Surveillance: It's Meta's World. The S&P Is Just Living In It

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“Crowded trade”

It's hard to overstate how much this year's gains on the S&P 500 are due to a rally in Big Tech. As a result, it may be a make-it-or-break-it moment as we find out how these companies are actually doing, with earnings from Alphabet Inc., Microsoft Corp., Meta Platforms Inc., Amazon.com Inc. and Apple Inc. pouring in over the next two weeks.

“It's going to be very hard, I think, for tech companies to give us earnings that would surprise enough to move the stocks a lot since it's a very crowded trade right now,” Linda Duessel of Federated Hermes said.

While she sees the US through the worst of the bear market, it’s not over. Federated Hermes’s outlook is for 1% growth in GDP this year and next. “A fun word to describe this is slowflation.”

A look under the hood of the S&P 500 Index shows how much tech has done to keep it afloat in 2023. DataTrek Research’s Nicholas Colas chipped in a crucial stat: Seven megacap tech stocks contributed 88% of the S&P’s 7.7% gain. The broad index has roared to its biggest edge over the S&P Equal Weight Index in three years.

“This is going to be a huge week for stocks,” said Margie Patel of Allspring Global Investments. She still likes tech, “even if we do have a deep recession.”

Her criteria: look for big market caps, cash on the balance sheet and a dividend. Broadcom Inc., she said, fits that bill.

Drew Matus of Metlife is optimistic about the strength of US technology as a driver of innovation, but less so about taking the plunge into those stocks right now.

“You want to basically start looking at riskier assets when everyone else doesn't want them,” Matus said. “Like a squirrel waiting for winter you just gather your nuts and pile them in a tree. Cash looks pretty good right now. I don't think now's the right time to take a huge amount of risk.”

Making sense of the Fed

With the Fed in blackout period ahead of next week's FOMC meeting, Ed Al-Hussainy of Columbiatreadneedle gave us a way to ponder the course of monetary policy over the rest of the year.

For all of the noise in the market about whether traders are too aggressive in pricing in rate cuts, Al-Hussainy sees a clear takeaway: There's a lot of confidence that the Fed will get a handle on inflation.

Think about traders' expectations of rate cuts totaling 25 or 50 basis points in 2023 as a “probability weighted average,” Al-Hussainy said. That assessment swirls together possible outcomes spanning an “accident” that requires a 100 basis-point reduction or sticky inflation that keeps rates on hold. On balance, the conviction is that the Fed will succeed.

Dana Peterson of the Conference Board said the expectations of a recession are clear, as measured by the sentiments of consumers as well as CEOs.

“It won't be long and it won't be deep, but it will happen,” she said.

Quick takes

Jens Nordvig of Exante Data noted Europe’s outperformance against the US this year. The region’s economic strength is good for markets, of course, but it keeps the pressure on European Central Bank policymakers.

“We've really recovered from that energy shock in a way that has supported the European economy,” he said.

To Julie Norman at the Centre on US Politics at University College London, the coziness between Vladimir Putin and Xi Jinping is a “performative bromance relationship.” But she said China’s diplomatic misstep over the weekend — suggesting that the former Soviet states weren’t sovereign nations, then walking it back — bears watching.

“It did seem apparently like a faux pas,” Norman said. “But again, one that you had to assume had some kind of strategy behind it.”

More from Surveillance

Bloomberg Surveillance is live weekdays from 6 to 9 a.m. New York time. Watch on Bloomberg Television, on the Terminal at TVYouTube; or listen to the show on Bloomberg Radio and RADI from 7 to 10 a.m. You can watch full episodessubscribe to the Bloomberg Surveillance podcast. Check out GTV for all the charts seen on Bloomberg Television. 

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