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Rivian (RIVN) stock: EV maker’s shares slip despite Fed’s rate cut

Rivian Automotive Inc. (NASDAQ: RIVN) saw its shares drop by 7.5% to $12.17 during Friday’s trading session, reflecting a broader market pullback after a recent rally.

The decline comes on the heels of the Federal Reserve’s unexpected decision to cut interest rates, marking the first reduction in over four years.

This move had initially buoyed Rivian’s stock and the wider market, but investors are now recalibrating their expectations amid economic uncertainties.

Rivian stock and Fed’s rate cut

On Wednesday, the Federal Reserve announced a 50 basis point cut in interest rates, lowering the federal funds rate to a range of 4.75% to 5%.

This policy shift signals a potentially more aggressive monetary easing cycle, which is expected to lower borrowing costs for businesses.

For Rivian, a prominent player in the electric vehicle (EV) sector, this could suggest a more favorable financial outlook.

However, despite the immediate positive response from the markets, the company still faces significant challenges.

Rivian remains in a critical growth phase and has yet to achieve profitability.

Although lower interest rates can ease some financial burdens, they do not eliminate the substantial capital expenditures required for manufacturing expansion, supply chain enhancements, and ongoing research and development—especially in a highly competitive industry.

The Federal Reserve’s Summary of Economic Projections hinted at rising unemployment rates through 2025, raising concerns about potential economic slowdowns.

This could adversely impact consumer demand for high-priced luxury EVs like Rivian’s R1T truck and R1S SUV.

Despite more favorable financing conditions, analysts worry that a sluggish economy may dampen sales, presenting hurdles for revenue growth.

What analysts think about Rivian Stock

Despite these challenges, Wall Street analysts generally maintain an “Outperform” rating on Rivian Automotive.

Notably, Colin Langan from Wells Fargo is particularly bullish, projecting an 80% increase in the stock over the next year.

Over the past three months, Rivian’s stock has risen by 19.48%, signaling a positive shift in investor sentiment based on improved business fundamentals.

However, Rivian is still projected to report an earnings per share (EPS) of -$0.90, which is a 24.37% increase compared to the same quarter last year.

Revenue forecasts for the upcoming quarter stand at $1.1 billion, reflecting an 18.09% decline from the previous year.

For the full year, Zacks Consensus Estimates project earnings of -$4 per share and revenue of $4.77 billion, marking increases of 18.03% and 7.67%, respectively.

These revisions in analyst estimates are crucial as they often correlate with stock performance, providing insight into market sentiment regarding Rivian’s financial health.

Challenges for Rivian

While the electric vehicle market is experiencing slower growth than in previous years, Rivian faces additional headwinds.

The company’s cost structure is misaligned with its production capacity, necessitating a cash influx before the anticipated launch of its R2 model.

As Rivian navigates these complex challenges, investors will be watching closely to see how the company adapts to shifting market dynamics and economic pressures.

Rivian (RIVN) stock may currently be in a challenging phase, but its long-term potential hinges on its ability to manage costs and adapt to evolving market conditions.

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Qualcomm approached Intel for a takeover, WSJ reports

In a surprising move that could reshape the semiconductor industry, Qualcomm has reportedly approached Intel about a potential takeover, according to a recent Wall Street Journal report.

The news follows Intel’s recent struggles to stay competitive in the fast-growing artificial intelligence (AI) chip market, a sector Qualcomm has been aggressively pursuing.

While the prospect of such a merger remains uncertain, it has already sparked market reactions, with Intel’s stock rising and Qualcomm’s shares dipping.

A deal of this magnitude would have significant implications for both companies and the broader chipmaking industry.

According to the WSJ report, Qualcomm, known for its dominance in smartphone chips, recently explored acquiring Intel, a storied Silicon Valley giant that has faced mounting challenges in adapting to the AI-driven future of chipmaking.

Intel has long been a leader in the PC chip market but has struggled to keep up with rivals like Nvidia and AMD in the AI sector.

An acquisition could allow Qualcomm to leverage Intel’s extensive manufacturing capabilities and further its ambitions in AI.

Intel’s stock reacted positively to the news, climbing 3.3% following the report, while Qualcomm saw a 2.9% decline.

With a market capitalization of $188 billion, Qualcomm is currently worth nearly twice as much as Intel, positioning it well for a potential takeover.

However, the size and complexity of such a deal would likely attract significant regulatory scrutiny, especially given antitrust concerns.

Intel’s struggles and missed opportunities

Intel has been grappling with a series of challenges in recent years, most notably in its manufacturing division.

The company, once a dominant force in the semiconductor industry, has fallen behind its competitors, particularly in AI chip production.

