New platform coming soon — AI-Based Analysis with Human-Generated Insights
Stock Target Advisor Market intelligence

Market News & Insights

analyst ratings Canadian Markets Earnings Market Analysis

Stock Market Update & Analysis: July 4th, 2024

By STA Research 3 minute read 0 comments
Rising Oil, Bond Yields and the September Correction Risk (About StockTargetAdvisor.com (STA Research) is a Canadian investment research company specializing in advanced stock research and analysis. Our research team comprises of Financial Professionals) The stock market is entering a critical period as investors increasingly question whether the powerful rally of 2026 is beginning to lose momentum. U.S. and Canadian markets are both facing a combination of rising oil prices, higher bond yields, renewed inflation concerns and geopolitical uncertainty. The S&P 500 has now suffered four consecutive daily declines, while the S&P/TSX Composite has also fallen for four straight sessions and recently reached a five-week low. The central question for investors is whether this is simply a normal pullback within a longer-term bull market or the beginning of a broader market-topping process. The evidence does not yet confirm a major market top, but several warning signs are becoming increasingly difficult to ignore. One of the biggest concerns is the sharp increase in oil prices. Brent crude has moved above $100 per barrel and briefly traded above $108, while U.S. crude has also moved above $100. The surge has been driven largely by escalating geopolitical tensions and concerns about disruptions to global oil supplies. Higher energy prices are particularly important because they can quickly feed into transportation, manufacturing and consumer prices, creating renewed inflationary pressure. At the same time, bond yields have moved sharply higher. The U.S. 10-year Treasury yield has approached 5%, while the 30-year Treasury yield has climbed above 5.3%. Higher yields increase borrowing costs and raise the discount rate applied to future corporate earnings, which can put significant pressure on highly valued growth and technology stocks. This creates what could be described as a negative market combination of higher oil, higher yields and higher inflation expectations. If oil remains elevated, inflation could become more persistent and reduce the Federal Reserve's ability to ease monetary policy. Investors are already becoming more cautious about the path of interest rates, with upcoming inflation data taking on greater importance for the September market outlook. U.S. Market Outlook The U.S. market remains fundamentally supported by strong corporate earnings, artificial intelligence investment and economic growth, but valuations leave less room for disappointment. The S&P 500 remains positive for the year despite its recent decline, but the index is now showing signs of weakening momentum. The Nasdaq is also particularly vulnerable because technology and AI stocks have benefited significantly from the long-running decline in interest-rate expectations. The most important technical question is whether the S&P 500 can stabilize and regain its recent highs or whether the current weakness develops into a more pronounced topping pattern. A failure to recover, followed by a sustained break below key technical support, would increase the probability that the market has entered a larger correction. Canadian Market Outlook The Canadian market faces many of the same risks, but its sector composition creates a different dynamic. The TSX has traditionally benefited from exposure to energy, financials and materials, meaning higher commodity prices can provide an important cushion. However, the recent market action demonstrates that higher oil prices are no longer automatically bullish for Canadian stocks because investors are increasingly concerned about the inflation and interest-rate consequences. The TSX recently fell to its lowest level since early August, with higher oil prices and rising bond yields weighing on sentiment. Precious metals and copper also weakened, adding additional pressure to the materials sector. Canadian financials remain fundamentally important to the market, but higher bond yields can create a more complicated environment. Banks can benefit from stronger economic activity and higher lending rates, but rising borrowing costs can eventually pressure consumers, housing activity and credit quality. Elevated valuations after a strong run also leave financial stocks more vulnerable to a broader market correction. Energy remains one of the strongest areas of the Canadian market because producers and infrastructure companies can benefit directly from higher crude prices. However, if oil prices remain elevated because of geopolitical instability rather than improving global demand, investors could begin to view the energy rally as a temporary risk premium rather than the beginning of a sustainable commodity cycle. Materials and gold could also remain attractive if geopolitical uncertainty persists. Precious metals can provide defensive characteristics during periods of inflation and market volatility, while Canadian investors continue to benefit from the country's significant exposure to mining and natural resources. September Market Forecast The current September outlook is cautiously bearish, but this does not mean that a bear market has begun. The more likely near-term scenario is increased volatility and a potential 5% to 10% move lower as investors reassess valuations, interest rates, inflation and economic growth. The bullish scenario would develop if oil prices stabilize or retreat, Treasury yields move lower and inflation remains contained. In that environment, the current pullback could prove to be a healthy consolidation, allowing both the S&P 500 and TSX to eventually resume their upward trends. The bearish scenario becomes more concerning if oil remains above $100, the U.S. 10-year Treasury yield moves decisively above 5% and inflation expectations continue rising. Such a combination could place significant pressure on equity valuations and potentially turn the current weakness into a deeper market decline. For Canada, the relative strength of energy, financials and materials could provide some protection compared with the technology-heavy U.S. market. However, the TSX would not be immune to a broader global risk-off move, particularly if higher interest rates begin weighing on economic activity. Outlook The September market outlook is becoming increasingly defensive. The market has not confirmed a major top, but the ingredients for a meaningful correction are now in place. Rising oil prices are threatening to reignite inflation, bond yields are approaching levels that could pressure stock valuations, and both U.S. and Canadian indexes are showing weakening short-term momentum. Investors should closely monitor four indicators through the remainder of September: oil prices, the U.S. 10-year Treasury yield, inflation data and the technical support levels on the S&P 500 and TSX. If oil and yields continue higher while the major indexes fail to recover, the probability of a larger correction will increase. If oil prices stabilize, yields retreat and corporate earnings remain strong, the recent weakness could instead represent a temporary pause in the broader bull market.
LinkedInBufferRedditTumblrWhatsApp

