Aoifinn Devitt – Chief Global Market Strategist
An alternative title of this blog was “All changed, changed utterly.”, to paraphrase the poet W B Yeats. Using that quip seemed too easy, however. In my many years of writing investment blogs I have used it a few times – during COVID, after a staggering geopolitical event, after an election. It seemed an obvious choice after the news cycle shattering events over the weekend – the assassination attempt on former President Trump at a rally in Butler Pennsylvania. However, the news cycle moved on quickly, first to the Republican convention and then the VP pick of JD Vance, that I was forced to wonder whether this event will catalyze the degree of change such a shock might be expected to – or whether we have much else to digest too.
The Republican fresh face suggests a pro-business yet isolationist stance on the global stage, and we saw stories of tech titans lining up to pledge their support – and campaign contributions – to the Trump campaign. Meanwhile markets hummed with not so much as a hiccup after an act of audacious domestic terrorism. The same trends of rotation into small cap from large cap, a strong performance of industrials, some slippage in technology stocks and a focus on bank stocks continued “business as usual” from last week.
The focus on banks reflects the strong performance year to date of the sector and the reality that customers are starting to demand higher rates on deposit accounts or will move their money elsewhere. This is also reflected in the rising amounts in money market funds – now estimated to be over $6 trillion in the US. Cash may be king – but only if it earns its keep.
A pickup in trading and strong market momentum have helped banks, but they remain under the microscope, particularly as they increase their bad loan provisions, another possible signal of trouble ahead when it comes to consumer health. It seems like this corner of the market – financials – is the quiet “thinking“ corner of a market that has otherwise accelerated rapidly. Digesting the political news, crypto currencies have picked up steam since the events of the weekend, while solar stocks have fallen – reflecting expected policy changes should a Republican victory follow in the fall.
And the good news is bad news and bad news is good news conundrum continues – a slowing economy should pave the way for rate cuts, which the market is cheering, and AI is so much at the forefront of all discussions that whether it is at a “turning point” is on everyone’s lips. Whether anticipating elections in some areas, and digesting elections in others the mood this summer remains tense. Just as the derecho weather system has uprooted Illinois this week, shocks this summer are coming suddenly and with intensity. It is time to batten down the hatches.
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