Missteps, including its decision to pass on an early investment in OpenAI, have compounded its difficulties.

As a result, Intel has lost significant market share to Taiwan’s TSMC and missed out on the explosive growth in AI chips that companies like Nvidia have capitalized on.

Since the start of August this year, Intel’s stock has slumped by 25% following announcements of major layoffs, with over 15% of its workforce being cut, and a suspension of its dividend.

The company is currently attempting a turnaround by focusing on AI processors and building out its chip contract manufacturing business, also known as its foundry.

However, these efforts have yet to pay off as Intel continues to struggle with its transition into the AI-driven chip market.

Qualcomm-Intel merger? Potential regulatory hurdles

Qualcomm’s business model differs significantly from Intel’s.

While Intel has historically manufactured its chips in-house, Qualcomm outsources production and licenses intellectual property from Arm Holdings.

This distinct difference could provide Qualcomm with an advantage, especially as Intel continues to falter in the highly competitive AI sector.

However, a potential Qualcomm-Intel merger could face regulatory challenges.

The size and scope of such a deal would likely trigger antitrust reviews, particularly in the US and Europe.

Additionally, reports suggest Qualcomm may explore selling off portions of Intel’s business to other buyers to alleviate regulatory concerns.

Intel to be removed from Dow Jones Industrial Average?

Adding to Intel’s woes, analysts and investors have speculated that the company could be removed from the Dow Jones Industrial Average due to its poor performance.

Intel’s shares have declined 56% this year, making it the worst performer in the index and the company with the lowest stock price on the price-weighted Dow.

Despite its struggles, Intel has made some recent headway in securing contracts for its foundry.

Notably, Amazon Web Services has signed up as a customer for custom AI chips, offering a glimmer of hope for Intel’s recovery.

A Qualcomm-Intel merger would be one of the biggest deals in tech history, with far-reaching consequences for the semiconductor industry.

For Qualcomm, the acquisition could accelerate its AI ambitions and give it control over Intel’s extensive chipmaking infrastructure.

For Intel, the deal could represent a lifeline in its efforts to reinvent itself amid fierce competition.

However, with significant regulatory hurdles and market uncertainty, it remains to be seen whether this potential deal will come to fruition.

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Why are Dollar Tree and Dollar General stocks falling apart?

Discount retailers like Dollar Tree (DLTR) and Dollar General (DG) are some of the worst performers in the S&P 500 index this year. DLTR has slumped by 50% in 2024, bringing its market cap to $15.8 billion while DG has slumped by over 36%. 

Specialty retailers are struggling

Other discount companies are not doing well. Big Lots has filed for bankruptcy while Five Below (FIVE) stock has plunged by 55%, valuing it at $5 billion. 

This performance is a harsh reversal for companies that did well a few years ago as soaring inflation pushed people to their stores. 

Most notably, their plunge has also coincided with the sell-off among other specialty retailers. Ulta Beauty, which focuses on beauty products, and which counts Warren Buffett as an investor, has dropped by almost 18% this year.

Specialty pharmaceutical companies are also struggling. Walgreens Boots Alliance (WBA) stock plunged so hard that it was kicked out of the blue-chip Dow Jones Industrial Average while CVS Health has dropped by over 27%. Rite Aid, which used to be the third-biggest player in the industry, has filed for bankruptcy. 

On the other hand, leading retail brands are thriving. Walmart stock has soared to a record high, giving it a market cap of over $600 billion. As a result, three of the Walton family appear among the top 20 of the world’s richest people with a combined net worth of over $300 billion.

Costco stock has also jumped to its highest level on record while BJ’s Wholesale Club has jumped by 21.50% this year, valuing it at over $10 billion. 

This performance means that more shoppers are favoring large brands at the expense of the specialty companies like Dollar Tree and Dollar General.

Dollar General vs Dollar Tree stocks

Dollar General’s weak earnings growth

Dollar General has had a good top-line performance in the past few years as high inflation has pushed more people to discount stores. As a result, its annual sales jumped from over $27 billion in 2020 to over $38 billion last year. 

However, high inflation meant that the company had little room to adjust its prices since it prices most of its products for just a dollar. Also, the company has seen substantial wage inflation as the average wage growth in the US has jumped.

As a result, while its top-line growth jumped, its annual profit slowed from $1.7 billion to $1.6 billion in the same period. 

The most recent results showed that its net sales rose by 4.2% to $10.2 billion while its same-store sales rose by 0.5%. However, its operating profit dropped by 20.6% to $550 million while its forward guidance was weaker than expected. In a statement, the CEO said:

“Despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top line results below our expectations for the quarter.”

