Tug of War - Holdun

Relentless Growth

Doomsday economists beckoning the end of the stock market as we know it have been left to wait another week as the positive momentum continues in the face of slowing economic activity. The S&P 500 closed the week up 1.6% and is now up 17.2% from its October lows.

4 in a Row

The NASDAQ outperformed for the 4th consecutive week as the mega-cap names continue to drive returns. For example, companies like Nvidia and Meta are already up over 100% this year. Truly staggering growth when you consider these are already amongst the largest companies in the world. The Nasdaq 100 closed at a 13-month high, up 33% from its low last October. Bizarrely, The Nasdaq is now outperforming the Dow this year by an entire bull market. Not sure too many were calling that at the start of the year.

A Few Big Winners

This dichotomy was again visible this week with outperformance by several mega-cap tech stocks (Alphabet, Meta Platforms) as well as semiconductors such as NVIDIA and AMD. In contrast, retail stocks fell after Target, Walmart and Home Depot all signalled the consumer may be weakening significantly. Elsewhere, regional bank shares recouped some of their recent losses despite the precipitous outflows of deposits from banks into money market funds.

The U.S. Consumer is Undefeated

After declining in February and March, U.S. retail sales posted a modest recovery in April, with personal consumption up 0.4% to $686.1 billion. While the pace of sales is off its record high, it continues to trend well above pre-pandemic levels. Maintaining this consumer strength is crucial since personal consumption accounts for about 70% of GDP. One to watch.

More Debt Ceiling Drama

As discussed previously, raising the debt ceiling is nothing new. Still, the current political stalemate has the potential to add unnecessary volatility to the market over the coming weeks if a resolution is not found. Reports of a Republican walk-out on Friday following ‘unreasonable talks’ certainly won’t help matters.

Market Outlook

Excess savings and a resilient labour market continue to face off against slowing economic activity, higher rates and a reduction in credit.

It’s evident activity is slowing, but Q1 earning seasons has highlighted something that many economists seem to have underestimated: the ability of U.S. companies to protect their profit margins at all costs.

Recessionary signals continue to build, while the timeline continues to be pushed out.

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