Image Source: PixabayUS stocks had a mixed Monday as the previous week’s AI and semiconductor sell-off weighed on the S&P 500 and Nasdaq.The Dow Jones Industrial Average rose by 0.7%, while the S&P 500 fell by 0.3% and the Nasdaq Composite dropped by 1.1%, impacted by ongoing concerns in the tech sector. Nvidia (NVDA) shares experienced their second-worst day since 2022, extending a retreat that began after the company briefly became the world’s most valuable company last Tuesday. Investors are now focused on Micron’s (MU) quarterly results and Nvidia’s annual shareholder meeting on Wednesday, which could provide further direction for the semiconductor sector.This year, the excitement around artificial intelligence has been a major driving force for the market, even as investors juggled the uncertainty of rate cuts and a cooling economy. The S&P 500 has climbed an impressive 14%, marking 31 record closes along the way.When companies reach the scale of Nvidia, even modest fluctuations—what we might call pedestrian pullbacks—can have colossal implications for market capitalization.Nvidia’s recent three-day decline has technically pushed its shares into correction territory. More importantly, the company’s market value has reportedly shrunk by around $400 billion in just three sessions.As we approach the end of June and the first half of 2024, investors are keenly awaiting the release of May’s personal consumption expenditures (PCE) data this Friday. This key inflation measure, favoured by the Federal Reserve, could offer crucial insights into the inflation landscape and future monetary policy.Wall Street is still cautiously optimistic after a record-breaking week when both the S&P 500 and Nasdaq reached new all-time highs. While the market has enjoyed a stellar run, the forthcoming PCE data could add a new layer of intrigue. Investors are eager to see whether the AI-driven momentum can continue or if it will encounter a few speed bumps along the way.Treasury yields remained relatively unchanged as bond traders twiddle their thumbs ahead of crucial economic data.Unlike some market watchers, we’re not overly worried about the narrow group of tech stocks driving recent gains. Here’s why:First, the buzz around AI isn’t just hype; tech firms are meeting and often exceeding high earnings expectations. This performance underpins the optimism surrounding the sector. Second, while tech profit margins lead the charge, other sectors also see margin recovery as cooling inflation helps ease input cost pressures.Given these factors, it’s hard not to like US stocks, mainly riding the AI wave. The tech sector’s robust fundamentals and softlanding expectations provide a strong foundation for continued growth.Still, It’s a busy week on the US macro front with potential implications for FOMC policy. Hence, seeing a minor trend reversal across various asset classes influenced by the upcoming data is unsurprising. In particular, rate-sensitive growth sectors of the S&P 500 may need further evidence of easing inflation to take the next leap of faith and set new record highs.Tech strength rolls on:
S&P 500 performance, tech vs. the rest, 2023-2024

(BlackRock Investment Institute)What could upset the apple cart?

If we dismiss the first two scenarios as highly improbable, we focus on the possibility of an economic growth scare. This outcome remains entirely feasible if the Fed delays interest rate cuts, potentially exacerbating latent economic concerns in the future.On Monday, the US dollar slipped from its eight-week high against the yen as traders remained vigilant for potential government intervention to support the Japanese currency. The yen approached the 160 level, a threshold that previously prompted action from the Ministry of Finance to stabilize it.Investors are now on high alert, wondering if the authorities will step in once again.Japan’s top currency official, Vice Finance Minister Masato Kanda, has issued a stern warning, emphasizing readiness to intervene in currency markets round the clock if necessary. He highlighted concerns over excessive currency fluctuations, noting their potential negative impact on the national economy. Kanda stated, “In the event of speculative-driven excessive movements, we are prepared to take appropriate action.”Minutes from the Bank of Japan’s latest meeting, released on Monday, revealed that Japanese policymakers discussed the possibility of a near-term interest rate hike. One member advocated for an increase “without too much delay” to help bring inflation back down.The minutes sparked a bullish reaction in the yen, briefly dipping below 159 USDJPY, hinting at potential future movements. If the Bank of Japan adopts a more hawkish stance on interest rates and significantly reduces its daily bond purchases, we might see more pronounced shifts in the yen’s value.However, despite verbal intervention and a somewhat hawkish Bank of Japan minutes, the yen is trading at 159.70, just below the psychological threshold of 160 per dollar, as the Tokyo trading kicks into gear. With Japan’s benchmark interest rates still hovering just above zero and no cuts yet implemented in the US, the significant yield differential still favours the dollar from any carry trade perspective.More By This Author:Busy Week Ahead On The US Macro Front, Including Presidential Debate
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