Dollar Tree’s weak financial results

Like Dollar General, Dollar Tree’s revenues have soared from over $23 billion in 2020 to over $30.5 billion in 2023. Its profitability has also come under pressure, with its net profit moving from $827 million to a $998 million loss last year. Its loss in the trailing twelve months stood at over $1 billion.

Dollar Tree, the parent company of Family Dollar, said that its same-store net sales rose by 1.3% while its consolidated net sales rose by just 0.7% to $7.3 billion. It also reduced its forward guidance for the year, with sales expected to be between $30.6 billion and $30.9 billion.

The most notable statement was that the company was considering strategic alternatives for the struggling Family Dollar business, which it acquired in 2015 for $8.5 billion. With the combined entity now valued at $15 billion, there are concerns that the purchase has not worked out as planned. The CEO also warned about the challenging environment, saying:

“We are encouraged by the continuous progress we are making in the transformation underway at Dollar Tree and Family Dollar, despite immense pressures from a challenging macro environment.”

Outlook for Dollar General and Dollar Tree

The ongoing slump of DLTR and DG stocks has left companies that are trading at a significant discount compared to the market and their peers.

Dollar General trades at a forward price-to-earnings ratio of 14.8 while Dollar Tree have multiples of 13.7. These valuations are significantly lower than the S&P 500 P/E multiple of 21 and Walmart’s 32.

I believe that these companies are going through a cycle, which has been driven by inflation and weak consumer spending. Many consumers have also embraced popular subscription products like Walmart+ and Amazon Prime, which ensure free deliveries.

Therefore, the current volatility and downtrend may continue for a while. However, the stocks will likely bounce back in the long term as the macro climate improves.

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With Fed cutting rate, will the RBI follow suit? Analysts weigh in

With the US Federal Reserve slashing rates by 50 bps, analysts in India have begun to weigh in on whether whether the Reserve Bank of India (RBI) will follow suit or maintain its focus on domestic inflation management.

The US Federal Reserve has announced a 50-basis-point cut in its benchmark interest rate, reducing it to 4.75%–5.00%, marking the first rate reduction in four years.

The decision, unveiled on September 18 following the Fed’s sixth policy meeting of 2024, aligns with Wall Street forecasts and reflects a shift in focus from combating inflation to supporting a weakening job market.

Analysts in India agree that the Indian central bank will be led more by domestic macro dynamics like inflation and risk management to follow in the Fed’s footsteps, however, they differed on the timelines.

An October rate cut by RBI possible: Geojit Financial Services

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said the Fed’s action sets the stage for potential rate cuts by the Reserve Bank of India (RBI).

Vijayakumar suggested that two rate cuts of 25 basis points each could occur by the end of March next year with the first expected to take place as soon as October.

He said,

A rate cut by the RBI in October is possible. Two independent Monetary Policy Committee (MPC) members have already argued for rate cuts because Q1 signals are not very positive. The earnings growth in Q1 was not impressive, and some downgrades indicated signs of weakness in certain areas of the economy. CPI inflation has eased significantly, and it is expected to be around 4%. 

RBI’s response may be delayed until December, says Emkay

Emkay analysts opined that the Fed’s rate cut marked the start of a new easing cycle, but its mixed messaging has left markets uncertain.

According to Madhavi Arora, chief economist at Emkay Global Financial Services, while markets were heavily pricing a 50bps cut, this was still a surprise, as the Fed usually provides clear signalling before making
an outsized cut.

Arora said that overall, the contradiction between starting the easing cycle with an outsized cut while maintaining that the economy is in good shape was a difficult one for Powell to justify.

“While we were never in the recession camp, a significant slowdown is already underway (as evident through recent labor data), and the pace of this slowdown will dictate the pace of rate cuts going ahead,” she said.

Markets are pricing in ~60bps of easing for 2024 and ~150bps for 2025 –significantly more than the Fed’s projections.

For India, Emkay’s experts suggest that the RBI is likely to maintain a cautious stance, with a potential rate cut on the horizon by December.

Arora said with the global market reaction having been muted thus far, the RBI still has flexibility to remain focused on domestic inflation and risk management, albeit there are over 20 days before its next MPC meeting.

She said,

The RBI is likely to maintain its wait-and-watch stance and focus on being ‘actively disinflationary’, with a first rate cut likely by December. A case for an early cut is still less likely, and we continue to see shallow
cuts by both Fed and the RBI in this cycle.

India’s rate cut not before Q4FY25: Prabhudas Lilladher

Prabhudas Lilladher added a more focused view on India’s likely response to the US Fed’s decision, underscoring the divergence between global trends and local economic dynamics.

