A look back at the past month with 10 charts that marked economic news and financial markets.
Chart #1: May economic indicators were more moderate than expected
As we approach the end of the first half of 2024, the U.S. economy is showing signs of slowing. April employment figures indicate a decline in job creation and a moderation in wage growth, while the unemployment rate remains at 3.9% (near its lowest level since 50 years). The Chicago PMI fell to a level that historically signaled a recession (see below). Meanwhile, the second estimate of US GDP for the first quarter of 2024 fell to 1.3% (on a sequential basis), lower than the 1.6% initially reported last month. This is around 60% lower than the 3.4% growth seen in the fourth quarter of 2023.
In Europe, economic activity appears to be strengthening, thanks to a rebound in the service sectors and manufacturing industry. Eurozone GDP growth in the first quarter was 0.3% quarter-on-quarter.
In Asia, Chinese economic data exceeded expectations, even if the weakness of domestic demand remains a concern and requires relying on strong export growth. The challenges in the real estate sector are still unresolved. Japan’s economic sentiment was affected by the weak yen, which negatively impacted consumer confidence, but the overall outlook has stabilized.
Source: Bloomberg, Blokland
Chart #2: Monetary policy divergence among central banks
The US Federal Reserve is still concerned about the progress it is making in bringing the inflation rate back towards the 2% target. This concern was eased, however, when the April Consumer Price Index (CPI) rose less than expected by 0.3% (compared to the previous month) and 3.4% year-on-year. The FOMC minutes revealed that Chairman Powell and other FED officials maintained a cautious stance, indicating that no immediate rate cuts were expected. However, they said further increases were unlikely.
In the Eurozone, the ECB is more optimistic about the disinflationary trend and has signaled potential rate cuts in June despite European inflation rates accelerating in May to 2.6% for headline inflation and to 2 .9% for core inflation.
The Bank of Japan is facing the challenge of the weakness of the yen. Further rate increases seem necessary to support a very weak currency, with risks of a return of inflation.
Source: U.S. Rate Hike Probabilities, Nasdaq, Bloomberg
Chart #3: The stock market gives the lie to the famous “Sell in May and go away”
In May, the US stock market recorded solid performance thanks to good corporate results and investor optimism. All major indices finished higher in May, with the Nasdaq (+6.9%), the Dow (+2.3%) and the S&P 500 (+4.8%) reaching new all-time highs. Overall, the technology sector was up 10%, although stocks in the software sector underperformed. Utilities rose 9%, driven by rising electricity demand linked to artificial intelligence and strong profits. The energy sector fell 0.4% due to falling oil prices, while the consumer discretionary sector gained 0.3%.
Growth-style stocks outperformed value-style stocks, primarily due to expectations of falling interest rates. The Russell 1000 Growth index rose 6% and the Russell 1000 Value index rose 3.6%. Small and mid-caps grew by 4.6% over the month, a performance in line with that of large caps.
In Europe, markets benefited from the economic recovery. European stocks excluding the UK returned 3.6% in May, while UK stocks rose 2.4%. The Japanese stock market underperformed, gaining 1.2% in May.
Source: Stock Market Returns, JP Morgan
Chart #4: An increasingly concentrated US equity market
Since the start of the year, the gains of the S&P 500 index are largely attributable to five major technology stocks (Nvidia, Apple, Microsoft, Amazon and Alphabet). This group of stocks has recorded a gain of 27% since the start of the year. Despite the overall positive performance of the S&P 500 Index, less than half of its constituents are trading above their 50-day moving average. And although 78% of S&P 500 companies beat earnings per share estimates for the first quarter of 2024, the earnings growth rate for the S&P 500, excluding the “Magnificent 7,” is -1, 80%, which raises the question of the quality of the current “bull market”.
Source: Goldman Sachs, Factset, HolgerZ
Chart #5: Nvidia delivers on its promises
In late May, Nvidia stock topped $1,000 for the first time, following fiscal first-quarter results that beat expectations with revenue of $26.04 billion. The company recorded a 262% increase in revenue. Nvidia contributed a quarter of the S&P 500’s gains this year and added a market capitalization equivalent to that of LVMH in the last week of the month… Nvidia’s market value now exceeds that of the German, Australian and Korean combined. This monumental growth prompted Nvidia to announce a 10-for-1 stock split, effective June 10.
Source: Statista
Chart #6: “GameStop mania” is back
In 2021, speculators on Reddit and other social media platforms combined efforts to buy stocks that were most heavily shorted by institutional investors. This caused what is known as a “short squeeze,” where short sellers were forced to buy back shares to cover their losses, driving prices even higher.
Recently, a post from influencer Keith Gill, known as “Roaring Kitty,” caused GameStop shares to rise more than 70% in a single day. The comeback of this strategy has also reignited interest in other “meme” stocks like AMC Entertainment ($AMC), Reddit ($RDDT), Spirit Airlines ($SAVE) and Lucid Motors ($LCID), which reached new all-time highs in May. Should we interpret this strong return of speculators as a signal of an imminent reversal in the stock markets, similar to what we experienced in 2021?
Source: Keith Gill’s positions on GameStop, Reddit
Chart #7: A positive month for bond markets
US government bonds recorded gains across all maturities in May. The 2-year and 10-year yields decreased by 17 and 19 basis points, respectively. “Investment grade” credit recorded the best performance with a gain of 1.9% in May, after a drop of -2.3% in April. Note that the yield on Japanese 10-year bonds reached 1% for the first time in more than ten years, raising fears of sales of American Treasury bonds by Japanese institutional investors. The emerging debt segment recorded a positive performance of 1.8% thanks in particular to the fact that several central banks in emerging markets have started their monetary easing cycle.
Source: Fixed Income Sector Returns, JP Morgan
Chart #8: Quietly, commodities outperform other asset classes in 2024
In May, oil prices fell after reaching peaks in April, with oil futures falling 6% over the month. Nonetheless, broader commodity indices recorded positive returns of 1.8% in May, driven by strong global demand and a relatively tight supply situation amid geopolitical risk. Silver saw a 12% jump, while gold, copper and nickel hit new all-time highs.
Source: Ronnie Stoeferle, MUFG
Chart #9: China is accumulating gold
As trade tensions with the United States escalate, the People’s Bank of China (PBoC) is reducing its holdings of U.S. bonds and increasing its gold reserves in order to diversify away from U.S. assets. During the first quarter of this year, China’s holdings of U.S. Treasuries and government agency bonds fell by nearly $40 billion and $10 billion, respectively. Meanwhile, gold’s share of China’s official reserves rose to 4.9% in April, the highest level since 2015, reflecting a strategic shift in China’s asset management.
Source: Crescat Capital, Bloomberg
Chart #10: SEC approves 8 Ether ETFs
This comes as a surprise: The US Securities and Exchange Commission (SEC) has approved eight applications for Ethereum spot ETFs, including those submitted by BlackRock and Fidelity. The move allows Ether (ETH) ETF index funds to launch on Wall Street, although ETF issuers still need to have their S-1 registration statements approved, a process that could take several weeks. This approval marks an important milestone for investments in cryptocurrencies. It should stimulate the adoption process and improve the liquidity of the second largest cryptocurrency.
Source: Bloomberg
