Overview

Hawkish comments from the Fed backed by strong growth and employment data from the US has sent bond yields higher. In contrast, China’s inflation, or rather disinflation, data weights further on global growth expectations. That markets still adjust downwards suggests investors still do not have a confident grasp of just how much pessimism is warranted for China’s economy and what that means for asset prices globally. Lastly, NASDAQ has announced a surprise reweighing of the NASDAQ 100 to reduce the weight of the “Magnificent Seven”, highlighting exceptional concentration.

Equities

In the year thus far, seven megacap tech firms stood out to become “The Magnificent Seven.”  Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Tesla (TSLA), Alphabet (GOOGL), Meta (META) and Amazon (AMZN) now account for more than half of the NASDAQ 100. Meanwhile, the S&P 500 excluding these companies has been flat since the start of the year in an exceptional year for US equities.

In the face of this extraordinary concentration, NASDAQ is making adjustments to their index weighting to more broadly reflect the market. For funds tracking the index, this would mean they would need to sell off their holdings of the Seven and purchase additional shares of other components companies, with the announcement sending most of the Seven slightly down. While there is not likely to be a long term impact on prices, this adjustment does highlight just how reliant the current market rally is on a few companies. A position on equities is much more likely to reflect the fortunes of these particular companies rather than those of the broader US economy.

Crypto

With the SEC filing against Binance, there are warning signs that liquidity is drying up on the Binance US exchange and that there are concerns over its continued operations. For instance, the BTC-USD pair is trading at roughly a 10% discount to current BTC-USDT price. Investors with holdings on the exchange should tread carefully. 

Upcoming Calendar Events

• US inflation data (12 Jul)
• Bank of Canada rate decision (12 Jul)
• China trade data (13 Jul)
• US initial jobless claims (13 Jul)
• University of Michigan sentiment survey (14 Jul)

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