Europe Exhibits Renewed Optimism

Last week saw the release of soft manufacturing numbers out of the US. The job creation data from JOLTs and ADP, released mid-week, was also uneven.

Unlike the contraction in manufacturing, however, data on services was much better, showing continuing expansion. In contrast, the equivalent releases in Europe were better on both fronts.

With fixed income yields lower across the board, equities had a decent week, with consolidation (till Friday) at +1% in the US and a gain of 2% in Europe.

Unexpected Drop in US Unemployment Figures

On Friday, the official US employment numbers for the last month were released, showing an unexpected drop in unemployment rate: back down to lows of 3.5%. That, combined with strong earnings growth and solid new job creation, sent yields higher and equities lower, ultimately ending the week flat.

A strong job market means greater difficulty in tempering inflation down. Once again, all eyes are on the inflation numbers that will be released next week.

Tech Stocks Shoulder Equity Indices

As far as the levels of equity indices are concerned, though, they are edging back towards the highs. However, a deeper dive into details shows both S&P and Nasdaq have been supported by the very strong rally of tech mega-caps: the likes of Meta, Microsoft and Apple; as well as Tesla.

If these were removed from the indices, S&P and Nasdaq would, at best, be flat; or even marginally negative year-to-date.

SMEs Remain Resilient

What has been very impressive is the resilience of mid-size companies’ stocks valuations in the US, represented by the Russell 2000 index. That, despite the banking crisis we witnessed in the previous weeks – which first and foremost, affected the availability of credit to SMEs. The market seems to have discarded this sentiment for now.

A similar exuberance is being seen in Europe, with markets back to all-time highs or close to it, despite yet an uncertain environment.