US stocks may be close to record highs, but that does not tell the whole story

 We received the flash PMIs for April over the last 48 hours, which offer some insights into how the global economy is being affected by events in the Middle East. Europe appeared to come out worst of the developed economies. S&P Global headlines it this way: The flash Eurozone PMI indicates that the euro area is facing deepening economic woes from the war in the Middle East. The conflict has pushed the economy into decline in April, while driving inflation sharply higher. It was widely expected that the ECB would raise rates by 25 basis points at some point in the coming months, but given this report, there is no way that should happen.

The UK fared slightly better, but the headlines and the reality are not quite the same. The headlines would suggest the UK economy has gathered renewed momentum in April after the initial impact of the war in the Middle East stalled growth in March. The reality is that the improved rate of expansion is, in part, a reflection of a short-term boost from a rush to secure purchases ahead of feared price rises and supply shortages linked to the war, according to S&P Global. Prices have also spiked at a rate not seen since the pandemic.

Moving rapidly on to the US, the report is similar to the UK: the headlines were better than expected, but under the hood, it paints a picture of subdued growth and rising cost pressures. The survey respondents cite supply chain concerns resulting from the war.

In conclusion, nothing that one would not expect, concerns about the economic impact the war is having on the global economy, alongside concerns that higher energy prices feed into higher inflation. The perfect storm for any central banker.

Headlines will tell you US stocks in particular are back to record highs, but we are right back to the good old days of growth stocks, i.e. the tech sector, dragging indexes higher while the broader market lags, the tech rebounding by over 15.0% this month. Over the past week, the S&P 500 technology sector has outperformed the broader market on every day.  According to Goldman Sachs, price breadth has also dropped to one of the narrowest levels since the dot-com bubble. Back to those who own the Mag 7, outperforming; those who run a more balanced portfolio, lagging. The FTSE 100 is flat this month, whilst the MSCI global index is up by almost 7%.