Drawing comparisons to the post-Global Financial Crisis (GFC) era of 2013-18, Arsh Mogre, economist, institutional equities, PL Capital suggested that the RBI has shown independence from global rate cycles in favour of managing inflation and economic stability.

Mogre said,

The Fed’s projections show a potential further 50 bps cut in 2024 and an additional 100 bps in 2025, marking a prolonged easing cycle…However, the RBI may not follow the Fed’s aggressive easing as India’s rate cycle has historically been driven by domestic macro dynamics, as seen during 2013-18 when the RBI moved independently to control inflation and manage economic stability post-GFC stimulus.

This divergence reflects that India will cut rates only if domestic weaknesses emerge, and not merely in reaction to global rate cycles, he added.

Mogre emphasized that India’s robust macroeconomic fundamentals, inflation under control and a manageable current account deficit, allow the RBI to focus singularly on inflation management.

“The RBI’s rate decisions will be influenced by a durable alignment of inflation toward its 4% target, but food prices remain volatile, pushing a rate cut by the RBI to Q4 FY25,” he said.

What about foreign inflows?

Historically, a rate cut in developed markets triggers a fund flow into emerging markets. With a rate cut of 50 bps, return on fixed income is likely to drop in the US, making emerging markets like India attractive.

Vijayakumar pointed out that foreign institutional investors (FIIs) have been cautious about investing in India due to its high valuations.

However, with limited alternatives and the federal funds rate projected to remain around 3.4% by the end of 2025, more capital is expected to flow into emerging markets, where India stands out with the best growth prospects, he said.

Market expert Ajay Bagga’s views resonated with Vijayakumar’s:

EMs should see continued and growing inflows from global funds seeking returns. India is well positioned, with a strong macro, with monetary space to cut rates, with good corporate earnings and a vibrant primary market, to garner a fair share of the incremental foreign flows here on.

Government officials however downplayed the impact. Chief Economic Advisor V. Anantha Nageswaran said the impact of the Fed’s rate cut on India would be “muted” as much of the effect had already been priced into the markets.

India’s department of economic affairs (DEA) secretary Ajay Seth Seth told Moneycontrol that the foreign portfolio investment (FPI) into India is not expected to undergo a major shift, and the situation will not need close monitoring to ensure market stability. 

Gold, rupee and broader forecast for India

One of the immediate effects of the Fed’s rate cut has been a stronger Indian rupee.

The rupee strengthened to 83.6 against the dollar following the Fed’s announcement, a reaction that reflects broader market optimism about India’s economic prospects in the face of global monetary easing. 

Mogre pointed to the benefits for Indian asset classes like gold, which tends to perform well during periods of monetary easing.

“Additionally, Indian corporates may increase their use of cross-currency swaps to take advantage of lower U.S. interest rates, helping to reduce borrowing costs,” he said.

Looking ahead, Indian markets are expected to benefit from the Fed’s easing cycle, particularly if foreign institutional investors (FIIs) ramp up their investments.

With strong macroeconomic fundamentals, India is well-positioned to attract incremental foreign flows, especially into sectors like real estate, non-banking financial companies (NBFCs), and infrastructure.

However, caution remains. The volatility surrounding the US presidential election in November could lead to temporary fluctuations in global markets, including India.

Bagga acknowledged this, pointing to the historical tendency of U.S. stock markets to weaken before elections and rally afterward.

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Chantico Global CEO Gina Sanchez recommends homebuilder stocks following Fed rate cut

Chantico Global chief executive Gina Sanchez recommends buying homebuilder stocks now that the US Federal Reserve has lowered interest rates by 50-basis points.

Last night, members of the FOMC also signaled another 50 bps of rate cuts by the end of 2024.

Rate cuts are typically a boon for housing stocks as they lower mortgage rates, which makes home-buying more affordable for consumers.

Increased demand then translates to higher prices and eventually a better profit margin for the homebuilders.

A name that particularly pops out to Gina Sanchez as worth owning within this space is DR Horton Inc (NYSE: DHI)

A Harris victory could be a tailwind for DR Horton’s stock

Sanchez is bullish on DR Horton also because the recent survey suggests Kamala Harris will beat Donald Trump to become the next President of the United States in November.

A Harris administration will likely focus on affordable housing and, therefore, could greatly benefit the likes of “DHI”, she told CNBC in an interview on Thursday.

The Chantico Global boss is constructive even though the homebuilder lowered its revenue guidance for the full year to $36.1 billion which missed analysts’ estimates in July.

