While the JSE pared some losses on Friday, global stock markets remained under pressure as investors weighed potential US-China tension and the prospect of an interest rate cut by the Federal Reserve.
A continuation of the broader shift away from major tech stocks this week weighed on global markets as investors dumped shares of artificial intelligence companies amid the growing likelihood of a September interest rate cut by the Fed.
Big technology stocks have been out of favour in the past few months, fuelled by a frenzy surrounding AI technology. This has, however, propelled a select few of those in the sector, including Nvidia, to record highs, sparking concerns that they have become overvalued.
“Stocks ticked lower on Friday, capping off a week defined by a significant market rotation driven by hopes of easing interest rates,” said FXTM senior research analyst Lukman Otunuga. “Despite the daily decline, the broader theme of the week remains a shift towards names poised to benefit from potential interest rate cuts by the Fed, such as small-cap stocks”.
“This market rotation, long overdue in the eyes of many, is characterised by investors re-allocating funds from big tech stocks, which have performed exceptionally well, and redirecting them towards other areas of the market,” said Otunuga.
“However, a closer look reveals that the situation may not be as bleak as it seems. Nearly as many US stocks are rising as they are falling, suggesting that there may be some underlying resilience in the market.”
The JSE all share lost 0.51% to 79,922 points, with most major indices weaker except for banks and financials. The top 40 fell 0.57%.
For the week, the all share was down 2.16%, food producers and precious metals bucking the trend.
Meanwhile, news that US President Joe Biden’s administration was considering the most severe trade restrictions available if companies continued to ship advanced semiconductor technology to China, sparked concern about potential trade tension between the world’s biggest economies.
The US government has already blocked Chinese access to advanced chips and the equipment to make them, citing security concerns. It has urged its allies to follow suit.
“The stronger dollar and fears of a broader trade war between the US and China are weighing on market sentiment,” said TreasuryOne currency strategist Andre Cilliers. “However, the dollar gains are capped as markets price in a September rate cut by the Fed and a possible two further cuts this year.”
At 6.20pm, the rand had weakened 0.15% to R18.2693/$, while it was little changed at R19.8903/€ and R23.6037/£. The euro was flat at $1.0887.
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