Global financial markets are experiencing sustained momentum, with major US equity indices such as the S&P 500 and the Nasdaq reaching new all-time highs. However, leadership in these indices remains highly concentrated. The equal-weighted S&P 500, where each stock has the same percentage weighting, shows significant underperformance compared to the market-cap-weighted indices.
After a sluggish 2023, global equity funds are now thriving, with almost $200 billion of capital, or $1.7 billion daily, flowing into the asset class this year. The “Magnificent 7” (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, Tesla) have seen their share of the S&P 500 climb to 32%, up from 20% at the start of 2023. Apple, Microsoft, and Nvidia have all reached market capitalisations of $3 trillion, with Nvidia alone adding over $1 trillion in the past 32 trading days—an amount greater than the total value of Warren Buffet’s Berkshire Hathaway.
The current momentum, driven by enthusiasm for Artificial Intelligence, may persist, but its potential reversal could have significant consequences. The debate on whether AI can transform most businesses remains unresolved, though investors are optimistic about the profitability of a few mega-cap companies.
In Europe, equity markets have declined due to concerns over potential far-right gains in French parliamentary elections and the rise of the Reform Party in the UK. This political uncertainty has led to a spike in the spread between French and German 10-year government bond yields, reflecting worries about French President Emmanuelle Macron’s decision to call a snap general election.
This situation evokes memories of 2012 and 2017, as rising French yields may shift market focus to Italy and Spain, where high levels of government debt could become problematic if yields continue to rise.
In corporate news, Tesla’s shareholders approved CEO Elon Musk’s substantial compensation package, showing confidence in his leadership despite falling vehicle sales and a significant drop in the company’s share price.
In the Gulf region, foreign investors acquired about 60% of the shares in Saudi Aramco’s $11.2 billion share sale, likely attracted by a dividend yield of approximately 6.6%.
In commodities, bullish bets on Brent oil are at a ten-year low, indicating negative sentiment about a significant price increase for the rest of 2024. A Citi report predicts oil prices could drop to $60 per barrel by 2026 due to expected supply surpluses outstripping global demand, suggesting the market may be underestimating potential geopolitical tensions or supply disruptions.
Looking ahead, US retail sales data on Tuesday, the US Housing Market Index on Wednesday, and weekly unemployment claims from the US Department of Labour on Thursday will be closely monitored for their potential impact on the Federal Reserve’s decisions.
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