While Wall Street does currently rate DR Horton stock at “overweight”, the average price target of analysts sits at about $197, which roughly matches the price at which the company’s shares are trading at writing.  

Nonetheless, DHI pays a dividend yield of 0.61% which makes it fairly positioned for solid total returns moving forward.

Home Depot stock could also benefit from lower rates

Other than homebuilders, Gina Sanchez expects home improvement retailers to do well in a rate-cut environment as well.

“The first thing you do when you buy an old house is you go and fix it up,” she said as she discussed her positive view on Home Depot Inc (NYSE: HD) with CNBC today.

Sanchez recommends buying HD shares for a healthy 2.32% dividend yield as well.

The multinational based out of Atlanta, Georgia recently warned of some weakness as consumers grow more cautious – but its warning has failed to make Sanchez any less bullish on its share price, perhaps because the home improvement retailer handily topped expectations in its latest reported quarter.

Last month, D.A. Davidson analyst Michael Baker also reiterated his “buy” rating on Home Depot stock with an upside to $395 as the company has a history of outperforming in an easing environment.

Baker recommends investing in HD at the time also because he’s convinced that it will continue to expand its market share moving forward.

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NATO unveils $2.2 billion theater upgrade plan: what’s in store for AMC and Cinemark?

In a landmark move for the cinema industry, the National Association of Theatre Owners (NATO) has unveiled a sweeping $2.2 billion investment plan to overhaul movie theaters across the US and Canada.

This substantial investment, targeting the eight largest theater chains including AMC Entertainment, Regal Cinemas, and Cinemark, is set to transform the moviegoing experience amidst growing competition from streaming services and ongoing industry challenges.

The eight chains involved—AMC Entertainment, Regal Cinemas, Cinemark USA, Cineplex, Marcus Theatres Corp., B&B Theatres, Harkins Theatres, and Santikos Entertainment—represent over 21,000 screens and account for approximately 67% of box office sales.

NATO President & CEO Michael O’Leary emphasized the significance of this investment, stating,

There is no question that movie fans of all ages love heading to the local theater to see great movies on the big screen. But the competition for consumers’ hard-earned dollars is fiercer than ever. This investment reflects that commitment in a tangible way that every moviegoer will see and enjoy.

Upgrading the theater experience

The massive financial commitment aims to revitalize theaters by enhancing various aspects of the cinema experience.

Key upgrades will include more comfortable seating, advanced immersive sound systems, and state-of-the-art laser projection technology.

Additionally, theaters will see improvements in air conditioning, carpeting, and food and beverage services to ensure a premium and comfortable environment for moviegoers.

These enhancements are expected to address some of the challenges faced by theaters, which have been exacerbated by the rise of streaming services, the COVID-19 pandemic, and ongoing Hollywood strikes.

By investing in the cinema experience, NATO and its member chains aim to attract audiences back to theaters and boost attendance.

Analysts predict AMC could gain market share

The announcement of this investment comes at a crucial juncture for the industry.

Movie theater attendance has been on the decline, with 2023 figures showing approximately 830 million tickets sold in the US and Canada.

While this represents an improvement over 2022’s 700 million tickets, it still falls significantly short of the pre-pandemic numbers of 1.23 billion tickets sold in 2019.

The rise of streaming platforms has further impacted cinema attendance, making it essential for theaters to innovate and enhance their offerings.

AMC Entertainment, one of the largest theater chains, has been particularly affected by financial challenges.

Over the past five years, AMC’s share price has plummeted by 90%.

Despite its struggles, analysts predict that AMC could gain market share as the cinema industry recovers.

Wedbush analysts forecast that AMC, which held a 22.5% market share in 2023, could further solidify its position, especially through its network of premium large-format screens and its expanding role in concert movie distribution.

Analysts also anticipate revenue growth in Europe as AMC undertakes significant theater upgrades.

However, AMC’s heavy debt load remains a major obstacle. Despite reducing its debt by $1 billion since 2022, the company still carries $4 billion in net debt.

This financial strain has overshadowed many positive aspects of the company’s strategy, although AMC’s management is focused on restructuring and alleviating this debt burden.

Box office revenue in the United States and Canada from 1980 to 2023, Source: Statista

Cinemark stock’s positive trajectory

In contrast to AMC, Cinemark has shown more positive market momentum.

Despite a 26% drop in its stock price over the past five years, Cinemark’s stock has rebounded significantly in the last year, with a more than 60% increase.

Analysts attribute this recovery to Cinemark’s strategic approach to balancing its finances and upgrading its theaters.

The company’s decision to prioritize long-term sustainability over-aggressive expansion has resulted in a healthier financial standing and a more optimistic market outlook.

