Tech Giants Report This Week

Will It Move Markets?

The theme of the past week could be “wait and see”. The markets largely closed down on the week and could be waiting until after the election in a week and a half to really start re-establishing positions. It’s a virtual certainty that borrowing, spending and debt levels will all keep rising for the foreseeable future regardless of who becomes the 47th president, but policy differences in terms of taxes, tariffs and the business environment mean that there is real uncertainty about where the economy could be headed.

The traditional growth leaders, including tech and consumer discretionary, outperformed this week, which probably isn’t surprising given how investors might be waiting to buy & sell cyclicals and defensives once they get a clearer view on the policy path forward. One group that’s still stuck in a range, however, is small-caps. Since August, they’ve bounced back and forth between outperformance and underperformance relative to the S&P 500 without much direction. Small-caps should have a better chance at outperforming in a rate cutting cycle, but we haven’t seen that happen. Small-caps should have a better chance at outperforming when cyclicals are leading, but we haven’t seen that happen. Perhaps the group gets unstuck if Trump gets re-elected considering that he’s likely to take a more pro-business stance, but we’re still waiting to see it showing signs of life.

The other “wait and see” moment comes from Japan where BoJ governor Ueda emphasized patience in assessing market risks and talked down the idea of imminent policy changes. As the dollar continues to rally, the yen has plunged from a mid-September low of 140/dollar all the way to 152. That at least puts on the radar the possibility that the BoJ could be thinking about intervening, although it seems pretty unlikely at this point. A rate hike by the BoJ would certainly be a bullish catalyst for the yen (and inflation is certainly trending in the direction that would support it), but it’s got a growth problem as well. It sounds like they’re going to wait for more data to see which one begins to win out before making a policy change.