Momentum trading across global financial markets remains robust, with major US equity indices such as the S&P 500 and the Nasdaq reaching new all-time highs again this week. This surge is notably concentrated, as shown by the significant underperformance of the equal-weighted S&P 500 index, where each stock holds the same percentage weighting rather than being based on market capitalisation.
Global equity funds are experiencing a revival in 2023, with nearly 200 billion dollars of capital, or 1.7 billion dollars each day, flowing into the asset class so far this year. The Magnificent 7—Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla—now comprise 32% of the S&P 500, a 12% increase from early 2023. Apple, Microsoft, and Nvidia have joined the exclusive 3 trillion-dollar club, with Nvidia alone adding over a trillion dollars in market capitalisation in just 32 trading days, surpassing the entire value of Warren Buffet’s Berkshire Hathaway, a conglomerate built over six decades.
Observers note that momentum trades like the current Artificial Intelligence-driven surge can last for an extended period, but their reversal can be dramatic. The potential for AI to become transformational for most businesses remains uncertain, though investors are betting heavily on a few mega-cap companies.
In Europe, equity markets have sold off amid concerns over a potential breakthrough for far-right parties in France’s parliamentary elections and the rise of the Reform Party in the UK. This uncertainty has caused the spread between French and German 10-year bond yields to widen significantly. This development reflects worries that French President Emmanuelle Macron’s decision to call a snap general election might have political repercussions. A spike in French yields could lead to increased scrutiny of Italy and Spain, where high levels of government debt and rising yields pose significant risks.
In corporate news, Tesla’s shareholders have approved CEO Elon Musk’s substantial compensation package, showing confidence in his leadership despite falling vehicle sales and a sharp drop in the company’s share price. In the Gulf region, foreign investors were allocated about 60% of the shares in Saudi Aramco’s 11.2 billion dollar share sale, likely attracted by a dividend yield of around 6.6%.
In the commodities market, bullish bets on Brent oil are at a 10-year low, reflecting pessimism about a significant price increase in 2024. A Citi report predicts that prices could drop to as low as 60 dollars per barrel by 2026 due to substantial supply surpluses not matched by global demand. This suggests a market that is complacent about potential geopolitical tensions or supply disruptions.
Looking ahead, US retail sales data on Tuesday, the US Housing Market Index data on Wednesday, and the weekly unemployment claims numbers from the US Department of Labour on Thursday will be closely watched for insights into how these figures might influence the Federal Reserve Committee’s decisions.
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