B. Riley Securities analyst Eric Wold recently upgraded Cinemark’s rating from Neutral to Buy, raising the price target from $16 to $27.

Cinemark’s current share price stands at $28.16.

Wold acknowledged that while second-quarter domestic box office results of $1.95 billion were below expectations, the weaker performance was primarily due to production delays caused by Hollywood strikes rather than a decline in moviegoing behavior.

He expressed confidence in the cinema industry’s recovery, particularly once the production pipeline resumes full force.

Will the theater industry see a transformation?

The theater industry is on the cusp of significant transformation with NATO’s $2.2 billion investment aimed at enhancing the cinema-going experience and reigniting consumer interest.

Both AMC and Cinemark stand to benefit from this industry-wide push, although they face distinct challenges.

AMC’s recent refinancing agreement, which extends the maturity of $1.2 billion in senior term loans from 2026 to 2029 and repurchases $414 million of second-lien notes, was intended to improve the company’s financial structure.

However, this move has sparked legal challenges from first-lien noteholders such as Anchorage Capital and Deutsche Bank Securities, who claim the refinancing deal eroded their rights and prioritized junior bondholders.

This legal dispute adds complexity to AMC’s efforts to address its substantial debt load.

As the cinema industry adapts to changing market conditions, the coming year will be crucial for major players like AMC and Cinemark.

With a focus on market share expansion, debt reduction, and enhancing the theater experience, these companies will need to navigate financial hurdles and capitalize on emerging opportunities to secure a brighter future in the evolving entertainment landscape.

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BMO strategist predicts S&P 500 could surge to 6,100 following Fed rate cuts

S&P 500 has already rallied well over 20% this year but Brian Belski, the chief investment strategist of BMO Capital Markets, sees further gains in the months ahead.

The benchmark index could climb further and hit the 6,100 level before year-end now that the US Federal Reserve has announced its first rate cut in four years, Belski told clients on Thursday.

Belski expects a stronger-than-normal fourth quarter after the central bank indicated plans to lower interest rates by another 50 basis points in 2024.

His forecast suggests potential for another 9.0% gain in the S&P 500 from here.

Belski expects the rally to continue

The S&P 500 tanked to about 5,400 in the first week of September but has since recovered back to over 5,700 at writing.

Brian Belski had raised his year-end target to a street-high of 5,600 in May.

“We continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted,” he said in a research note today.

The benchmark index could retest its September low but is fairly positioned to quickly rebound and hit the 6,100 level by year-end, the BMO strategist added.

Brian Belski expects the projected upside to materialize even if the large-cap technology stocks trade sideways as he expects the rally to broaden out moving forward.

US economy may not be headed for a recession

The BMO strategist left his earnings per share expectation unchanged at $250 on Thursday. This suggests he applied 24.4 times multiplied to get to the 6,100 level year-end target.  

He agreed that the presumed price-to-earnings multiple may look elevated but said it is not when compared to the mid-1990s.

Belski finds now is comparable to the mid-1990s if the United States does not end up in a recession in the coming months.

Despite recent weakness in jobs data, many experts still foresee a soft landing ahead. Following the 50-bps rate cut the Fed announced last night, Tom Porcelli, the chief US economist at PGIM Fixed Income said:

This was an atypical big cut. We are not knocking on recession’s door. This easing and this big cut is about recalibrating for the fact that inflation has slowed so much.

Last week, the Labour Department said inflation stood at 2.5% for the year in August versus the Dow Jones estimates of 2.6%.

Excluding food and energy, however, the core CPI was up 0.3% for the month, more than 0.2% expected.

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Traders express concern over Zimbabwe’s 28% stock surge and weakening ZiG

Zimbabwe’s stock market is soaring, but it’s not for the usual reasons. Investors are flocking to equities as a safe haven from the rapidly deteriorating Zimbabwe Gold (ZiG)-backed currency.

Since August 28, the Zimbabwe Stock Exchange’s (ZSE) All Share Index has surged 28%, spurred by a sharp and relentless decline in the ZiG against the US dollar.

Remarkably, since the currency’s introduction in April, the index has skyrocketed by an astounding 160%.

Yet, amid this rally, there’s little reason to celebrate.

According to a Bloomberg report, many traders view the stock market’s meteoric rise as a troubling sign of deeper financial instability in the country.

Rather than reflecting genuine economic optimism, the local stock market—trading entirely in Zimbabwean currency—appears to be mirroring the chaos in currency markets, casting a shadow over any real confidence in the economy.

