The euro eased 0.12% to $1.0727, after pushing as high as $1.0776 on Monday for the first time since June 13.

Sterling lost 0.14% to $1.2633.

China's yuan slumped to a fresh seven-month low, weighed by a broad shift in the central bank's daily guidance that analysts say indicates authorities are willing to allow the currency to ease further.

In offshore trading, the dollar edged as high as 7.3085 yuan , the highest since mid-November.

U.S. monetary policy will be in focus later in the day, when Federal Reserve Chair Jerome Powell speaks at an event in Sintra, Portugal hosted by the European Central Bank.

A parade of potentially crucial U.S. employment data begins on Tuesday with the JOLTS job openings report, a Fed favourite, followed by ADP numbers a day later and the all-important monthly payrolls figures on Friday.

In energy markets, Brent futures added 0.25% to $86.82 per barrel, building on a 1.9% overnight rally. U.S. West Texas Intermediate (WTI) crude rose 0.17% to $83.52, extending a jump of 2.3% from the previous session.

($1 = 161.5900 yen)

Source: Reuters

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Glendon

Economic

The Australian Dollar (AUD) has displayed surprising resilience in recent days, clinging to its gains against the US Dollar (USD) in the lead-up to the highly anticipated release of US Non-Farm Payrolls (NFP) data. This strength defies expectations, as the AUD is typically sensitive to fluctuations in the USD, particularly when major economic data releases are looming.

RBA's Hawkish Shift Bolsters the Aussie

A key factor underpinning the AUD's strength is the recent hawkish tilt of the Reserve Bank of Australia (RBA). Minutes from the RBA's June meeting revealed concerns about persistently high inflation, prompting the central bank to signal a potential delay in anticipated rate cuts. This shift in stance stands in contrast to the dovish leanings of many other central banks, including the US Federal Reserve, which has hinted at potential rate reductions later in 2024.

The RBA's hawkish rhetoric has boosted investor confidence in the Australian economy, leading to increased demand for AUD-denominated assets. This, in turn, has put upward pressure on the currency's value.

US Data Woes Weigh on the Greenback

The USD has been under pressure recently due to a string of weaker-than-expected economic data releases in the United States. This has fueled speculation that the Fed might be more inclined to adopt a dovish stance in the coming months, potentially slowing down the pace of interest rate hikes or even resorting to cuts.

A weaker USD naturally benefits the AUD, as it becomes relatively more attractive to investors seeking higher returns. This dynamic has helped the AUD maintain its ground despite the impending release of the NFP data.

NFP: A Potential Turning Point?

The US NFP report, scheduled for release on [release date, likely upcoming Friday based on current date], is a closely watched gauge of the American labor market's health. A strong NFP figure could reignite confidence in the US economy and bolster the USD. Conversely, a weak report could exacerbate concerns about a potential slowdown, further weakening the USD and potentially pushing the AUD even higher.

The Trade Surplus Factor: A Cause for Caution

While the AUD's recent performance is encouraging, some analysts caution against excessive optimism. Australia's trade surplus for May came in lower than expected, potentially indicating a slight softening in export demand. This could dampen the AUD's upward momentum in the long term.

Retail Sales Offer a Glimmer of Hope

However, positive data on Australia's retail sales for May offers a counterpoint. The figures suggest healthy consumer spending, a crucial indicator of economic strength. This could help mitigate concerns about the trade surplus and support the AUD.

Looking Ahead: A Balancing Act

The coming days will be crucial for the AUD. The NFP data will be a major market mover, potentially influencing the direction of both the USD and the AUD. The AUD's future trajectory will also depend on how the RBA navigates the delicate balance between curbing inflation and supporting economic growth.

Conclusion: A Test of Resilience

The AUD's current strength reflects a confluence of factors – a hawkish RBA, a weaker USD, and positive domestic data. However, the upcoming NFP release and potential future economic headwinds present challenges. The AUD's ability to maintain its gains in the face of these uncertainties will be a true test of its resilience.

This period of anticipation offers a fascinating case study for currency markets, highlighting how central bank policy decisions, global economic data, and domestic economic indicators all intertwine to influence currency valuations. The outcome will be closely watched by investors around the world, with significant implications for both the Australian and US economies.

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Alex

Economic

In June, Association of Southeast Asian Nations (ASEAN) manufacturing business conditions saw another solid improvement, as revealed by S&P Global Purchasing Managers’ Index (PMI) data. This positive development marked the end of the second quarter on a high note for the region’s manufacturers. The headline PMI for June remained at 51.7, the same as in May, indicating a modest improvement in business conditions for the sixth consecutive month.

New orders experienced substantial growth, driving an increase in output, while employment levels returned to growth for the first time in three months, albeit marginally. However, manufacturers continued to face rising input prices, with both input cost and output price inflation accelerating from the previous month. Cost burdens grew at the fastest rate since February, and selling prices increased for the third month in a row, S&P Global said in a press release.

The rise in new orders was primarily driven by domestic demand, as exports continued their trend of decline, with the rate of contraction accelerating to the fastest in 19 months. Levels of outstanding business grew for the fourth consecutive month, indicating ongoing pressure on capacity. Purchasing activity expanded for the eighth month in succession, while pre-production inventories rose, although the pace of accumulation slowed. Vendor delivery times lengthened, consistent with the previous month, and holdings of finished goods diminished at the fastest pace since June 2021 as some producers used existing stock to meet order requirements.

Despite these challenges, ASEAN manufacturers maintained an optimistic outlook, with business confidence levels similar to those seen in May. Overall, ASEAN manufacturing continues to demonstrate resilience, showing solid improvements in new orders and output despite facing rising costs and declining export demand. The sector’s optimistic outlook suggests a continued positive trajectory in the coming months.

Commenting on the ASEAN Manufacturing PMI data, Maryam Baluch, economist at S&P Global Market Intelligence said: “The ASEAN manufacturing sector signalled a sustained improvement in operating conditions as we approached the midway point of the year. Demand conditions strengthened further, thereby supporting solid upticks in manufacturing production and purchasing activity. Moreover, job creation was recorded for the first time in three months.

“Turning to prices, cost burdens and output charges rose at stronger rates in June, the paces of inflation moving closer to their respective long-run averages. The PMI price gauges will need to be monitored closely in the second half of the year. Rising inflationary pressures could mean central bank policy rates staying higher for longer.”

Source:Fibre2Fashion

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ING

Commodity

Energy

Energy – OPEC oil production steady in June

The oil market jumped to its highest level in over two months on rising geopolitical tensions in the Middle East along with an intensifying hurricane in the Caribbean. The Israel-Hamas conflict continues to escalate and increases the risk of oil supply disruptions. Recent reports also suggest that the record-breaking Hurricane Beryl is intensifying and raising the chances of flooding rains and storm surges which could hit oil operations in the Gulf of Mexico later this week. This has also raised concerns over a severe hurricane season that is yet to come. Meanwhile, the prompt time spreads for both ICE Brent and NYMEX WTI continue to trade in backwardation, suggesting concerns over tightness in the market in the short term.

Preliminary OPEC output numbers for June are now starting to be published. OPEC production declined by 80k b/d month-on-month to 26.98m b/d in June, according to a Bloomberg survey. The monthly production remained almost steady for a third month straight as some key members continued to produce oil above agreed limits. According to the survey, the numbers show that Iraq and the UAE have yet to fully implement cutbacks as per the agreed production quota since the start of the year. It is reported that Iraq reduced output by 30k b/d to 4.25m b/d last month, however still remains about 250k b/d above the production quota. Saudi Arabia's production remained largely steady at 8.99m b/d, while it reduced oil exports by around 9% to 5.61m b/d in June. Lastly, Nigeria reported a production loss of 30k b/d to 1.43m b/d last month. Last month, OPEC+ members planned to gradually reverse production cuts and begin to revive output from the fourth quarter.

In natural gas, European natural gas prices continue to trade under pressure this morning after falling sharply yesterday. TTF prices were seen trading near EUR33/MWh in the early trading session today, down from the highs of EUR35/MWh seen a day earlier. Elevated inventories and steady supplies from Norway are currently weighing on prices. Storage in Europe continues to increase, standing at 77.4% full, largely in line with levels seen at the same stage last year and above the five-year average of 67.3%. However, forecasts for hotter weather – especially in the southeast region of Europe – raised hopes for increased power needs over the coming months that might support gas consumption in the near term.

Metals – LME copper on-warrant stocks decline

LME data shows that on-warrant inventories for copper fell by 8,000 tonnes to 163,025 tonnes as of yesterday. This was the biggest intraday decline since 18 April 2024. The majority of the outflows were reported from warehouses in Gwangyang, South Korea. Meanwhile, cancelled warrants for copper rose by 7,925 tonnes to 17,025 tonnes yesterday, the highest since 7 May 2024. Total exchange inventories declined slightly by 75 tonnes after rising for 19 consecutive sessions to 180,050 tonnes as of yesterday.

Southern Copper is said to be restarting activities at the Tia Maria copper project in Peru. The mine is expected to have a production capacity of 120kt of copper and would be operational by 2027. The mine would help to ease the series of supply setbacks seen in Peru, including the closure of a major copper mine in Panama.

Agriculture – USDA slashes corn and wheat crop condition ratings

The USDA's latest crop progress report shows that the USDA trimmed its crop condition ratings for US corn and wheat following dry weather conditions. The USDA rated 67% of the corn crop in good to excellent condition as of 30 June, lower than 69% a week ago but up from 51% seen at the same stage last year. Similarly, the agency rated 51% of the winter wheat crop as good to excellent, lower than 52% a week ago but higher than the 40% seen at the same stage last year. The USDA rated around 67% of the soybean crop in good to excellent condition, unchanged from a week ago, and up from 50% seen last year. As the harvest progresses, 54% of the winter wheat area has been harvested, up from 33% at the same stage last year and higher than the five-year average of 39%.

Cocoa prices have been volatile recently as weather conditions in the major producing countries in West Africa remain mixed in the current growing season. The weather has turned favourable in some of the countries, including Ghana and Nigeria, with a combination of rains and increasing sunshine which could help the plants to grow. In contrast, Ivory Coast witnessed some heavy showers that disrupted the mid-crop activities.

The USDA's weekly export inspection data for the week ending 27 June shows that the US grain exports slowed over the last week. Export inspections for corn stood at 819.6kt over the week, lower than 1,153kt in the previous week, but up from the 675.9kt reported a year ago. Similarly, US soybean export inspections stood at 303kt, down from 349.9kt a week ago but up from the 264.2kt reported a year ago. For wheat, US export inspections came in at 309.8kt, compared to 343.7kt from a week ago and 342.2kt reported a year ago.

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