It seems rather misguided to be discussing how a ‘new growth model’ is driving the US economy when real GDP growth slowed to an annualised rate of just 0.7% in Q1. Downward revisions to retail sales imply that the second estimate for GDP may be even lower.
Nevertheless, last week’s strong earnings from the US technology giants were hard to ignore. Approximately 15% of the S&P 500 stock market capitalisation is now accounted for by six companies (Apple, Facebook, Alphabet, Amazon, Intel, Microsoft). Apple will report its numbers this week and its cash hoard is likely to top $250bn. The dominance of the ‘big six’ is fast becoming an anti-trust issue. Given President Trump’s antipathy towards Silicon Valley and his pivot towards old industries (coal, oil, iron & steel), this remains possibly the biggest risk facing the stock market over the next two or three years.
However, information technology was the strongest performer of all sectors within the S&P 500 for April, and year-to-date (see tables on page 2). The strength of their earnings could help propel equities to new highs over the summer months. This would in turn put the seal on a June rate hike.
Summary
- Should seal June rate hike
- GDP growth slowed, but investment strong
- Deregulation will provide further impetus
