The return of the magnificent 7

Good day. South Korea has a new president: the left Lee Jae-Myung decisively won the country’s elections. Will it have a long time reforms for a long time? Closer to (our) home, the work inactivity survey and US work openings. For April it came out yesterday. It came well: the layoffs increased, but so did work openings. Send us an email: unded@ft.com.

Return of Mag 7 (and the United States)

World actions have hit us this year, as everyone knows:

However, if that picture observes a lot, it will notice that during the last month or so, the United States (measured by the S&P 500) has reached a bit. In fact, with a yield of 7 percent since the beginning of May, the United States seems to resurface. However, the recovery of the United States has a very specific and familiar flavor. It is mainly driven by great technology. Specifically, more than two thirds of the profits come from only seven actions: Nvidia, Microsoft, Meta, Broadcom, Amazon, Tesla and Alphabet. They have added $ 2.4TN in value during the period. I will call them the ‘Magnificent Seven’, but this is a bit trap: I have changed to Broadcom for the canonical block, which has fallen, since it remains directly in the land of any man of the tariff war.

Even so, Big Tech is once again retaining the index. Take out the (slightly rejigged) Mag 7 and the market increases 3 percent more from the worker since May. How will we read this unequal gains distribution? Half empty glass types will say that narrow manifestations are unsustainable; The complete media will say, together with Marion Laboure by Deutsche Bank, which Big Tech provides leadership. “As before, MAG 7’s performance will probably serve as a barometer for a broader risk feeling,” he writes.

The attractiveness of Mag 7 is what has always been: to set aside Tesla, these are businesses with high entry barriers, high cash flow and strong growth. Yes, they are expensive (apart from the alphabet, they all trade with more or less fleshy cousins ​​to the US market, which is not entirely cheap). But it is difficult to find better positioned businesses in anything that approaches the same scale. However, its good recent performance is not due to a reevaluation of its growth prospects. As you can see in the third column below, profits of profits for the group are not reviewed much, and some are marked.

However, we are ashamed to admit, a bit perplexed by this. Tesla’s performance, despite his great profits, may be due to Elon Musk’s decision to leave the government and focus on business; After all, the action never quoted in the foundations. As for the rest, they can be responding, as stocks par excellence, to the possibility that the American-China commercial and the understanding that Donald Trump’s crust is consistently worse than his bite (if we only had a memorable acronym for that). But if that were true, wouldn’t companies be the most obvious operations based on goods without technology? Readers, if you have a theory, send it.

The dollar

Two months after the “Day of Liberation”, it is possible to step back and consider how markets have changed. The new most striking and discussed trend is the combination of increasing treasure yields and a weakening dollar. As an illustration, here is the dollar index traced against the gap between the yield bonds of 10 years and the 10 -year German bunds. Clearly there has been a divergence:

It is an issue that we have mentioned several times, but the talk continues. Some have even maintained it as evidence that the United States is beginning to look more like an emerging market.

There is definitely an ongoing change: Trump’s tariff policies have reduced the attraction of the United States as a destination for capital, and the broad deficit is scary. But it would be an exaggeration to compare the United States with an emerging market, or even the United Kingdom, says Jonas Goltermann in Capital Economics:

In April when [dollar underperformance] First, he felt like ‘my God, there is a crisis, something like the’ trusenomics’ of the United Kingdom. But calls for that have really stopped. The market recovered. He [dollar and yield] The divergence is still there and grows, and reacts to the holders of trade and fiscal image; It is related to administration policies to some extent. But it is not a crisis. It is not trussenomic.

There has not been such a large rotation of the US assets. Although there were two irregular treasury auctions, one in the week after the day of liberation, and one at the end of May, the rest has been fine. Meanwhile, foreign tickets in the S&P 500 have increased. From the minutes of the most recent Fed meeting:

The manager [that tracks flows data] He pointed out that no evidence indicated that foreign investors had sold material amounts of US assets. The available data point to modest outputs of fixed income values ​​that were largely compensated due to capital values.

A Michael Hartnett table of Bank of America shows it well:

Nor should we exaggerate the increase in yields. The fall in the dollar along with the growing yields of the treasure is anomalous. But bond yields have increased worldwide. Of Robin Brooks at Brookings Institution:

I do not believe that the increase in yields increases even remotely to the level of the performance explosion of the Liz Truss bonus for the United Kingdom. What we are seeing is quite different in which the United States has levels of performance that are increasing, but the yields are also increasing everywhere. . . The rate differential is stable.

In fact, the gaps between the yields of the treasure at 10 years and the yields of the bonds of other economies have recently been flattened:

With the benefit of retrospect, there are two probable culprits for the great dollar change, beyond marginal changes in foreign flows. The first is coverage. Ed al-Hussainy in Columbia Threadneedle explains:

If you are a foreign investor, you are buying a cash flow. . . These flows are always subject to the uncertainty of the exchange rate. . . If the dollar is weakening, subtract from its cash flows. As an investor, he does not like uncertainty in dollars, and he does not like to realize the losses of the weakening of the dollar.

[An investor can hedge] entering a term contract. Let’s say I will buy Won Korean, you will buy US shares and then enter a contract to buy Korean Won in [a specific] Exchange rate in the future. That takes the risk of currency. . . But entering that contract exerts a downward pressure on the dollar: I am selling dollars and purchases earned in the futures market.

The second is a reevaluation of the US economy. Remember how strong the dollar was coming to the day of liberation. Looking at a longer term, the dollar looks strong even now:

For years, American growth exceeded the rest of the developed world. But growth expectations have softened and other countries are leaving their own fiscal candles out. The appreciations of recent currencies, with Taiwan the most dramatic, suggest that foreign central banks are adjusting to this new paradigm. But that is an adjustment from a point where the dollar may have been too strong. On the deficit, US economic data is still fine, and as Paul Krugman points out, US taxes are low for international standards; There is space to increase more income if it is to push.

The United States is not an em. Nor is it an incident in the form of armor in sight. It would be more appropriate to call this normalization.

(I reiterate)

A good reading

S/offer.

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