Zimbabwe stock market surge spurs currency volatility fears

Lloyd Mlotshwa, head of research at IH Securities, voiced his concerns over the current market trend, pointing out the stock market’s close ties to the fluctuations in the parallel currency market.

“The stock market has largely mirrored movements in the parallel market and the influx of ZiG liquidity,” Mlotshwa explained in a Bloomberg report, likening the situation to “the same song on repeat.”

Zimbabwe’s currency, the ZiG, was introduced in April 2023 with the aim of boosting confidence in the local monetary system.

But optimism quickly faded. After starting at an exchange rate of 13.56 per US dollar, the ZiG has since nosedived to 26 per dollar on the parallel market—a 17-day losing streak, the longest since the currency’s launch.

Meanwhile, the official exchange rate has remained somewhat steadier, hovering at 13.97 per dollar.

Zimbabwe stock market: a hedge against inflation

This latest surge in the stock market is seen by investors as a hedge against surging inflation and currency depreciation, phenomena that have plagued Zimbabwe’s economy for over a decade.

The adoption of ZiG was Zimbabwe’s sixth attempt to stabilize its currency in just 15 years, following the dramatic failure of the Zimbabwean dollar, which lost over 80% of its value against the US dollar earlier this year.

However, the ZiG’s continued devaluation has made it clear that confidence in the local currency remains elusive.

Mlotshwa highlighted that a significant portion of this liquidity is concentrated in major companies such as Econet Wireless Ltd., the country’s largest telecommunications company, and Delta Corp Ltd., a leading beverage producer.

These stocks are the preferred choices for investors looking to protect their assets from the currency’s instability.

Zimbabwe central bank struggles to stabilize currency

To address the currency’s rapid decline, Zimbabwe’s central bank has taken steps to bolster the economy.

Governor John Mushayavanhu announced on Thursday that the bank has injected $64 million into the market this month.

This move aims to “effectively mop-up significant liquidity in the market,” in an effort to stabilize the value of the ZiG.

Additionally, authorities have cracked down on street traders, a key component of the black market that exacerbates currency fluctuations.

Despite these efforts, the currency crisis continues to push investors toward stocks as a safer alternative.

Mlotshwa remains cautious, pointing out that while stocks offer some protection against inflation, the underlying issues of currency volatility and economic instability persist.

Economic challenges weigh on Zimbabwe

Zimbabwe’s broader economic struggles are further complicating the situation.

The country is grappling with the effects of a prolonged drought, which has worsened the food security crisis and forced the government to take drastic measures, such as the controversial decision to cull 200 elephants to feed the population.

The drought has also impacted key agricultural sectors, including the tobacco industry, which is a major source of US dollar inflows.

With the possibility of a weak tobacco harvest, concerns about Zimbabwe’s economy are growing.

Despite these economic challenges, there is a glimmer of hope in the form of rising global gold prices.

Zimbabwe, a major gold producer, stands to benefit from the surge in gold prices, which recently reached an all-time high.

The nation’s reliance on gold exports has been a lifeline for its economy, and analysts expect that the Federal Reserve’s interest rate cuts could further boost gold prices in the near term.

As Zimbabwe navigates its latest currency crisis, the surge in its stock market offers both a temporary haven for investors and a worrying indication of deeper economic instability.

While the central bank’s interventions may provide short-term relief, the country’s long-term recovery will depend on addressing the fundamental challenges of inflation, currency depreciation, and agricultural output.

For now, investors will continue to look to the stock market as a buffer against the country’s volatile currency and uncertain economic future.

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Bank of England holds interest rates steady despite US Fed’s jumbo rate cut

The Bank of England (BoE) held its interest rates steady on Thursday, resisting a rate cut despite the US Federal Reserve’s substantial reduction just a day earlier.

The decision follows the BoE’s August cut and signals a cautious approach to monetary easing as inflationary pressures persist.

In an 8-to-1 vote, the BoE’s Monetary Policy Committee opted to maintain the current rates, with one dissenting member advocating for a 0.25% point cut.

The committee justified the decision, citing elevated inflation in the services sector and emphasizing the need for a “gradual approach” to monetary easing.

Te BoE governor Andrew Bailey said:

Inflationary pressures have continued to ease since we cut interest rates in August. The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time. But it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.

Despite the UK’s return to growth this year, economic progress has been slow.

The BoE expects the economy to stabilize at a modest 0.3% growth per quarter for the remainder of the year.

GBP gains against USD

The pound gained momentum following both the BoE’s and the Federal Reserve’s announcements, rising 0.72% against the US dollar to $1.3306 by midday in London, its highest value since March 2022, according to LSEG data.

