US equity advanced on hopes of a soft landing for the economy
Market Summary
Last week, the US and EU markets closed higher following signs of slowing inflation. The Asian markets, however, closed mixed.
Major U.S. equity indexes mostly advanced on hopes of a soft landing for the economy, though the tech-heavy Nasdaq Composite experienced a pullback as earnings reports failed to impress investors. Investors are also pricing in a rate hike ahead of the Fed meeting this week, leading to a further inversion of the yield curve.
European stocks edged higher, with most major indexes rising as inflation slowed more than expected. ECB officials appeared to moderate their stance on interest rate increases.
Japanese stocks had mixed performance ahead of the Bank of Japan's policy meeting. The government revised up inflation forecasts, and June core consumer price inflation was above the 2% target.
Chinese equities declined as economic data pointed to faltering growth. Additionally, the real estate sector showed signs of weakness as new home prices remained steady, and property investment declined amid poor consumer sentiment.
Major News
US retail sales in June rose by 0.2%, falling short of economists' expectations for a 0.5% increase, but still indicating resilience in consumer spending despite high interest rates and inflation.
UK inflation in June eased to 7.9%, surpassing economists' expectations. This decline from the previous month's 8.7% marks the end of a four-month period where price growth had exceeded forecasts. Additionally, core inflation also dropped to 6.9%.
China's GDP growth of 6.3% from a year earlier is lower than the market forecast of 7.3%. Challenges like poor consumer confidence, tepid domestic demand, and a global economic slowdown are hindering China's post-pandemic recovery.
What Caught Our Attention
The stock market has experienced significant growth in the combined value of seven major corporations, causing an imbalance in index investing. The companies - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla - now constitute a considerable portion of the Nasdaq 100 index, accounting for 61% of its value.
Nasdaq plans to address this issue by conducting a special rebalance to ensure compliance with diversification rules and striving for a more balanced representation. However, this move raises questions about the true passivity of index investing, as funds may need to buy and sell shares, potentially influencing market dynamics.
Source: Kredens Capital Management, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia
