S&P500 went up this week, mainly driven by the enthusiasm for AI. The debt ceiling deal is finally passed this week, and a historic default in the US is prevented. US labor market reports and European inflation are sending mixed signals.
Monetary Policy: Comments from Fed officials suggested that the Fed is likely to skip a rate hike in June. Markets are pricing in a 35% likelihood of a rate hike in June and 50% in the July meeting.
US Job: Nonfarm payroll came in higher than expected (339k actual vs 195k expected). On the other hand, unemployment increased more than expected and wage growth slowed down. The signals are mixed at this stage.
EU Inflation: Inflation data in the euro area came in lower than expected. Core CPI is 5.3% (vs 5.5% expected) and headline CPI is 6.1% (vs 6.3% expected). ECB president mentioned that there is still not enough evidence that inflation has peaked despite the optimistic data.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Goldman Sachs: Mega-cap tech companies are the main contributors - the 7 largest stocks have increased 53% while the rest of the 493 stocks remained unchanged YTD. Nasdaq100 and S&P500 recorded 33% and 12% up since 2023.
Morgan Stanley: The bear market rally in stock markets has been concentrated in the growth stocks with long duration, while they are dependent on falling interest rates.
Morgan Stanley: Nominal bond yields are well above the levels of the past decade, especially on the front end. With the rising risks of recession and the longer-than-average bond index duration, passive bond index is likely to outperform passive equity index in terms of risk and reward.
J.P. Morgan: Historically, when the Fed cut rates in the previous cycles, bonds usually outperformed cash. It would be a good opportunity to add duration to portfolios instead of keeping excess cash.
UBS: The unexpectedly resilient consumer spending data is giving more confidence to the market. The 2023 growth forecast consensus has been revised up in the major Western economies including US, UK and Euro area.
Blackrock: US inflation is sticky despite the slower growth. Investors are expecting that policy rates are going to stay higher for longer. Rate cuts this year would be unlikely.
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