Global equity markets also rallied, with the pan-European Stoxx 600 index closing 1.35% higher.

On Thursday, the BoE also announced its annual quantitative tightening (QT) plan, confirming that it will reduce its bond portfolio by £100 billion ($133 billion) over the next year.

This reduction will occur through both active sales and the natural maturation of gilts.

While this aligns with the previous year’s pace, some had anticipated a faster QT program.

The BoE continues to face losses on these bond sales, as they are being sold at lower prices than when originally purchased.

Governor Andrew Bailey emphasized the importance of proceeding with QT to create room for future monetary operations, including potential quantitative easing.

The BoE is navigating mixed economic signals.

Headline inflation remains close to the 2% target, but price increases in services—comprising about 80% of the UK economy—have surged to 5.6% in August.

Wage growth, though slightly cooling, remains robust at 5.1% over the three months to July.

Central banks adjust policies as inflation eases globally

This decision to hold rates comes after the US Federal Reserve on Wednesday implemented its first interest rate cut in four years, reducing rates by half a percentage point.

This marks a shift in the central bank’s previous aggressive stance aimed at controlling inflation within the US economy.

Meanwhile, the European Central Bank has also eased monetary policy, lowering rates twice by a quarter of a percentage point at separate policy meetings.

In the UK, economists widely expect the Bank of England to follow suit with additional rate cuts in the coming months if inflationary pressures continue to subside.

Financial markets are already anticipating a further reduction of 0.25 percentage points, bringing borrowing costs down to 4.75% at the Bank’s next meeting in November.

Inflation in the UK has significantly eased after reaching a peak of over 11% in late 2022, driven by the surge in energy prices following Russia’s invasion of Ukraine.

This year, inflation has fallen to more stable levels, nearing the Bank’s 2% target.

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Why Indian investors are rushing to secure Greece’s Golden Visas before new rules take effect

Indian investors are flocking to Greece’s Golden Visa Programme in a race to secure residency permits before new regulations raise the investment threshold.

Between July and August 2024, property purchases by Indian buyers surged by 37%, as they moved quickly to take advantage of the current €250,000 investment requirement.

The Greek government’s decision to raise the minimum investment to €800,000 in high-demand areas starting September 2024 has sparked a wave of urgency among foreign investors, especially from India.

What’s changing in Greece’s Golden Visa Programme?

Introduced in 2013, Greece’s Golden Visa Programme has long been one of Europe’s most attractive residency schemes, offering non-EU citizens the chance to gain permanent residency through real estate investments.

Indian investors have been particularly drawn to the low €250,000 investment threshold, fueling a boom in property purchases in cities like Athens, Thessaloniki, and the islands of Santorini and Mykonos.

However, the Greek government is now increasing the minimum investment in these popular regions to €800,000.

This move aims to stabilize property prices, which have been driven up by intense demand from foreign buyers while encouraging investment in less saturated areas.

Indian investors driving Greek real estate boom

The looming regulatory changes triggered a rush among Indian investors to close deals before the September deadline.

Greek real estate developer Leptos Estates reported selling out its available residential properties due to the influx of Indian buyers, many of whom invested in under-construction projects to secure their residency under the current rules.

These buyers are keen to lock in the lower investment threshold before it jumps significantly, ensuring a foothold in Greece’s thriving property market.

The upcoming hike in the minimum investment threshold is expected to cool property price inflation in Greece’s most sought-after locations.

Over the past few years, Athens, Thessaloniki, and the islands have seen real estate prices rise by 10% year-on-year, making these areas some of the priciest in Europe.

The increase to €800,000 is designed to temper the rising costs in these high-demand areas, encouraging investors to explore less saturated markets where entry prices are lower. This shift could open up new opportunities in emerging regions across Greece.

Why are Indian investors so attracted to Greece?

Greece’s Golden Visa Programme offers more than just residency.

Indian investors are attracted to Greece for its solid property market, which offers annual rental yields of 3-5%.

Additionally, the visa grants access to EU privileges, including high-quality healthcare, education, and the freedom to travel, work, and establish businesses within the European Union.

With property values steadily rising and Greece’s real estate market continuing to show resilience post-pandemic, Indian buyers see long-term financial potential in their investments.

The Golden Visa also provides a pathway to eventual EU citizenship, further adding to its appeal.

While the new investment threshold may slow demand in Greece’s most popular regions, it is expected to shift interest to emerging markets.

Investors will likely explore regions with lower entry costs, seeking opportunities for higher returns in less saturated areas.

As Greece continues its post-pandemic economic recovery, real estate remains a crucial growth driver, with foreign investors—especially from India—playing a key role in shaping the market’s future.

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