Positive S&P 500 annual performance only due to a few tech stocks
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Current market commentary
In May, most asset classes declined. Within equities, money was gained almost exclusively from Japan and tech stocks, which benefited from the AI hype. Weak economic data and related rising recession concerns were weighing. The USD benefited as a safe haven, boosted by lopsided dollar-negative positioning. The big question is how much the massive net supply of T-bills (and T-bonds, eventually) will impact markets over the next few months. Following the debt deal, more U.S. government bonds can now be issued again. What is exciting is who will buy them. If it is mainly money market funds that replace money parked with the Fed with T-bills, the consequences are likely to be limited. However, the larger the share of other investors, the more liquidity will be withdrawn from the market - in addition to the QT programs. On a positive note, many brokers are now writing about the possible burdens, so the surprise should be limited.
Short-term outlook
The next two weeks will be exciting in terms of monetary policy. According to the market, the Fed is unlikely to raise interest rates further at its meeting on June 14th for the first time since March 2022. For the ECB meeting on June 15, however, the market is pricing in an interest rate hike of 25 basis points (bp). Today, in addition to German export figures (Apr.), services purchasing managers' indices (PMI, May) for China, Europe and the US are due. On Tuesday, German new orders (Apr.) and on Wednesday, German industrial production (Apr.) and Chinese imports (May) will be published. Chinese inflation figures (May) and Italian industrial production data (Apr.) will follow on Friday. The following week will see German ZEW index (Jun.), U.S. consumer price inflation, U.S. producer price inflation, U.S. industrial production, U.S. retail sales (May) and Chinese industrial production and retail sales (May).
Positive S&P 500 annual performance only due to a few tech stocks
- With more than +11% YTD, the S&P 500 suggests a positive sentiment. However, the picture is deceptive, because the performance can be fully explained by mega-caps largely from the technology sector. Without the top 10 contributions, the index would be at 0% YTD.
- The rally therefore stands on thin legs with little market breadth and appears vulnerable. The threat of liquidity with-drawal following the deal on an increase of the U.S. debt ceiling could weigh par-ticularly heavily on the highly valued tech stocks.
