I’m on the move so please excuse this abbreviated weekly summary.
Last week was holiday shortened again, this time in Japan and the UK on Monday, and in Europe on Thursday. The week was also devoid of meaningful economic data aside from a smattering of data that mattered slightly, mainly because there simply wasn’t much on offer. Even so, there are a few sentiment drivers worth highlighting:
51 additional S&P 500 companies reported earnings last week, bringing the total now to 459 companies. The only names worth mentioning (since I own them) were DIS (beat bottom line but lowered guidance due to lower expected theme parks / travel revenues next quarter), and ABNB (beat top and bottom line but revised next quarter rental agreements signed down). Yes, both stocks got hammered, demonstrating that the future matters more than the past (logical). The results from these two consumer-discretionary companies are also additional evidence suggesting that US consumer demand is perhaps starting to weaken. For an overview of last week’s earnings, check out Refinitiv’s “The Week in Earnings for week ended May 10, 2024”.
The Bank of England had a Monetary Policy meeting and – as expected – did not change its policy rate (MPC Monetary Policy decision here). However, BOE head Andrew Baily more or less implied that a 25bps reduction in the Bank Rate would very much be on the table at the June meeting (20th June). The banks revised projections show 75bps in rate reductions by the 2Q2025.
US data was mixed, with higher-than-expected first time jobless claims on Thursday, and weaker-than-expected consumer sentiment measures on Friday suggesting a weakening of consumer demand. Still, inflationary expectations actually rose in the consumer sentiment report, suggesting that tight monetary policy still has a ways to run to fully curb inflationary expectations. (University of Michigan consumer sentiment survey here.)
MARKETS LAST WEEK
Global equity markets were generally better bid last week following mostly in-line earnings and the handful of economic data points. UST yields were steady until Friday, when increased inflationary expectations contained in the consumer sentiment survey sent yields at the policy-sensitive short-end of the curve higher. Corporate credit spreads were stable at the higher-quality end of the curve, but widened slightly in high yield. Gold was better bid, both oil prices and the US Dollar were slightly stronger, and the Yen weakened (again) as did Bitcoin. Tables for the indices and assets tracked by EMC are in “The Tables” section below.
WHAT CAUGHT MY EYE
When will central banks blink?
For my readers that actually read my blog, you will know that I had a view – increasingly validated although not at all consensus at the beginning of the year – that the order of monetary policy easing would be the ECB first, then the Bank of England, and lastly the Fed. Nothing I heard last week changes my mind on this. For reference, the ECB meets next on June 6th (expectation is 25bps cut), and the FOMC releases its next decision on June 12th (expectation is no change). I suspect the BoE could reduce its policy rate by 25bps at its June 20th meeting, but this will largely depend on inflation data in the interim.
The path of pandemic winners and losers
The @FT had a very interesting article on Wednesday which discussed the pandemic winners and losers as far as stock prices. The article (here for #FT subscribers) discussed the stocks that soared during the initial stages of the pandemic – a period characterised by economic lockdowns – and how these companies’ stocks have fared since as the pandemic ran its course. Think about popular pandemic names like PTON (Peloton), ROKU and ZOOM. Perhaps it is not surprising to learn that the losers far outweigh the winners, reflecting how silly valuations were during this period.
Not all of the pandemic losers are created equal. Some have faltered operationally, but a handful of these companies are now profitable and doing very well, even though their stock price remains well below pandemic period record highs. If you are wondering how this could happen, it was a combination of
overly euphoric valuations, and
an at-the-time view that the pandemic would permanently change many aspects of life that instead reverted back to normal.
The rise and fall of actively managed ETF ARK Innovation (#ARKK), which focuses on managing a portfolio of stocks of disruptive companies, summarises the performance of many of these companies individually very well:
ARKK is currently trading at $42.92, down 71% from its February 19th 2021 peak of $150.11. Indeed, the 1Q2021 represented the turning point for stocks of companies considered disruptors.
THE TABLES
The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes.
Global equities
US equities
US Treasuries
Corporate bonds (credit)
Safe haven and other assets
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