Risk assets fueled the US market advance on Friday

A number of data points this week supported the view that inflation is under control and the market is now anticipating further aggressive rate cuts, hence the strong move in the risk sectors on Friday. There are significant risks to geopolitical shocks, whether the market will shrug these off is not clear but the oil market remains nervous with the Brent oil price 14% above the recent low.

Inflation, consumer and job data will continue to hang over the Market this year but Q3 results and guidance in October will likely guide the Market direction for the rest of the year. There are some broker comments indicating expectations for strong earnings growth in Q3 but set against a background that the market valuations are historically high, there is no room for disappointment.

The US Indices were all ahead on Friday following this reassuring inflation data. Tesla held back the Mag7 but there was a broad market move with the riskier assets performing best. The VIX was down slightly at 20. The main indices were; DJIA +0.97, S&P 500 +0.61% and Nasdaq +0.33% (Mag7 -0.91%). On an equal weighted basis (our measure) the overall market was +1.65%. Breadth was strong at 74% (range of 12% to 88% over the last two months) volumes were soft at 7.1b (the average daily volume over the last year of 8b). 

One day returns as follows - equal weight basis: Mag7 -0.91% (TSLA -8.9%, AAPL -0.7%, AMZN +1.2%, META +1.1%), large cap +0.94%, medium cap +1.34%, small cap +1.94% and micro cap +1.76%. On a 1 and 2 week equal weight basis respectively; Market +0.4% and +0.3%, Mag7 -1% and -0.6%, Large caps +0.4% and +0.9%, Medium cap +0.7% and +0.8%, Small cap +0.3% and +0.2% and finally Micro cap +0.3% and +0.1%. 

Our risk monitor remains in favour of the larger cap stocks. Small and Micro stocks have proved far more volatile than the Large and Medium cap stocks over the last eight weeks. Micro caps have underperformed the market by 18% over the last 12 months, but micro and small cap performed exceptionally well on Friday - small cap was 1% ahead of large cap over the day.

The sector bias favoured the Bull sectors and also the higher risk end of the market, all sectors were up. Healthcare was the strongest sector, Biotech was +2.7% and small Biotech was +3.5%. This sector has generated negative returns over the last six months but when it runs it runs aggressively - it was +55% from mid Nov23 to Feb24. Too early to say the is the start of another run but it is worth watching. Consumer non-cyclicals was distorted by the strong performance of a recent IPO TWG. Clean energy stocks pushed Industrials higher. Tech was strong - Fintech including Blockchain was very strong, Blockchain was +6.2% and FinTech +3.6%. Academic & Educational was the worst performer again yesterday after a very strong run recently though it ended the day +0.8%. When the strongest market movers are Biotech, Clean tech/ Fuel cells, Blockchain and Fin Tech, it is clear that the market rotated into risk assets. Time will tell whether this is a trend or a one day reaction.

A notable number of 52 week highs in the following sectors: Consumer Cyclicals (Hotels & Entertainment), Financials (across the sector), Industrials (across the sector ex Transport) and Technology (Software & IT Services and Technology Equipment again). Note that all of the sectors and industries mentioned have been strong all week.

Notable high volumes in Consumer Cyclicals (across the sector again), Industrials (across the sector) and Technology (Software & IT Services again)