by Franklin J. Parker, CFA
The Summary
Nvidia earnings took center stage last week and propelled US stocks to all-time highs. Almost all of the index’s return, however, is being driven by the top 10 stocks in the index — almost entirely big tech. Yield curves are still inverted, with investors being paid more to tie up cash for 3 months than for 10 years, and earnings have been largely flat for most US companies.
This week we see inflation data from a different angle with personal consumption expenditures, and data on global and US manufacturing, which is expected to post the 15th month in a row of contraction. Investors are also repricing the timing of Federal Reserve moves, with some beginning to expect a less aggressive rate-cut plan through the end of the year.
Recessions have taken hold in many places outside the US. The European Union is in a technical recession as is Japan, the United Kingdom, New Zealand, Canada, and Australia is teetering on the edge. My concern is that the rally in US stocks has not been led by positive economic fundamentals, but rather by a handful of companies and the optimism around artificial intelligence (some of which I believe is justified). I am, therefore, cautious.
Chart of the Week
After years of very strong decline, our “Is Life Getting Better” index has begun to tick up. The lowering of inflation and increasing of wages has seen this index level off and move higher in recent months. While not a direct economic variable, there is some overlap with markets as a whole — especially now that most economic growth is being driven by consumers. If this trend can continue, this could be an early sign that the economy is standing on firmer footing.
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