Yesterdays paper telling yesterdays news

Despite the daily slew of headline news, much of which has the potential to rattle investor sentiment, equity and bond markets remain resilient, at least for now. Whether it be Trump’s seemingly almost never-ending promises to introduce new tariffs on goods into America, something not to like about one of the Mag 7 earnings reports, a jobs report that can be interpreted depending on what side of the bed you got out, comments from a central banker, the potential for a far-right group to seize control in Germany at the upcoming elections. Not to mention the ongoing conflicts in Gaza and Ukraine, both of which, at their very least, have the potential to disrupt commodity prices, in particular oil. One could also point out that the latest Michigan Consumer sentiment survey recorded another drop in the past week; the US consumer has been responsible for much of the resilience in the US economy, and they are starting to look tapped out. The same survey recorded a big jump in one-year inflation expectations. The 5-10-year inflation expectations have risen to their highest level since 2008 due to fears that US government policy will offer the double-edged sword of growth and threaten higher prices. Another is the size of most governments’ balance sheets. The list is almost endless.

The S&P 500 appears to be finding it hard to push on from around 6000, a level it has jockeyed around since early December. Whilst European markets have sprung into life, despite the weak growth outlook.

In his testimony to the Senate Banking Committee last night, Powell played what can only be described as a very straight bat, a term I wonder if he is even aware of. He was not drawn into the potential impacts tariffs could have on the economy, reiterating that policymakers are in no hurry to cut interest rates further for the time being. Rachael Reeves has been under never-ending pressure for her October budget, and the word stagflation gets banded about, which, to a central banker, is like the threat of kryptonite to a superhero or uttering the name Macbeth to an actor. It may not be too long before that word starts being whispered by US economists.

When one looks at the performance table over the past couple of years of the S&P 500 sub-sectors, it’s pretty clear how tech and communication services have driven the index to these stellar two years of performance. Healthcare and consumer staples stocks have gone nowhere; every sector except for tech, communication services, and consumer discretionary has lagged behind the performance of the broader index. It’s been a tough couple of years for those running a balanced defensive portfolio. For those who backed the tech boom, it’s been happy days. Since the start of the month, the most significant swing in sector performance has been between consumer discretionary and staples, selling the handbag and buying the baked beans. Possibly, some signs of caution are entering the investor’s minds.