A RELATIVELY QUIET DAY

Markets were relatively quiet as the data largely met expectations. Equites declined about 0.5% and Treasuries rallied across the curve.
Federal Reserve Bank of New York President John Williams said he expects inflation to continue falling in the second half of the year, adding that elevated borrowing costs are restraining the economy.
Williams said that while inflation is still too high, Fed policy is well positioned and the imbalances between supply and demand are easing. He stated, “the behavior of the economy over the past year provides ample evidence that monetary policy is restrictive in a way that helps us achieve our goals.”
Changing topics, the six biggest companies now command a greater share of the S & P 500 Index than ever before.
MSFT, AAPL, NVDA, GOOG, AMZN and META account for 30% of the benchmark, up from about 26% at the start of the year.
The increase has been fueled by the stratospheric 130% YTD gain in NVDA which is up 20% since last week. The chipmaker has added $1.6 trillion in market value this year and is close to overtaking AAPL as the world’s second most valuable company.
Mega sized companies have always dominated the S & P 500 capitalization but for most of the past three decades the percentage weighting of the six biggest stocks in the benchmark was in the mid-teens. It was not until 2020 that the concentration exceeded 20% according to Bloomberg.
Even at the height of the dot-com bubble in 2000, only three of the biggest companies were technology companies—MSFT, CSCO and INTC. The other three were GM, XOM and WMT as per Bloomberg.
Wow!
A rhetorical question to perhaps ask is whether a S & P 500 Index fund can still be considered diversified. According to the Investment Company Act of 1940, the simplistic definition of a diversified mutual fund implies that not more than 5% of the fund’s assets can be invested in one security.
And then there is the outcome of yesterday’s trial. Depending upon where one falls on the ideological spectrum, it is either a travesty or a victory for justice.
At this juncture, the trial and the potential outcome or consequences are not affecting the markets. No one knows how this will morph.
Perhaps the only concrete statement to make is if the market believes the President’s proposed budget and tax increases are no longer DOA—proposals that include increasing the maximum capital gains and dividend tax rate to 45%, to reducing the proverbial inheritance gift tax exemption from $10 million to $1 million, and the taxing of unrealized capital gains—the markets may begin to respond to the political side show.
Today is the release of the monthly PCE data. Analysts are expecting the core PCE or the Federal Reserve’s preferred measure of inflation to rise by 0.2% and 2.8% on a year over year basis.
Last night the foreign markets were mixed. London was up 0.45%, Paris down 0.01% and Frankfurt down 0.02%. China was down 0.16%, Japan up 1.14% and Hang Seng down 0.83%.
Futures are bifurcated before the PCE data with Dow futures flat and NASDAQ futures down 0.5%. The 10-year is off 2/32 toyield 4.55%.