Global Markets

Canadian Markets

Canada’s TSX experienced a modest increase amidst subdued trading volumes, buoyed by rises in both gold and copper prices. The uptick in commodity prices provided some lift to investor sentiment, albeit cautiously as they awaited key U.S. economic indicators later in the week.  The jobs data report, could offer insights into the Federal Reserve’s potential interest rate decisions.

European Markets

European shares saw gains driven by optimism surrounding potential interest rate cuts in the United States following recent lackluster economic data. Investors in Europe reacted positively to the prospect of lower borrowing costs, which could stimulate economic growth.

UK Markets

The UK indexes were strong going into the national election, in which the Labour Party has a strong lead. British wage growth is set to slow, as employers look to reduce costs.

Japanese Markets

In Japan, major stock indexes reached new record highs, with automakers, banks, and technology firms leading the rally. The broader Topix index also achieved a historic milestone by surpassing its previous peak set 34 years ago, indicating robust investor confidence in the Japanese market.

Chinese Markets

Chinese markets fell almost 1 percent on Thursday, as foreign investors pulled back on investments in China over economic concerns.

Currency Markets

Currency markets showed movements against the U.S. dollar, with both the pound and the euro strengthening. This shift reflected market expectations and reactions to developments in U.S. monetary policy and economic indicators.

Oil Markets

Conversely, oil prices retreated from recent multi-month highs, declining from the previous session’s peaks. The pullback in oil prices followed recent volatility influenced by geopolitical tensions and supply-demand dynamics in the global energy markets.

Corporate Stock News

AbbVie (ABBV) lowered its 2024 adjusted profit forecast due to $937 million in milestones and increased R&D spending linked to recent acquisitions.

ANZ Group(ANZGY)  and Blackstone (BX) launched a new wealth management fund in Australia targeting ANZ’s private clients, aiming to expand in wealth management.

Apple (AAPL): Evercore ISI updates coverage on Apple with a “Buy” rating and a target price of $250.

Arkhouse Management and Brigade Capital Management increased their bid for Macy’s to approximately $6.9 billion in ongoing negotiations.

Eramet (ERMAY) plans to start production at its Centenario lithium plant in Argentina by November, aiming for 24,000 metric tons of battery-grade lithium by mid-2025.

Ericsson (ERIC) recorded a $1.09 billion noncash impairment charge in Q2 2024 related to its Vonage acquisition.

Federal Reserve officials noted a slowing U.S. economy and reduced price pressures in their June 11-12 meeting but opted for a cautious wait-and-see approach on interest rate cuts.

First Quantum Minerals (FM:CA): J.P. Morgan Chase & Co rates First Quantum Minerals as “Hold” with a target price of $20 per share.

Pluxee (PLNXF) upgraded its 2024 full-year organic revenue guidance for the second time, driven by strong growth in Latin America and other non-European markets.

Tesla’s (TSLA) Model Y became the first Tesla vehicle approved on a Chinese government list for electric and plug-in hybrid models eligible as service vehicles.

Toronto Real Estate: Toronto condo sales dropped by 28% in June.. Sales declined across all property types in Toronto. Greater Toronto Area (GTA) home sales were down by 16% in June, as the rate cut failed to ignite the market.

Vermilion Energy (VET:CA) BMO Capital Markets updated coverage on  Vermilion Energy with a “Outperform” and a target price of $20. STA Research recommends Vermilion Energy as a “Speculative Buy” with a target price $18 per share.

Keep researching

A monthly perspective in your inbox.
Five research sections in the STA Research Professional Newsletter.

Read a sample →

Join the discussion

Your email address will not be published. Required fields are marked *