Aurelia Butler

NEW YORK (Reuters) -A reassuring economic outlook and dovish signals from the Federal Reserve are encouraging investors to look beyond the massive growth and technology stocks that have fueled the U.S. stock market’s gains over the past year. Though rallies in stocks such as Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META) have been the market’s main individual drivers in 2024, the financials, industrials and energy sectors are also outperforming the S&P 500’s 9.7% year-to-date gain. That has eased worries that the market was becoming increasingly tied to the fortunes of a small group of stocks.A belief that the economy will remain resilient while inflation fades has prompted investors to look for winners outside of the megacaps. That view received a boost from the Fed earlier this week, when the central bank expressed confidence it would be able to tamp down inflation and cut interest rates this year, even as it raised its forecast for how much the U.S. economy will grow. “There is more confidence that the Fed is going to be able to … get inflation approaching their longer-term targets without a recession,” said Scott Chronert, head of U.S. equity strategy at Citi, which is overweight the technology, financial and industrial sectors. “You are going to take a little bit more comfort that you can own a bank or an industrial if you think the Fed is going to lower rates at some point here.”Investors in the coming week will be watching Friday’s personal consumption expenditures price index that will offer the latest read on inflation. The end of the first quarter also could prompt volatility as fund managers adjust their portfolios.The broadening rally contrasts with last year, when uncertainty over the economic outlook prompted investors to seek shelter in the so-called Magnificent Seven group of megacap stocks, drawn by their dominant industry positions and strong balance sheets. Only the sectors that housed megacaps – tech, communication services and consumer discretionary – outperformed the S&P 500’s 24% gain last year.This year, the financial and industrial sectors are up 10.1% and 9.9%, respectively, while energy has gained 10.3%. More broadly, the Magnificent Seven – Apple (NASDAQ:AAPL), Nvidia, Alphabet (NASDAQ:GOOGL), Tesla (NASDAQ:TSLA), Microsoft (NASDAQ:MSFT), Meta Platforms and Amazon.com (NASDAQ:AMZN) – have been responsible for 40% of the S&P 500’s gain as of Thursday, according to S&P Dow Jones Indices. That compares with a share of over 60% last year. The wider rally “means that leadership isn’t so concentrated and susceptible to a correction,” said Robert Pavlik, senior portfolio manager at Dakota Wealth. After the Magnificent Seven all posted huge gains in 2023, performance among them has diverged more this year, giving investors another reason to look at the rest of the market.Enthusiasm over artificial intelligence has helped fuel a 90% gain in shares of Nvidia so far this year, while Microsoft has gained 14.5%. On the other side of the ledger, Apple and Tesla are down about 11% and 32%, respectively, for the year. The latest blow for Apple came this week when the Department of Justice alleged the iPhone maker monopolized the smartphone market, highlighting the regulatory risks that could make investors wary of Big Tech.In another sign of broadening, more S&P 500 stocks are outperforming the benchmark, 180 so far this year as of Thursday versus 150 last year. Some corners of the market, such as small caps, still look subdued. The Russell 2000, which is focused on smaller companies, is up just 2.2% year-to-date. Some investors believe the group could get a boost from the Fed’s outlook, which kept in place a previous forecast of three 25 basis-point interest rate cuts, despite the central bank’s upgraded growth projections. “As the Fed starts to lower interest rates, that creates liquidity and makes financing easier,” said Jack Ablin, chief investment officer at Cresset Capital. “Who’s most advantaged? Not the megacap stocks that have unfettered access to capital no matter what rates are, but really the smaller, lesser-known names.”The broadening trend could take a hit if the economy begins floundering or runs too hot, upsetting the so-called Goldilocks narrative that has supported markets in recent months.Some investors also believe the market is due for a pullback after a run in which the S&P 500 has gained 27% since late October. Others, however, are betting the trend will continue. Peter Tuz, president of Chase Investment Counsel, said his firm recently purchased shares of Goldman Sachs and oil services company Tidewater (NYSE:TDW) while reducing its megacap holdings, including selling its Apple stake.”The market is broadening out,” he said. “You’re just seeing that there’s more ways to make money this year than the Mag 7.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Europe’s manufacturers seem to find themselves in a perfect storm. Hardly a day goes by without a complaint about excessive regulation, Chinese competition, or the EU’s inability to match the US’s Inflation Reduction Act. At the confluence of it all is European businesses’ grievance that regulators are cutting them off at the knee rather than championing them.But corporate Europe’s disadvantage may come from policies that don’t go far enough, rather than ones that go too far.Take the car industry. European producers worry they can’t compete against subsidised Chinese-made electric vehicles in their home market. They will soon have something else to complain about: steel and aluminium are set to become significantly dearer inside the EU than elsewhere, given that the bloc is phasing in its “carbon border adjustment mechanism” (CBAM), a tax on the carbon content of certain imported materials.CBAM is itself a spur to innovative production. In its current form, it will secure an EU market for low-carbon steel and aluminium, cement, fertiliser, hydrogen and electricity. The efforts EU companies are making in green steel, for example, could become competitive with domestic “dirty” steel given the EU’s high domestic carbon tax, but would be undercut by carbon-intensive imports in the absence of an emissions-linked border levy.But by creating a market for low-carbon products in these sectors, CBAM also undermines the market for EU products that use those materials as inputs, such as cars. While CBAM protects the level playing field for Europe’s green steel and aluminium producers, downstream manufacturers receive no such protection from imports made with carbon-intensive raw materials or power. What a downstream industry like carmaking should push for, therefore, is to widen the scope of CBAM to cars. This economic logic means CBAM is politically unsustainable in its current form. Once its effects are felt, politicians will face enormous and legitimate pressure to undo the competitive damage experienced by downstream manufacturers such as carmakers. At that point, expanding CBAM to more sectors will be a better policy than reversing it. CBAM is an instance of a broader European trend of making market access conditional on production methods. In recent agreements with trading partners, the EU has sought restrictions on the environment, labour conditions and animal welfare. The bloc is passing domestic laws that in effect constrain the import of goods produced in various offending ways from human right violations to deforestation.Cue accusations of protectionism and value imperialism. But not wanting to consume a product made by enslaved people, or through cruelty to animals, or with excessive carbon emissions, is not in itself either imperialist or protectionist — so long as these are the real motivations, not a cover for resisting foreign goods. If genuinely held, such preferences simply mean that conventional arguments for free trade may not apply in some cases. Attention to production methods, and not just the physical characteristics of a product itself, is admittedly novel. So is the resulting regulation that upsets European businesses. But like it or not, there will only be more regulation of trade in products made by offending methods.One reason is more concerned consumers. Those who in the past may not have cared that their clothes were made by forced labour or the diamond on their ring was extracted in a war zone, now do. Another reason is that more EU producers will adopt the attitude I recommended above: if their production methods are going to be held to high standards, so should those of their competitors selling into the bloc. A third is the rise in services trade and embedded data processing in goods, where “products” and “production methods” are not clearly separable.Europeans are not entirely alone in this newly intrusive attitude. California has successfully banned the sale of so-called unethical pork, even from other US states, on animal welfare grounds. But the EU will be leading it into standard practice — if it chooses to. That may lead to less trade — but also less trade in products whose value depended on concealing what was traded. And European exporters may find they cannot compete on price elsewhere; if so, that would just extend a fine European tradition of competing on quality. The EU will be accused of imperialism. But it will not force others to do what it does, simply insist on deciding what may be sold in its home market. A better word for that is “sovereignty”[email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The inflows into 11 new bitcoin exchange traded funds that received US regulatory approval in January went into reverse this week. Investors will be watching daily data to see if the $850mn that leaked out of the ETFs was a blip, or a harbinger of a bigger pullback for the world’s biggest cryptocurrency.The flows had helped propel the price of the cryptocurrency to a record high of $73,000 this year. But a pullback in its price in recent days has hit investor enthusiasm for the ETFs. At one point this week, bitcoin fell as low as $60,760. “People have looked at how much the price of bitcoin has fallen and they’ve decided to hold off, nobody wants to catch a falling knife,” said James Butterfill, head of research at crypto investment group CoinShares.BlackRock, the world’s largest asset manager, registered inflows of $576mn this week, while rival products issued by firms including Fidelity, Invesco and Franklin Templeton have had minimal new money come in.These flows have been offset by persistent investor withdrawals at Grayscale. The asset manager converted its long-standing bitcoin trust into an ETF in January, but the product carries a much higher management fee than its competitors.“We’re approaching a dead zone for these ETF products where the initial frenzy of pent-up capital has come in already,” said Ilan Solot, senior global markets strategist at Marex. Bitcoin traders will also have one eye on the so-called halving, a network update scheduled for April that will halve the financial rewards for miners that verify new transactions on the network.The event, which happens every four years, is expected to push bitcoin’s price up in the long term, analysts say. Scott ChipolinaWill progress on the Fed’s preferred measure of inflation stall?The US Federal Reserve’s preferred measure of inflation is expected to show no progress was made in reducing price growth in February, underscoring how much work the central bank still has to reach its 2 per cent target.On Friday, the Bureau of Economic Analysis will release February’s personal consumption expenditures index data. The headline PCE index is expected to have risen 2.5 per cent year on year, according to economists surveyed by Bloomberg, up from the 2.4 per cent rate recorded in January. The core measure, which strips out the volatile food and energy sectors and is the one most closely watched by the Fed, is expected to come in at 2.8 per cent, the same rate as the previous month.The data comes in the wake of higher than expected consumer price inflation numbers for February, which showed that headline inflation increased to 3.2 per cent last month, up from 3.1 per cent in January.Above-forecast inflation numbers in January and February have lowered market expectations of the number of times the Fed will cut interest rates this year. In January, traders were betting on six quarter-point cuts by December. That figure is now about three, in line with the Fed’s own expectations.Fed officials this week raised their forecasts for where core PCE would be by year-end to 2.6 per cent, from the previous forecast of 2.4 per cent. Despite the rise in expected inflation, officials still anticipated 0.75 percentage points of cuts this year. Kate DuguidDoes the gold rally have further to go?The price of gold has surged this month in a blistering rally without an obvious individual trigger that left some analysts baffled.After big gains earlier this month the yellow metal has been trading close to the $2,200 per troy ounce mark, and even briefly rose as high as $2,222 on Wednesday. Traders are on alert for signs that the asset has become overbought and might be due a correction, or for confirmation that there are solid reasons for its strength or that it could move higher.Analysts have pointed to various factors for gold’s recent strength, including rising expectations of interest rate cuts from the US Federal Reserve, continued geopolitical tensions in Ukraine and the Middle East, record levels of central bank buying and strong retail demand.Some argue, however, that current prices are unsustainable without an actual fall in interest rates, which would make the non-yielding asset more attractive. Others note that, although gold has hit record levels in nominal terms, prices remain well below their inflation-adjusted peak of more than $3,000.Ewa Manthey, a commodities strategist at ING, said the rally still “has further to go”. She highlighted the continued strength of demand for gold as a safe-haven asset amid conflict in Ukraine and the Middle East and ahead of the US election.Continued buying from investors chasing the gold rally could “push prices to a fresh record”, she added. Changing expectations of rate cuts are likely to be the biggest risk to the rally, say analysts. Future economic data releases, which guide monetary policy expectations, could bring fresh volatility. Stephanie Stacey More

BEIJING (Reuters) -China needs to “reinvent itself” with economic policies to speed resolution of its property market crisis and boost domestic consumption and productivity, the International Monetary Fund’s Managing Director Kristalina Georgieva said on Sunday.”China faces a fork in the road — rely on the policies that have worked in the past, or reinvent itself for a new era of high-quality growth,” Georgieva said in remarks to a meeting of senior Chinese officials and executives from global companies.Officials who spoke at the opening of the China Development Forum expressed confidence China would hit its economic targets, including growth of about 5% this year, and pledged further support for companies in strategically important sectors, an area Chinese President Xi Jinping has dubbed “new productive forces.”But those commitments stopped short of the more sweeping changes urged by the IMF. Georgieva said an analysis by the IMF showed a more consumer-centered policy mix could add $3.5 trillion to China’s economy over the next 15 years. If achieved, that boost would be equivalent to adding output equivalent to more twice the size of South Korea’s economy.To do that China would need to take “decisive” steps to complete unfinished housing stranded by bankrupt developers and to reduce risks from local government debt, the IMF chief said. “A key feature of high quality growth will need to be higher reliance on domestic consumption,” Georgieva, a Bulgarian economist, said. “Doing so depends on boosting the spending power of individuals and families.”Other economists have also urged a new growth model for China. But the IMF remarks were significant in coming at the outset of a two-day meeting where Beijing is looking to push the message China is open for business.Foreign investment flows into China shrank nearly 20% in the first two months of the year, data released Friday showed, and officials have been stepping up efforts to attract investors at a time when many companies have been looking to “de-risk” supply chains and operations away from China.In 2023, foreign direct investment into China contracted by 8%, reflecting a shaky economic recovery and tensions with the United States and its allies on a range of issues.Apple (NASDAQ:AAPL) CEO Tim Cook, the highest-profile executive at the Beijing event, told China state broadcaster CGTN he had an “outstanding” meeting with China’s Premier Li Qiang.Cook was quoted in state-run CCTV Finance saying that Apple’s Vision Pro will hit the mainland China market this year and that the company will continue to ramp up research and development investment in China.”I think China is really opening up,” Cook told a CGTN interviewer on the sidelines of the meeting. He later said Apple’s China-based suppliers had helped deliver gains in more sustainable manufacturing, including lowering water use and recycling metals like aluminum and cobalt.Stephen von Schuckmann, a board member and executive at ZF Group who oversees the auto supplier’s battery-drive operations, said the company was committed to China, which leads the world in electric car sales and production.”Any wording and hype about an exodus in the supply chain is not what we follow,” he said in remarks published by CGTN. “We’re invested. We’re here to stay.” Over 100 overseas executives and investors were attending the China Development Forum and a series of smaller closed-door sessions with Chinese officials on Friday and Saturday.China’s cabinet last week unveiled steps intended to win investment, including expanded market access and pilot programmes to encourage investment in science and technology.On Sunday, Li said China’s previously announced $140-billion plan to issue ultra-long bonds would create a fund to spur investment and stabilise growth.Other officials highlighted Xi’s commitment to drive investment in “new productive forces,” industries that officials have said includes networked electric vehicles, spaceflight and cutting-edge drug development. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China’s economy is at a “fork in the road” where it must choose between past policies or “pro-market reforms” to unlock growth, IMF managing director Kristalina Georgieva said on Sunday, as calls grow for Beijing to do more to boost domestic demand.Speaking at China’s flagship international business conference in Beijing, Georgieva said the global economy showed remarkable resilience to shocks but was headed for growth that was “weak by historical standards” in the medium term as low productivity growth and high debt levels curbed progress. “China faces a fork in the road — rely on the policies that have worked in the past, or reinvent itself for a new era of high-quality growth,” Georgieva told the China Development Forum in Beijing.Opened by China’s premier, Li Qiang, the country’s number two official, this year’s forum is being attended by global chief executives including Apple’s Tim Cook, ExxonMobil’s Darren Woods and HSBC’s Noel Quinn.Li promised that Beijing would prepare regulations to smooth market access for foreign enterprises and efforts to boost domestic consumption.“We will focus on expanding domestic demand,” Li said, adding that China would “accelerate the development of a modern industrial system”.The conference comes as China’s trading partners confront oversupply risks in major industries including electric vehicles and steel, which could spur manufacturers to dump excess goods on global markets. Beijing has set a growth target of 5 per cent for this year, the same as in 2023 but low compared with previous years, and analysts expect the economy to slow further in the medium term on the back of a property downturn and demographic decline.China has responded by promising to invest more in manufacturing and infrastructure but economists are calling for it to do more to stimulate domestic demand. Georgieva’s use of the term “high-quality growth” borrows from the rhetoric of China’s President Xi Jinping, who has urged Chinese industry to move up the value chain into more sophisticated technology and value-added industries.She said with a “comprehensive package of pro-market reforms” China could add 20 per cent or $3.5tn to its economy over the next 15 years. These would include reducing the stock of unfinished housing left over from its real estate crisis and “giving more space for market based corrections in the property sector”. Strengthening China’s pension system in a “fiscally responsible way” could help boost the spending power of individuals and families, she said, while reforms to ensure a level playing field between private and state-owned enterprises could improve the allocation of capital. “Investments in human capital — in education, life-long training and reskilling — and quality healthcare will deliver higher labour productivity and higher incomes,” she said. On the global economy, she said “strong macroeconomic fundamentals” in most of the advanced and emerging countries had helped weather the shocks of the past years. But she said 2024 would be challenging for fiscal authorities in most countries. “They need to embrace consolidation to reduce debt and rebuild buffers, and at the same time finance the digital and green transformations of their economies,” she said.  More

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“This additional growth would amount to a 20% expansion of the real economy over the next 15 years, in today’s terms, that is like adding $3.5 trillion to the Chinese economy,” Georgieva said in a speech to the China Development Forum, calling for steps to improve the sustainability of the property sector, reduce debt risks and focus more on domestic consumption.Decisive steps to reduce the stock of unfinished housing and giving more space for market-based corrections in the property sector could accelerate a solution to current property sector problems and boost consumer and investor confidence, she said.Premier Li Qiang said in his latest official remarks on the housing sector on Friday that China would further optimise property policy. Earlier this month, Li announced an annual growth goal of around 5% this year, a target some analysts said was ambitious.China also needs to rely more on domestic consumption, Georgieva said. It can do so by raising incomes, boosting families’ spending power and expanding the social security system, including the pension system, in a “fiscally responsible way”.China should establish a robust AI regulatory framework, Georgieva said, noting that China leads emerging economies in terms of AI preparedness.China’s industry ministry in January issued draft guidelines for standardising the AI industry, with the aim to have national and industry-wide standards in place by 2026.China has “enormous potential in advancing the green economy,” Georgieva said. While China leads in deployment of renewable energy it needs to sell a greater share of electricity at market prices, to decarbonise more efficiently, she said. She also recommended China expand its emissions trading system (ETS) to the industrial sector.The ETS, which currently covers the power sector, is expected to include new sectors like cement and aluminium by the end of 2025. More

“We cordially welcome companies from all countries to invest in China and deepen their foothold in China,” Li said.China is also pushing to develop emerging industries such as biological manufacturing and will step up development of artificial intelligence and the data economy, Li told the China Development Forum in Beijing. Beijing on Tuesday eased some rules on foreign investment, after investment inflows shrank nearly 20% in the January-February period. China’s cyberspace regulator on Friday relaxed some security rules on data exports that had worried foreign firms in China.China’s inflation rate and the central government’s debt burden are relatively low, leaving room for further macro policy steps, Li told the two-day forum. He pointed to measures China rolled out last year to defuse property and debt risks, which he said have been effective.Li cited 1 trillion yuan ($140 billion) in previously announced ultra-long special treasury bonds, which he said will spur investment and stabilise economic growth.China’s $18 trillion economy, the world’s second-largest, faces headwinds including a property crisis, local government debt woes, industrial overcapacity, deflationary risks and cooling foreign investment. Organised annually by Beijing since 2000, the high-level forum is an opportunity for global CEOs and Chinese policymakers to discuss foreign investment. Regular attendees include Apple (NASDAQ:AAPL) CEO Tim Cook and Bridgewater Associates founder Ray Dalio.Li does not intend to hold a meeting with visiting foreign CEOs at this year’s forum, Reuters reported last week. But the Wall Street Journal reported on Thursday that President Xi Jinping plans to meet a group of U.S. business leaders on Wednesday after the conference, in a sign that Beijing still wants to woo American firms amid rising foreign capital outflows. Overseas firms have been souring on China after it abandoned its ultra-strict COVID curbs in late 2022, due to concerns over the business environment, economic recovery and politics.A new action plan to arrest a slowdown in foreign investment aims to create a level playing field for foreign firms, lift curbs on overseas access in the country’s sprawling manufacturing industry and promote the expansion of areas such as telecommunications and healthcare. Although the economy started the year on a solid footing, analysts have described Li’s annual growth target of around 5% as “ambitious” given the property crisis and tepid household consumption due to sluggish income growth and uncertainty in the job market.($1 = 7.2293 Chinese yuan renminbi) More