Small caps lagging again

Transport stocks also not doing as well

Chart of the Day

The larger fall in the Russell 2000 small-cap index than the S&P 500, and its outperformance against the Nasdaq which rose by 0.1%, carried on a familiar trend in the past week that has seen the Russell underperform. If it continues, the S&P 500 will once again overtake the Russell in terms of its total performance since the start of 2020. Given the earnings of the small-cap Russell index companies tend to be most correlated with real economic conditions, some take this to be a concerning sign about the economic outlook. As shown below, the DJ Transportation index is giving a similar message at the moment.

Macro

The US Conference Board measure of consumer confidence fell in May. Consumers' assessment of the present situation improved but their expectations deteriorated, another sign we could be close to the peak for growth.

The German Ifo survey expectations component rose to 102.9 in May, leaving it consistent with GDP growth of 3% YoY.

US house price inflation accelerated to 13.2% in March. Over the past three months, annualized house price growth has been a stronger 17.4%.

The central bank of New Zealand held its policy rate yesterday at 0.25% but, with its inflation-adjusted policy rate still <-1% and the economy recovering strongly, it said it expects to raise interest rates in mid-2022.

In Mexico, export growth increased to 74.2% YoY in April, while import growth rose to 47.3% YoY, both helped by base effects, but both higher than before the pandemic starter.

Markets

The Dow Jones Transportation Average underperformed to the S&P 500 yesterday, with a fell of 1.0%. The DJTA has fallen by 1.2% in the past week, so has underperformed the S&P 500, which has risen by 1.5%.

Everyone is watching to see if the euro continues to rise, and can break out above the high it reached at the turn of the year.

The euro has been helped by the renewed fall in US yields.

Yield curves have been narrowed more in the US and Canada than elsewhere, but they remain higher

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