AI Frenzy Continues Amid Record Sector Dispersion
AI related stocks surged again this week. The big gains were Friday and Monday due to a keynote speech by NVIDIA’s CEO, Jensen Huang, at a technology conference in Taipei over the weekend. Apparently even Uber drivers were asking passengers if they had watched the speech. AI mentions during earnings calls have gone up from about 6,000 toward 25,000 this quarter.
NVIDIA gets most of the press, but the best performing stock has been Super Micro Computer, which is up more than 500% from its 52-week low. This is twice NVIDIA’s advance of 250%. Semiconductor stocks were up about 11.5% on the week, which dragged the S&P 500 up 1.6%. The Dow Jones Industrial Average was up just 0.4% and small caps were down 0.9%. Foreign developed equities lost 2%.
The NASDAQ finished May with a gain of 5.9% whereas the Dow Jones Industrial Average was down 3.2%. Going back to the creation of the NASDAQ in 1971, there have only been eight other months where the spread was wider. Semiconductors were up more than 16% on the month. As AI related names surged, there were seven S&P 500 sectors down more than 4% in the month of May. Somehow the S&P 500 was up 0.4% on the month when most sectors fell more than 4%.
Debt Ceiling Poised to Reach Conclusion
The debt ceiling issues appear to be in the final stages as the House passed a bill. The long, fear driven campaign saw credit default swaps on the U.S. surge to three times any previous peak. A Senate passage is expected quickly and then we have a deluge of Treasury issuance. Normally a large issuance of Treasuries is a drain on liquidity and a headwind to equities. We also have signs of liquidity in China falling materially and thus the passage of a debt ceiling bill may not be an all clear for equities.
Economic Data Turns Down
Economic data has started to weaken across the board.
- The Citi Economic Surprise Index for Major Economies has fallen sharply over the last two months.
- China data has been especially weak.
- The Chicago Purchasing Managers’ Index and Institute for Supply Management had a sharp drop in the month of May.
- 40% of commodities are down 40% from their 52-week high, a clear sign of demand weakness.
But employment continues to hold up as ADP employment change was well above expectations. Will Friday add to the record streak of nonfarm payroll’s coming in ahead of expectations? The current consensus is 195,000 and we will find out Friday morning.
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Source: BTC Capital Management, FactSet, Refinitiv (an LSEG company).
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