My Three Biggest Market Concerns as Trading Kicks Off for June
Investors should keep their eyes on these three watch-out items that are sure to impact their trades and the market at large.
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It is hard to believe it is already first trading day of June. Time is flying by fast in 2024. Despite myriad concerns, equities continued to climb a wall of worry in May. At the close of the month, the Nasdaq was up nearly 7% on the month while the S&P500 rose by a bit less than 5%. However, as we begin a new trading month, here are three of my key concerns for the overall market and economy.
1. AI Is Starting to Fade
The AI Story is starting to fade a bit. While Nvidia NVDA continued to be a juggernaut in May and has added another 120% to its large gains in 2023 so far this year, Super Micro Computer SMCI stumbled a bit and posted losses for the month in the low teens. Dell Technologies DELL was also crushed last week after revealing AI demand had not increased the order backlog for its servers as much as investors were anticipating. AI has been a primary driver of market gains this year, but I will be watching to see if the sector takes a breather for a month or two.
2. Consumer Segments Are Starting to Flail
It is also becoming quite plain that many segments of the consumer population are starting to flail. Major consumer brands like McDonald's MCD, Starbucks SBUX and Target TGT all prominently mentioned weakening consumer demand within their Q1 results and forward guidance. Most income strata have lost ground to inflation since the beginning of 2021 and record numbers of Americans are working two or even three jobs to make ends meet.
While prices on big ticket items like vehicles are starting to moderate or even drop a bit, inflation remains stubbornly sticky around everyday needs like energy, eating out, insurance and groceries. Weakening consumer spending was the main reason the estimate for first quarter GDP growth was lowered from 1.6% to 1.3% last week. It was also the primary factor that triggered Goldman Sachs GS to cut its projection of second quarter GDP growth from 3.2% to 2.8% last week. Falling consumer demand combined with stubborn inflation could lead to a stagflation scenario in the months ahead and bears monitoring.
3. Geopolitical Conflict Is Escalating
Finally, we have the situation in Ukraine which isn’t getting the attention it deserves as a potential geopolitical event. The conflict appears to be escalating, with Western powers giving Ukraine the green light to hit targets deep insider Russia with U.S.- and European-supplied munitions. France and some other countries also appear intent on sending military advisors into Ukraine.
I seem to recall a situation in Indochina some 60 years ago that went quickly from sending military advisors to a full-blown war. It didn’t end well for anyone. An escalating proxy war with a nuclear armed foe where no one seems interested in finding an off-ramp is obviously something meriting attention given the potential ramifications if the conflict spirals out of control.
At the time of publication, Bret Jensen had no position in the securities mentioned.
