20/05/2024

The crucial macroeconomic data released in the United States presented a favorable combination of lower inflationary pressures and a modest cooling of economic activity. Investors responded to these data by consolidating expectations of a rate cut by the Federal Reserve in September, driving global stock markets to new all-time highs.

Additionally, the speculative fever among retail investors, which peaked in 2021, seemed to return. As a result, the most speculative assets in the market, such as the so-called “meme stocks”, leveraged products, and cryptocurrencies, attracted renewed investor interest.

Similarly, just a few days before Nvidia releases its quarterly results, technology stocks once again experienced glorious days, pushing the S&P 500 index above 5,300 points and the Dow Jones Industrials above 40,000 points. This upward movement was also accompanied by a rebound in trading volume, which had been declining in the days leading up to the release of the CPI data. We continued to receive relevant corporate earnings in the United States, with mixed outcomes for companies such as Home Depot, positive surprises at Walmart, and negative ones at Cisco Systems.

In a context of greater risk appetite, most technical indicators of positioning and investor sentiment once again showed signs of excessive complacency. In this regard, the new raft of tariffs announced by the United States on some Chinese products and the expectation that the EU may announce similar, although probably less aggressive, measures were overlooked. The electoral context, together with the need to protect industry, brought the possibility of an open trade war back to the forefront. The EU also fears the potential return of Trump to the White House, which could lead to the implementation of new tariffs.

All in all, global stock markets posted their fourth consecutive week of gains, fully offsetting the weakness seen in April. The S&P 500 index closed the week with gains of 1.5%, driven by the technology sector, which appreciated by nearly 3%. Two other sectors, healthcare and real estate, joined technology on the weekly stock market podium. In contrast, industrials and consumer discretionary sectors closed the week with slight losses in value. Similarly, the “value” investment style showed worse relative performance compared to “growth”.

In Europe, the results published generally left a good impression on the market, although the main stock markets closed the week with moderate declines after the very bullish previous week. However, the peripheral markets stood out positively, with weekly gains of 2%, thanks to the momentum of the financial sector, which, along with the real estate and telecommunications sectors, topped the weekly ranking. Conversely, industrial and oil companies showed considerable weakness in the European stock market that week.

In summary, the modest April CPI and weak retail sales in the United States triggered another rally in the stock market. Fortunately, investors responded positively to an inflation figure that was just average and disappointing activity data. Despite year-on-year inflation remaining higher than it was five months ago, and signs of cooling in consumer activity, the labor market, and leading indicators, markets chose to interpret these signals not as a threat of stagflation but as a sign of a potential soft landing. This highlights the underlying strength of the market and reaffirms our current positioning. Although the risks remain significant, we are confident that a controlled economic slowdown will eventually occur in 2024. However, as noted in our opening commentary, macroeconomic data is now more critical than ever and can lead to dramatic shifts in narratives and sharp market movements.