24/06/2024

Overall, the week was positive for global stock markets, which posted their third consecutive weekly gain.

The most significant development in the stock market dynamics of the past few weeks was the pullback in technology stocks. Nvidia, which had become the most valuable company in the world during last Tuesday's session, suffered a drop of nearly seven percent over the last two sessions of the week. Apple followed a similar path, with its stock declining by more than three percent.

The size of these giants is already so extreme that the risks of correction are maximized. The fever for artificial intelligence could lead to absurd valuations for the companies most exposed to this technology. However, the S&P 500 index barely retreated fifty points from its intraday all-time highs of 5,505 points, as other giants such as Alphabet and Amazon offset the weakness of Nvidia and Apple. The U.S. market was heavily impacted by technical factors. Specifically, the combination of an overbought market and significant technical resistance was enough to curb risk appetite.

The positive aspect of all this was the market's increased breadth. Thus, after eleven consecutive sessions in which the S&P 500 outperformed the equal-weighted index, where all companies have an equal weight of exactly two-tenths of the total, the last week saw the opposite behavior, with three consecutive sessions of outperformance by the equal-weighted index. Similarly, the week showed a clear bias in favor of the value investment style, following several weeks of growth style dominance.

From a sectoral perspective, financial and consumer discretionary companies were the winners in the U.S. stock market, while weakness was observed in the utilities and real estate sectors.

European stock markets rebounded over the week, although the main indexes are still significantly below the levels seen before the European Parliament elections. A full recovery seems unlikely due to persistent political instability in the short term. Macron's presidency is expected to remain weakened following the legislative elections, resulting in a divided parliament with increased influence from political extremes. This situation raises the potential for conflicts between the French government and the European Union over the public deficit. However, the Italian experience in 2018 and the moderation in Le Pen's rhetoric limit these risks to some extent.

The financial sector was the standout performer in the European stock markets this week, while real estate and consumer staples sectors showed weakness. The French and Italian stock markets demonstrated relatively better performance.

In terms of fixed income, U.S. and German government bond yields moved sideways following the previous week's cuts. With no major events beyond the monetary policy meetings of the central banks of Switzerland, the UK, and Norway, the market saw a period of consolidation.

Looking ahead to the last week of June, which has just begun, we believe that macroeconomic indicators will continue to confirm our forecast of a mild slowdown. In this scenario, inflation will gradually return to central banks' targets, global economic activity will remain robust, and monetary easing will commence in most regions.

This environment is favorable for global financial markets, both in fixed income and equities. Therefore, we are maintaining our current portfolio positioning unchanged.