Economic Data and Market Highlights
Global equity markets declined 1.06% for the week as weaker jobless claims and home sales came were reported in the US and the geopolitical volatility was created as the US administration set policy that seems to run counter to previous policies. The DJIA fell 2.48% while the S&P declined 1.63%. Year to date the US markets have advanced just under 2.5% while international developed markets have risen 8.2% as indicated by the MSCI EAFE benchmark. China’s equity markets have risen almost 18% YTD while German equities have advanced just over 13%.
As of the writing of this note, Ukraine has rebuffed the offer of the US government for 50% of it’s mineral rights to help end the war against Russia which would override any existing trade agreements. The Democratic Republic of Congo however, has offered 50% of its rights to the US government to help defend it against a Rwandan-backed military group. Both Ukraine and Congo have deposits of uranium. The Ukraine has deposits of Lithium and copper while Congo has Cobalt.
Recent market dynamics show growing divergence between individual stock performance and broader index stability. While volatility persists at the stock level, indices like the S&P 500 and Nasdaq remain stable, largely due to the influence of the “Magnificent Seven” mega-cap tech stocks but also help from the broader market. Year-to-date, 319 S&P 500 companies have posted gains, indicating a more diversified market. Of the mag 7 names, Meta Platforms has been the key driver of gains, with modest returns from other stocks. However, this narrow market leadership raises concerns about systemic risk, as it may send misleading signals to investors.
Sector rotations and rate sensitivities have created greater dispersion in stock valuations, which could pose risks for passive investors who assume broad market strength. Moving forward, diversification strategies should address concentration risks and look beyond the dominant stocks in indices. Financials and Tech have seen significant inflows, while Healthcare and Consumer Discretionary have seen outflows.
Investors are also increasingly turning to global markets, pushing the Euro STOXX 600 to a 9% return in 2025, compared to the S&P 500’s 4%. Germany’s DAX index has risen 13.6%, fueled by strong earnings from companies like SAP, Siemens, and Deutsche Telekom. The upcoming election in Germany has boosted optimism, with the ZEW Economic Sentiment Indicator reaching its highest level since July 2024. European equity funds saw the highest weekly inflows since December 2024. Global bond funds have also seen eight consecutive weeks of inflows, with government bonds experiencing the largest weekly gain since October 2024. High yield and loan participation funds also saw strong inflows. After two weeks of inflows, money markets experienced outflows, while gold and metal funds recorded their largest weekly inflows since January 2022. Emerging markets saw inflows after 14 weeks of outflows, and Asian markets also saw increased investment.
The U.S. power grid requires substantial investment to meet growing demand from sectors like data centers and to upgrade aging infrastructure. However, tariffs on essential materials such as steel, aluminum, and potentially copper threaten to inflate the costs of these critical upgrades. Domestic production covers about 20% of transformer demand, with prices already surging 70-100% since January 2020 due to raw material inflation. Additional tariffs could further worsen these price hikes, complicating efforts to accommodate future energy needs. Key suppliers of electrical equipment, including China, Mexico, and Canada, are crucial to maintaining the grid. Utilities often need custom transformers, making it hard to switch suppliers. While U.S. manufacturers may benefit from tariffs, current domestic capacity cannot meet demand. The tariffs could also lead to higher electricity bills, impeding cost-reduction efforts. Policies focused on reshoring manufacturing and boosting AI capabilities are likely to further increase long-term power demand, highlighting complex trade-offs in economic strategy.
The Past Week’s Notable US data points (with revisions)
The Upcoming Week’s notable US data points
Source: Morningstar
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Jim Bianco Research, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director
Michael McNamara, Analyst