Market Commentary — May 30, 2023
As last week drew to a close, investors watched carefully for signs of progress in debt ceiling negotiations. Technology stocks rallied, boosted by the 24% jump in chipmaker Nvidia, which took the company’s market capitalization close to $1 trillion. Nvidia blasted past consensus estimates and raised guidance, further stoking the rally among artificial intelligence (AI) related names.
YTD, large-cap growth stocks (Russell 1000 Growth), helped by the surge in mega-cap tech names, are up 21.25% on a total return basis versus -0.73% for large-cap value names (Russell 1000 Value). This is not how a lot of investors were positioned going into the year!
Debt ceiling negotiations failed to come to a conclusion last week ahead of the Memorial Day holiday weekend. But signs of some progress in the talks helped spur a market rally on Friday. The Wall Street Journal reported that the two sides were nearing a two-year spending deal that also extended the debt ceiling over the same period. House Speaker Kevin McCarthy also cited signs of progress on Friday.
Friday’s gains brushed off some discouraging inflation data, as core personal consumption expenditures (PCE), the Fed’s preferred inflation gauge, rose 0.4% in April, rising on a year-over-year basis to 4.7%. Personal spending also rose in April, jumping 0.8%, double consensus expectations. Reflecting debt ceiling concerns, the one-month T-Bill hit 6.02%, its highest level since its introduction in 2001.
I just returned from the Wealth Management Edge/Inside ETFs Conference in Hollywood, Florida and one of the key concerns voiced by panelists was the rising correlation of stocks and bonds in a higher interest rate, higher inflation, and higher risk environment.
One of the highlight sessions for me personally was Ellevest founder, Sallie Krawcheck. She notes the industry has created the perfect product fit for middle-aged white men. She argues that only good outcomes come from empowering women to build wealth. “Building wealth buys happiness, a stronger economy, and a stronger society.” Unlike men, women tend to view investing not as an “activity” but more pragmatically as a “means to an end”.
Other topics included the rise of active products in the ETF space, aligned with the waning use of mutual funds. And of course, everyone at the conference was talking about AI, and how transformative its potential might be to our industry, both good and bad.
There was also talk about the improving investment opportunity in China, with KraneShares Brendan Ahern forecasting a “consumer-led recovery” in reopened China, as opposed to the tech and commodity-led rallies of the past. This forecast comes as a government-backed epidemiologist said the country’s new Covid wave could infect 65 million a week by the end of next month. Could rising Covid cases derail a consumer-led economic recovery?
Interestingly, there was very little talk about debt ceiling concerns. One exception was Quadratic’s Nancy Davis, who raised concern with fingers crossed. Quadratic’s two ETFs, IVOL (inflation) and BNDD (deflation) are also on the KraneShares platform. KraneShares and active ETF managers American Century, Capital Group, T. Rowe Price, and JP Morgan were among the largest sponsors at this year’s conference.
Also near and dear to my heart was the 9th annual Women in ETFs Breakfast event. Always good to see a strong turnout of all genders with a great panel line-up moderated by WE co-president Emily Meyer.
Hope everyone had a wonderful, relaxing Memorial Day Weekend, taking time to honor those who sacrificed their lives in service of the U.S. military. And with any luck, debt ceiling talks will come to a fruitful conclusion and markets can celebrate that as well!
CEO and Co-Founder