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MARKETS

US equities were weaker again Monday, S&P down 0.4% amid overall small losses across most global equity markets as investors delivered a mostly muted reaction to weekend news of the shortlived revolt in Russia. Oil rose 0.7%. US10yr yields are down 1bp to 3.72%. RMB fell to 7.244 against USD, the lowest in seven months, amid concerns about Chinese growth.

Although I have no specific expertise in military matters, the dark geopolitical shadow cast by a coup d'état in one of the world's largest nuclear-armed superpowers still seems less alarming, at least on Wall Street, than rising interest rates.

US equity indexes slipped slightly lower Monday amidst little macro news but ahead of a busy last week of June scheduled to provide investors with the latest reads on inflation, housing, and business sentiment.

Today's market indifference is a byproduct of market concentration risk. Many more stocks are trading up in the S&P 500 than down, but the index is still struggling to gain ground as all 7 of the market's mega-cap Tech stocks are lower -- and many are significantly lower, including GOOGL, TSLA, NVDA, and META.

Today's rally in commodity-driven stocks (the Energy sector is the best performer in the S&P 500) may also acknowledge that commodity supplies are still vulnerable to disruption in an uncertain geopolitical landscape.

As we head towards an important July FOMC meeting and a PCE inflation report this Friday, investors may express more trepidation about being overly exposed to long-duration assets like many stocks that dominate the Tech tape. Indeed, a more hawkish global central bank narrative exposes investors to an even greater drawdown risk if this week’s inflation data runs hot.

Of course, no one has a crystal ball, but the ingredients are there for a summer drawdown. While the narrow market breadth is well understood, the primary catalyst for this correction could be the ultimate realization that there is not a lot of reason right now to expect interest rates to fall any time soon. If anything, the direction of travel is seemingly always one step higher as the economy fails to respond to the Fed’s attempts to cool consumer activity.

In China, the macro momentum shows few obvious signs of a turnaround. The first readings on travel/consumption from the just concluded Dragon Boat festival holiday suggest a softer trend versus that from Labor Day break back in May. There is a lot of anticipation around government stimulus, but thus far, it’s been only the targeted variety.

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