Hey everyone, just quick reminder this coming Wednesday will be a US market holiday. And we have seen a lot of economic data hit the wires this past week so let’s get into a review of what we can expect as we go into the summer months.
WEEKLY SOUND BITES:
Major indexes ended mostly higher for the week, with the S&P 500 Index and Nasdaq Composite touching new highs. The market’s advance remained exceptionally narrow for the second consecutive week. Enthusiasm over the potential of artificial intelligence appeared to provide a continuing tailwind to technology-related stocks and growth shares, which outpaced value stocks by the largest margin since March 2023. NVDA, META, GOOGL and MSFTG accounted for 61% of the S&P return for this year. And 3 of them (NVDA, MSFT and AAPL) account for 20% of the S&P market cap. The divergence between the DOW and the DOW of over 0.94% has only happened 71 times since 1982 (10,700 trading days) and 20 of those times were in at the market peak in 2000 before the DOT Com bubble burst.
On Wednesday, CPI came in a 3.3% while core came in at 3.4% (lowest since April 2021) both below expectations giving a bit of a lift to the markets before the FEDs interest rate decisions and Dot Plot. In addition, the Producer price index (PPI) inflation, on Thursday also surprised on the downside, with core coming in at 2.3%, marking an end to five consecutive months of increases.
The Fed released its quarterly summary of individual members’ economic projections. While median growth expectations remained unchanged, expectations for core PCE—considered the Fed’s preferred inflation gauge—in 2024 rose from 2.6% to 2.8%. The Fed left rates unchanged, as was widely expected, but officials increased their median expectation for the federal funds rate at the end of 2024 significantly, from 4.6% to 5.1%, which would imply only one cut later in the year. And finally, the downside growth and inflation surprises pushed the yield on the benchmark 10-year U.S. Treasury note sharply lower for the week, from 4.43% to 4.21%.
All European markets for the week were on uncertain footing, weighed down by political risk after French President Macron called for snap legislative elections later in June after the European Union elections showed a broad shift toward right-wing and far-right parties. Government bonds sold off sharply early in the week, with 10-year French and Spanish yields surging to their highest levels this year, before ultimately receding toward the week’s end. France’s 10-year yield, for example, surged more than 20 basis points from last week’s close, to around 3.34% on Tuesday.
The BoJ kept monetary policy unchanged and voted to scale back its JGB purchases—a detailed plan on the tapering for the next one to two years will only be released at its July meeting, however. The decision defied market expectations that the central bank would reduce its massive bond buying this month and was viewed as broadly dovish. Revised data showed that Japan’s GDP contracted by 1.8% on an annualized basis over the first quarter of the year and on the inflation front, producer prices increased 2.4% year on year in May, exceeding market expectations of a 2.0% rise.
Chinese equities fell in a holiday-shortened week as data showed that deflationary pressures continued to weigh on the economy. China’s CPI rose a below expected 0.3% in May from a year earlier, unchanged from April’s rise. The PPI fell 1.4% from a year ago, its 20th month of decline. The Dragon Boat Festival highlighted the consumer caution in China. Tourism revenue over the three-day holiday rose 8.1% from the 2023 break but lagged pre-pandemic levels.
Enjoy This Week’s Round-Up
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