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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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Week ended May 31, 2024: Trump convicted, markets don't care


As much as I would like to ignore the elephant in the room, it’s impossible not to say something about the conviction of former President Trump on 34 felony accounts on Thursday, a decision taken more quickly than expected by the jury in Trump’s “hush money” trial.  Sentencing is set for July 11th, and naturally, the litigious Mr Trump will appeal the decision.  Keep in mind that a felony conviction does not disqualify Mr Trump (or any convicted felon) from running for a political office in the US, including running for President of the United States.  As I tweeted on Thursday, Mr. Trump has two things going for him following the conviction. 

 

  • Firstly, he is a master of turning adversity into victory.  We have already seen him raise campaign money off the back of a conviction he claims was rigged, just like the 2020 election.  Ah, it’s that old chestnut again, a familiar theme that Mr Trump uses over and over to rally his base of supporters.

  • Secondly, his voter base is “sticky”, perhaps the mother of all understatements.  It has to be fairly obvious to most people that Mr Trump is a serial liar, a misogynist, a narcissist, and a shady businessman.  However, none of this seems to matter to his hard-core support base.  Is that an endorsement of Mr Trump, or perhaps a vote against wokeism that might have gone too far?  It doesn’t matter really, because Mr Trump’s felony conviction and his rather distasteful personality traits simply don’t matter one bit to his supporters. Why is this? It's simple – he is believed by his supporters to be "uniquely" qualified to “Make America Great Again” (for the second time).  

It all becomes difficult to swallow for a Yank living abroad, because the Presidential alternatives come November between a convicted felon and an incumbent that seems too old to be running for the leader of the free world is the mother of all distasteful decisions.  And I fear that if the election is contentious – which it has every sign of being since Mr Trump loves to fuel the flames of controversy – the polarisation of the US will deepen further, leading to potential civil unrest or worse.    

 

Following that diatribe, let me return to my “day job” of commenting on markets.  Global markets took the news of Mr Trump’s conviction in stride, at least when one considers the US session on Friday. The S&P 500 tumbled more than 50 points (1%) in the first half of the session on Friday, before clawing back those loses throughout the afternoon, and then adding another 40 points in the last 20 minutes of the session to end up 0.8% on the day.  That’s some significant volatility, with the reaction less attributable to Mr Trump’s conviction than to in-line PCE data for April, released Friday before the market opened.  UST yields also nudged higher most of the holiday-shortened week (in the US and UK), although Friday’s PCE data brought some relief on inflation expectations as yields settled.  Globally, it was not surprising to see equity markets taking a breather last week either.  Although the week was a weak end to the month, it was not weak enough to derail the solid gains for the month in most  global equity markets and – for a change – in US Treasuries.  The S&P 500 was up 4.8% in May (the NASDAQ was up 6.9%, thanks to Mag 7 companies especially NVDA), and US Treasury yields were slightly lower, with the 7-10 year UST total return index chalking up a solid 1.4% gain for the month.  It seems nothing can completely derail risk sentiment more than a day or two in these “Goldilocks” markets.

 

As far as economic news, most focus was on April PCE in the US and flash CPI for May for the Eurozone, both released on Friday.

 

  • April PCE data in the US came in slightly below expectations, with headline PCE running at 2.7% and core PCE running at 2.8% (both YoY, BEA press release here).  Headline PCE was in line with consensus expectations and headline PCE was 0.1% higher than expected.  However, what grabbed investors’ attention more was the trend in personal expenditures in April.  Consumer personal expenditures for services in April were $49.1 bln, which was offset by a decline of $10 bln in expenditures for goods, resulting in total expenditures for the month of $39.1 bln, a sharp decrease from April’s total expenditures.  This brought some relief to the bond market, as yields fell at the intermediate and long end of the curve following the release.     

  • In the Eurozone, flash headline CPI for May is expected to be 2.6% YoY and core CPI (excluding food, alcohol and energy) is expected to be 2.9% YoY (Eurostat data here).   Both Eurozone CPI reads were higher than in April, and 0.1% higher than consensus expectations.  Even with a slightly hotter-than-expected inflation read, the ECB has more or less promised a decrease in its key policy rates at the upcoming monetary policy meeting this Thursday.  

 

MARKETS LAST WEEK

As mentioned already, risk markets generally had a poor week last week to close out May, but it was not poor enough to offset some nice gains during the month across most US and global equity markets, as you can see in the two tables below that illustrate returns by month for the first five months of 2024 and the YtD returns.


Japanese equities have led the way as far as returns YtD, although they have faded somewhat in the second quarter.  All global equity indices have been positive YtD. In the US, the NASDAQ not surprisingly has led gains so far.  The table indicates for each month the best return (in green) and worst return (in red) by country / index, illustrating clearly the benefits of diversification.


Details for various indices and asset classes tracked by EMC can be found below in the section “The Tables”.

 

THE COMING WEEK

Most focus this coming week will be on the ECB rate decision (Thursday).  In the US, we will get the April JOLTS report (Tuesday), ISM manufacturing PMI (Monday) and ISM services PMI (Wednesday), and the May jobs report (Friday). 

 

MY TRADES LAST WEEK

My only trade last week was to sell my shares in DIS.  It has been a tough period for DIS, a company to which I have been very much attached because I have owned the stock for more than 20 years.  Message to self: never fall in love with the stocks in your portfolio.  I had a window to sell the shares a few weeks back, and let this slide.  I am not going to go into the details about the underperformance of the Mighty Mouse, because I have been shocked that given the unique global franchises / brands that DIS controls, the company has done so poorly.  My quick analysis is that streaming completely undid the company, something they might eventually get right.  However, I lost my patience, and it was time to part ways. 

 

THE TABLES

The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes. 

 

Global equities


 US equities


 

US Treasuries


Corporate bonds (credit)



Safe haven and other assets


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