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“A military is built to fight” – Xi Jinping
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China’s leader Xi Jinping turns 70 years old today, which in American politics would make him a spring chicken, and who better to celebrate his birthday with than US Secretary of State Anthony Blinken and Bill Gates who are both scheduled to visit with him in the next week. It’s just too bad that Xi couldn’t get some better economic data to celebrate over. Overnight, China reported that youth unemployment had hit a record high of 20.8%, but the PBoC’s gift to China’s leader came in the form of a rate cut in its key policy medium-term lending rate from 2.75% down to 2.65%.
In the US this morning, futures point to a lower open as European equities trade lower and the ECB just hiked rates. There was just a ton of economic data released, and the key items in the data were that initial jobless claims came in higher than expected (262K) and at their highest level since October 2021, Retail Sales and Empire Manufacturing both surprised to the upside with positive readings, but the Philly Fed remained negative coming in at -13.7 vs forecasts for a reading of -14.0. Basically, there was a little for everyone, but more signs of strength than weakness.
For the last few months, investors have been waiting for the rally to broaden away from the mega-caps to the smaller members. While we started to see some of that in the first week of June, the mega-caps have moved back into the lead in the last week. To illustrate, the chart below shows the YTD performance spread between the S&P 500 market cap and equal-weighted indices. Believe it or not, earlier in the year, the equal weight index was actually outperforming the market cap-weighted index, but by February they were pretty much back to even. In early March, though, we all know what happened, and ever since SVB Financial started to collapse, the market cap-weighted index has blown the equal-weighted index out of the water.
At the start of June, the YTD performance spread between the two indices had widened out to a peak of 10.62 percentage points. In the week that followed, the spread narrowed down to as low as 8.62 percentage points, but this week the mega caps have once again started to take the lead. After yesterday’s trading, the spread had once again widened out above 10 percentage points. At some point, the rally will broaden out, but up until this point, there have been more than a few false starts.
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