by Qontigo
- US market catches up to the European market
- Info Tech’s dominance of the US market
- Global trading activity rises led by US tech shares
US market catches up to European market
The US market outperformed the European market for the first time since February this year, boosted by optimism about nearing a debt ceiling deal, by a jobs report that exceeded investors’ expectations, and by the surge in AI-related technology stocks. The STOXX® USA 900 index’s cumulative year-to-date return of 12% outpaced the STOXX® Europe 600 index by 70 basis points as of last Friday. The Asian market remained the laggard, with the STOXX® Asia Pacific ex-Japan index posting a year-to-date return of -1.5%.
Without tech stocks, the STOXX® USA 900 index would have seen only a 4% YTD return (the dotted green line on the chart below), underperforming the European market by seven percentage points. However, all sectors were up last week, with US Consumer Discretionary, Materials and Real Estate in the lead.
The chart below does not appear in our Equity Risk Monitors, but can be provided upon request:
See graph from the United States Equity Risk Monitor of 2 June 2023:
Info Tech’s dominance of the US market
It is not surprising that the tech rally had such a big impact on the US market, given that Info Tech represents more than a quarter of the STOXX® USA 900 index. In contrast, the weight of the tech sector is about 7% of the STOXX® Europe 600 and less than 3% of the STOXX® Asia Pacific ex-Japan.
Despite the recent rally, US Info Tech’s weight on Friday was similar to what it was 12 months ago. Remember that, as the Fed continued to raise interest rates to combat inflation, growth stocks—such as technology stocks—have suffered terribly. Therefore, the recent rise in tech stocks seems to have brought the value of the sector back to where it was one year ago.
Info Tech’s contribution to the STOXX® USA 900 index risk is much higher than its weight would suggest. The US tech sector is responsible for nearly 40% of the US benchmark risk (while the sector weight is only 28%). Also, the risk contribution of the US tech sector is now higher than what it was 12 months ago.
See graph from the United States Equity Risk Monitor of 2 June 2023:
Global trading activity rises led by US tech shares
Global trading volume rose to the 3-year median volume, although it is still below February and March levels of this year, and well below the peaks of 2020 or 2022. This relatively low level of worldwide trading activity may indicate investors’ reluctance to trade amid market uncertainty and increased geopolitical risk. Most investors may still believe we could be plunging into a global recession and AI innovation seems to be one of the few bright spots for now.
The recent increase in the STOXX® Global 1800 index trading activity mainly captures trades in technology stocks, particularly US shares. The current trading volume for the Info Tech sector in the global index is much higher than the one-year average. Only three other sectors in the index saw volumes slightly above their one-year averages.
The US tech sector saw a major jump in trading activity, while trading ticked up somewhat in the European tech sector and was relatively flat in Asia.
The chart below does not appear in our Equity Risk Monitors, but can be provided upon request:
See graph from the Global Developed Markets Equity Risk Monitor as of 2 June 2023:
