Investors Club podcast: Chinese EVs, Europe's dilemma & US sanctions (8:07)

CIO economist Phil Wyatt joins Wayne and Jon to chat Chinese exports, capacity, and trade relations.

Ask Kelvin: Is the rally in China sustainable? (6:43)

CIO's Kelvin Tay examines the drivers behind the surge, and if the rally will be durable.

Thought of the day

US equities advanced on Thursday, as higher-than-expected US jobless claims added to signs of a cooling labor market and supported optimism that the Federal Reserve will cut rates this year. Having recouped most of the loss sustained during a weak April, the S&P 500 now stands just 0.8% away from its all-time high set at the end of March.

The pace and scale of further gains for equities is likely to depend on several factors, including upcoming US inflation data, signals from Fed officials, and the final stages of the first quarter reporting season. Geopolitical uncertainties in the Middle East could be another driver of markets. However, we are positive on fundamentals and see the overall risk-return outlook for equities as balanced.

Fed cuts remain on the horizon this year. Initial jobless claims rose by 22,000 to 231,000 last week, hitting the highest level since last August. This provided further evidence that demand for workers is moderating, following April’s weaker-than-expected labor report and JOLTS data that showed fewer job openings. A softer labor market, a moderation of housing costs, and a slowdown in consumer spending growth should result in a lower inflation rate over the rest of the year. Our base case remains for the Fed to start cutting rates in September, with a total of 50 basis points of cuts this year. San Francisco Fed President Mary Daly on Thursday said she would like to see more evidence that inflation is under control, but said high interest rates are restraining the economy. This echoed Chair Jerome Powell’s message last week that the current policy is sufficiently restrictive.

Corporate earnings are solid, and AI-related names could drive further growth. The first-quarter earnings season showed a healthy share of S&P 500 companies beating sales and earnings estimates, with positive forward guidance. We maintain our forecast for 9% earnings growth this year amid broadening profit growth. For tech, better-than-expected AI monetization and capex trends have supported the sector’s rebound, and we expect several industry conferences in the weeks ahead to drive AI-related stocks higher. We maintain our view that AI is the growth theme of the decade.

Middle East conflict should remain contained. Israel is proceeding with its offensive in Rafah and other parts of the Gaza Strip as the latest ceasefire talks in Cairo ended with no deal. Any miscalculation could raise the risk of a dangerous cycle of retaliation and escalation. But our base case remains that cooler heads should prevail, and sporadic attacks in the region should not snowball into a war between Israel and Iran.

So, we continue to see a supportive backdrop for equities and favor opportunities in quality stocks, including technology. We advocate diversified allocation across key regions and see structured strategies as a way to gain more defensive exposure.