Nothing continued to happen last week (and the week before that, for that matter). Apart from two outlying and positive market moves, that is, the Nasdaq went up and so did Japanese equities, for reasons that couldn’t be more different.

The chart below shows a bunch of equity markets, including those of the UK, Europe, Australia, a diverse set of so-called emerging markets, and most of the US market (more about that later), which have all been basically playing dead.

The Japanese market was up 6% as it powered itself towards new highs, and while IT stocks were the biggest contributor, the gains were broad based with every sector in positive territory. The Japanese market has been marching to a different tune for quite a while and steadily gaining momentum this year, probably due to a relatively idiosyncratic policy back drop, strong corporate earnings, and increasingly attractive stock valuations. The latest catalyst appears to have been Warren Buffett’s well publicised investments in Japan. Meanwhile, the Nasdaq Index was up a creditable 4% over the last 2 weeks (especially on top of its 20% gains in the first four months of the year). However, if you exclude 5 stocks (Apple, Microsoft, Nvidia, Google and Amazon), the US market would have actually been in negative territory.

Looking at the year to date, these trends are even more stark. While the Nasdaq is up by almost 25%, the S&P 500 is up by less than 10%. The white dotted line shows the performance of the US market ex the Information Technology sector, and makes the point that, outside of the IT sector, the US market has actually been less volatile than most markets and even a bit moribund. Yet more remarkably, this ex-IT Index still includes Amazon, Google, