As the possibility of a July rate hike solidifies, bond traders are now looking ahead to the future beyond this month. Strong data releases, including the latest ISM figures, increase the likelihood of a second hike in 2023 and raise the prospect of upward revisions for 2024 when the Federal Reserve convenes in September.

Of note in the ISM figures is the improvement in the employment print, which shifted from below 50 to above 50 at 53.1. This positive development may prompt the Federal Reserve to revise their projected 4.1% unemployment rate for the end of 2023 during their September meeting, should the employment numbers continue to surpass expectations.

The impact of US bond yields reverberated throughout the financial market overnight, with strong US jobs data sparking a surge to levels not seen in years. The yield on the 2-year Treasury rose above 5.07% on Thursday, reaching a level last observed in June 2007. The catalyst for this movement was a much stronger-than-expected ADP jobs report, which raised concerns that Friday's official jobs report would reveal even better numbers and provide justification for the Federal Reserve to resume its rate-hiking campaign.

The rise in US and European real yields presents challenges, particularly for duration plays. This surge also poses a growing headwind for stocks, especially in the tech sector, which experienced significant gains in the first half of the year.

As JPMorgan, Citigroup, and Wells Fargo prepare to report their quarterly earnings next week, market participants are focused on the potential impact of profit warnings and tight financial conditions. Will these factors push US stocks lower, or will a new round of AI-related announcements, coupled with a resilient consumer and easing inflation, enable the stock market to resume its second-quarter rally?

Meta: Threads Platform's Timely Debut

Market Movers gathered reactions from investors and analysts following the launch of Meta Platforms' Threads platform, designed to compete with Twitter. Within a single night, more than 30 million users signed up for the new service, which seamlessly integrates with existing Instagram accounts.

The introduction of Threads could potentially generate billions of dollars in advertising revenue. Despite the broader decline in the tech sector due to the US ADP jobs report, Meta's stock reached a 17-month high during Thursday's session. Year-to-date, Meta's shares have surged by over 140%.

Microsoft: Awaiting Membership in the $3 Trillion Club

The market is anticipating that Microsoft's stock will surpass a market value of $3 trillion, largely driven by its advancements in artificial intelligence.

The growing popularity of generative AI has already propelled Microsoft's stock by nearly 41% this year. With a new price target suggesting a market cap of $3 trillion, analysts forecast an additional 23% climb over the next 12 months. Microsoft's strong position in software positions it well to capitalise on the expansion of generative AI and its potential to automate a broader range of business processes.

Apple: Potential Upside Driven by Revenue Growth

Despite a turbulent year for the sector, Apple remains a bright spot among tech giants that prioritised efficiency and downsizing. While critics have questioned Apple's growth prospects, we believe the opposite to be accurate as the company heads towards a significant growth renaissance in the next 12 to 18 months.

In our view, the market has significantly underestimated the vast opportunity for upgrading the existing iPhone user base, particularly with the upcoming iPhone 14 and the potential for a mini super cycle with iPhone 15. Approximately 25% of Apple's loyal customer base has not upgraded their iPhones in over four years, presenting a substantial potential for revenue growth.

New call-to-action

Fullerton Markets Research Team

Your Committed Trading Partner