Weekly comment: US equities make fresh all-time highs

Market overview – Richard Carter, Head of Fixed Interest Research

US equities make fresh all-time highs

American stock benchmarks posted new record intraday and closing highs last week, helping to lift the MSCI All Country World Index to a 0.5% weekly gain (11.4% YTD). In a fairly muted week of trade punctuated by the Juneteenth holiday, there was some catch up from areas of the market that have been lagging, with value stocks and small caps outperforming and tech-based indices ending little changed.

European equities also enjoyed a small outperformance compared to US peers, rising 0.7% on the week (9.3% YTD) compared to a 0.6% return for American stocks (15.4% YTD). US retail sales increased in May by just 0.1% as the previous month’s reading was revised down to -0.2%. While the consumer may be getting more cautious, manufacturing data pointed to a pick-up in activity. A composite purchasing manager’s index (PMI) of business activity rose to its highest level in over two years in June, coming in at 54.6.

Business activity in the eurozone slowed, according to the equivalent data points, as a composite PMI reading dropped to 50.8 from 52.2 for the previous month. Politics remains at the forefront of market participants’ minds with the first round of the French elections set to take place on 30 June. French stocks gained 1.8% last week (3.9%) as they recouped some of their recent losses.

BoE holds rates at 16-year high

The Bank of England decided to keep its key interest at a 16-year high of 5.25% last week, in what was described as a finely balanced decision. The Monetary Policy Committee voted seven to two to maintain the current level the day after inflation data showed a drop in the headline level to 2% for the first time in three years.

However, although headline inflation has returned to the central bank’s target level the core reading continues to track higher. Core inflation, excluding food and energy, came in at 3.5% in April, down from 3.9%. Services inflation is higher still, coming in at 5.7% and above consensus forecasts.

The chances of a cut at the next scheduled rate-setting decision, in August, are put at around 40% after rising slightly following last week’s communication.   

UK stocks gained 1.2% last week (8.7% YTD) and the British pound declined against the US dollar to 1.26. The 10-year gilt yield increased 3 basis points, ending the week at 4.08%.

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