Tech leads a strong close to the month
- Global equities rallied +1.1% last week, led up by emerging markets (EM) and tech, to close a positive May. NASDAQ rebounded +2.1%, whilst small caps resumed outperformance, and are now +15% YTD.
- Markets are more rational, resilient, and supported than feared. Recent highflyers, IPO’s and SPAC’s, Tesla and ARK, FAANGs and NASDAQ have lagged. But equities are up +10% YTD, VIX volatility below average, and good market ‘breadth’ a large support.
- Strong earnings growth is the key insurance policy against risk of lower valuations, as inflation and bond yields rise. Reflation favors commodities, cyclical sectors and international markets vs tech and US.
What worked in May: International and cyclicals
- Global equities saw another positive month, +1.3%, with the ‘Sell in May’ seasonality scrambled both by lockdown easing and recovering corporate visibility.
- International equities led, as Canada, LatAm, Europe all led the US. Cyclicals, financials and materials, led tech. Main US gainers F (+26%) and NUE (+25%); worst ETSY (-17%) and DLTR (-15%). Commodities led by 8% gold rebound, with DXY USD index -1.3%. Global bonds rose +0.9% but still down -2.7% YTD.
Trade leading strong growth rebound
- International markets are leading performance now, as more levered to the trade rebound. A decade of lagging the US has cheapened valuations, and these equity markets have more cyclicals-heavy indices.
- The winners are the more ‘open’ economies and stock markets of Europe and some Asian exporters compared to the much more ‘closed’ China and US.
- Illustrating this, Sweden is best-performer YTD, as in 2009/10 recovery, with a market focused on industrials and banks, and a vibrant start-up and fintech scene.
Crypto assets see some stability
- Crypto saw relative stability after a sharp -50% sell-off, with bitcoin +2% and ethereum -6% on the week.
- China’s widening miner clampdown may see more diversified hashpower in greener jurisdictions. Week also saw the creation of Elon Musk supported Bitcoin Mining Council, promoting more sustainable mining.
Oil cross-currents going into OPEC meeting
- Bloomberg Commodity index rebounded, led by oil +5%, as the USD dollar index (DXY) fell to near a 7-year low, making commodities cheaper in local currency terms, whilst global growth data was firm.
- Oil is supported by physical and inflation-hedging demand, with upside to low US$64/bbl consensus. Gold-oil ratio is still above-average at 26, favoring oil. But much higher prices are limited by surplus OPEC capacity, Iran’s return, and political sensitivities.
The week ahead: US payrolls macro focus
- US and UK markets are closed on Monday.
- Tech in focus with TSMC annual symposium (Tue), Facebook developers conference (Wed), and Tesla Model S Plaid (0–60 in under 2 seconds) event (Thu).
- US non-farm payrolls (Fri). We expect to see a sharp 700,000+ jobs rebound, after prior month weakness.
- OPEC meeting (Tue) to keep slowly increasing oil supply, and market balanced, as growth recovers.
- Sunday’ Presidential run-off election in no. 2 copper producer Peru, with leftist candidates leading in polls.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.