Traders flip strategies as dangerous US stagflationary forces intensify

Ajouté : 2026-05-31

[00:00:06][music] Well, despite all the evidence that there is [music] no resolution of the Middle East conflict, markets have rallied overnight on optimism that there will soon be a deal in the Middle East.

[00:00:20]And that comes despite the fact that during Asia-Pacific trading yesterday, we had reports of strikes on southern Iran by the US and strikes on southern Lebanon by Israel. So despite those reports of a hot war in two spots in the Middle East, markets are optimistic that there will soon be an outcome that will free up the global oil markets and restore more normal trading conditions.

[00:00:46]Certainly, US stocks traded that way.

[00:00:48]Now, because of those reports of strikes yesterday, the Asia-Pacific region was under real pressure. Uh both uh Hong Kong and the ASX 200 down by more than 1% in trading yesterday, having bounced back from lows closer to 2% down for the session. So, it was a tough day in the Asia-Pacific region yesterday, but that was not reflected in US trading in any way whatsoever. NASDAQ up almost 1%, the S&P 500 up by more than half a percent and US investors continue to march to the beat of the earnings drum and completely ignoring the top down concerns flowing from the straits of Hummus. So great rallies and some good reports. Uh we told you yesterday Dollar Tree and Best Buy would be reporting.

[00:01:31]Now, Dollar Tree is the value first retailing option in the US with a very wide spread of its chain across the states. Uh, Best Buy is the high-end appliance retailer. So, yesterday in their quarterly reports, we got a read on the US consumer in terms of their purchases, and it was good news. Dollar Tree up by 18%, Best Buy up by 16% in trading yesterday as investors applauded their first quarter results. and by implication the strength and the confidence of US consumers and that flowed through to some of the more famous names. ARM which had leapt higher in the previous four trading sessions and moderated the previous night gained another 11%. Palanteer up 8% in trading yesterday. Now in contrast gold stocks were under pressure in trading yesterday. We saw Newmont down by 7% and local heavyweights like Evolution and Northern Star down by almost 8% in trading yesterday here in Australia. So gold stocks very much in focus at the moment. There's a good reason for that.

[00:02:35]The gold price in the last 24 hours tested the key support level at 4400.

[00:02:41]Now the good news for gold bugs is that the held and gold has rallied back. It's now trading above 4500. So that's a good rejection of that support level. uh and the gains back would be giving those who are bullish on gold prices some confidence. Uh oil prices too reflected the the dropping concerns of investors.

[00:03:02]Uh the Brent contract trading down around 92.5 US a barrel well down from those highs at 120 we saw at the height of the crisis the height of sentiment around the crisis because I would argue that we haven't seen much movement in the actual uh conflict. uh rather it's the way investors are thinking about the conflict that has changed. Uh we will get US home sales out tonight. Um and next week we wind down the earnings season. Uh this is the last full week.

[00:03:30]Uh and we'll hear from those who have yet been yet to report. One of the key reports next week will be Broadcom, one of the magnificent seven of course, but we'll be looking at the Hulard Packard result uh with a very close uh magnifying glass because it's in some of those old school hardware manufacturers that we've seen some really strong rallies since April 1. And we're thinking here about the Intels, the Oracles of this world, those that have been around for more than 20 years. Fuel Packard, the last of those majors to report. But we'll also hear from Palo Alto, Crowd Strike, uh, and Planet Labs, the uh, the space exposure that we highlighted over the course of this week. Sorry, Planet Labs will be reporting next week. Uh, and there'll be plenty for those who are looking at the SpaceX IPO to examine in Planet Labs results.

[00:04:22]But the top-down picture continues to deteriorate. And the previous night, we got a read on the US national accounts.

[00:04:30]Now, this is the data for April. It's a monthly data, so I'm not going to get too carried away, but the trends that it's illustrating are very concerning because not then as part of the calculation of the growth in the US economy on a monthly basis, economists take into account the growth in prices and strip that out to see what the real growth in an economy is. Now that number that strips out the effect of rising prices is known as the PCE and it's one of the measures of inflation that the Fed has favored in the past. So it's something that economists pay a lot of attention to and unfortunately the news on the PCE is not good. At the core level PCA increased from 3.2% the previous month to 3.3%. And it's that uptrend that's concerning because two months ago that growth on a year-on-year basis in the core PCE was only 3%. So the upward trend in inflation in prices in the growth in prices is a big concern because it ties the hands of the US Federal Reserve. The Fed can't go aggressively dropping rates while inflation is rising. Now the headline read was even worse. It's up to 3.8%.

[00:05:41]So uh on a year-on-year basis, inflation clearly signaling big concerns and less room to move for the US Federal Reserve.

[00:05:49]Now that in itself is concerning, but alongside that, the annual growth rate dropped sharply. Now market was expecting the markets were expecting a read around 2.1%. Instead, annual growth in the US economy came in at 1.6%.

[00:06:06]And it's the combination of these two reads that is really concerning from a top-down outlook because slowing growth and rising inflation is a recipe for what's known as stagflation and stagflation rips economies apart. So we're very concerned about the trends at the moment. The reads are not in alarm bell territory, but the fact that we are seeing them continuing to move in the wrong direction in both cases is a big warning and it probably means that we'll see increased volatility in markets as this top down view has to be factored in. Now growth stalling while inflation stays dangerously high. We've got manufacturing thriving, but the services sector in the US is struggling. We saw that on the PMIs that were released and the ISMs that we've seen over the last couple of weeks and the services sector accounts for around 2/3 of all US economic activity for consumers who in themselves can make up about 2/3 of the whole economy. So services are vital to the outlook for the US economy and the reads that we've seen this week tell us that the services sector of the US economy is struggling and it does appear that tie consumers are cutting back on discretionary spending. Despite those good results we've seen some from from some retailers, the top end of the market is still suffering and the higher elevated bond yields are reflecting the fact that the hope for rate cuts has diminished to the point where interest rate traders are now pricing a rate increase by January next year in the US and that is yet to be reflected in equity market [clears throat] trading.

[00:07:42]So the bond yields have come off slightly from the highs around 4.55 to around 4.45. 45, but they're still well up and that 10-year bond yield is signaling real concerns about the outlook for the US economy and for inflation. So, this could lead to market volatility. Um, the disc consumer discretionary stocks in particular could be a focus as the market starts to price in a much tougher environment for consumers and speculative tech stocks that have traded on such buoyant valuations are clearly in the headlights here. If we're pricing a tougher environment for growth, those that are being priced for the most aggressive growth profiles are the ones most likely to be affected by a change in the growth outlook. So tech stocks in particular could be affected if the mark where if and when the market starts to price these top down concerns about the potential for stagflation. So we're already seeing a rotation in the markets. We've already talked this week about the halo trade, that heavy assets, low obsolescence trade that a lot of institutional investors are putting on right now. They're taking some profits in their highly performing tech stocks.

[00:08:50]They're taking some losses in some of those AI disrupted software stocks and redeploying their funds into the heavy assets with high cash flows. And one of the keys to the future environment could well be free cash flow. Now what we're talking about here is energy stocks, infrastructure stocks, manufacturing stocks, stocks where it takes real commitment and capital to establish a business which means these businesses have deep moes. They have high barriers to entry to their industry and plenty of free cash flow. So, a number of traders currently combing the markets using uh measures like the dividend yields on the platform to identify those stocks with good income with a view that investors are increasingly likely around the world and especially here in Australia with changes to tax treatment, investors are more and more likely to turn towards income producing assets and that includes high dividend yield ETFs and shares.

[00:09:50]Well, an example that is not in that space and might be affected by this rotation is Snowflake, the cloud data platform. Now, Snowflake shares rose 36% last night. In a single session, this multi-billion dollar stock rose 36% and it was on the back of its first quarter report which was very strong. Obviously, revenue was up 33%.

[00:10:14]uh EPS even better was up 63% pointing to the scalability of their business.

[00:10:21]Now Snowflake have done a $6 billion deal with Amazon Web Services. Uh I'm not sure why the market is seeing this as such a positive because that's $6 billion that Snowflake will pay for the services. Uh but at the moment the market's rewarding caps, it's rewarding capacity and it appears to like this Amazon Web Services deal that Snowflake has struck. Uh Snowflake is expecting a further increase in revenues but fairly modestly uh for the second quarter and claiming the management is claiming that Snowflake will be profitable by 2031.

[00:10:55]Now for me that's far too far away. But for some investors who are looking for these sorts of exposures, Snowflake uh is bouncing back from sustained share price pressure. Even after that big rally overnight, it's actually only up 9% year to date. uh an upper double digits for the full year, but uh nonetheless, it had been under pressure uh as a potentially disrupted stock.

[00:11:18]Market now appears to have changed its mind on the back of the first quarter results from Snowflake and shares rose very sharply.

[00:11:26]I mentioned Hula Packard will be reporting next week. Uh and one of the reasons we're looking so closely uh is the fact that we've seen Dell's report this morning. Uh in aftermarket trading, Dell shares are up around 38%.

[00:11:41]So uh aftermarket trading, although it's thin and not always a good indication, does suggest that Dell has delivered a good result in the eye of shareholders and investors. The first quarter sales certainly backed up that sort of move.

[00:11:53]They were up 88%.

[00:11:55]Uh the company revised upward its fullear estimate of revenues for 20% growth. And for a mature business, that's a spectacular number. Uh we're looking there at earnings per share being revised upward by almost 40%.

[00:12:11]So plenty of good revisions upward and as we know earnings revision is one of the shest predictors of share price movement. We're certainly getting positive earnings revision in Dell following on from that result that they put out this morning. Their server business triple uh and a lot of it had to do with the AI demand for servers. Uh Dell is up 147% year to date. So it's not without uh reflection that this has occurred. But nonetheless, fear up with momentum and this morning's third quarter result for Dell likely to support that positive outlook for Dell shares.

[00:12:48]Last on our list today is Genesis Minerals, the gold miner. Um down 10% in trading yesterday as gold dipped below that 4,400 mark. But the big bounce back in gold could see good support. uh gold miners as a sub sector were one of the worst performers on the Australian market yesterday. As mentioned before, a number of those headline stocks really hit hard and dragging the whole mineral sector down in trading yesterday. Uh Genesis is um a leading uh Aussie gold stock. Uh and the pressure we saw in Australia was exacerbated and it does reflect yesterday we saw Australian gold stocks as a group down 7 and a half% Hong Kong down 5% and that does reflect the overtraded nature of gold stocks on the ASX 200. Uh, nonetheless, with spot price trading near that two-month low, there are good reasons for the pressure on these gold stocks in particularly in Australia with this overtraded sub sector, there's high leverage to the gold price and when the view around the gold price changes, uh, the Australian gold stocks can swing wildly against that change in view. In other words, there are high beta play for the for the metal price. Um, and we're still hearing predictions, and personally I don't put a whole lot of stock in them, but we're still seeing many analysts in the commodity space calling for much higher gold prices with a target of $6,000 an ounce for gold mentioned many times.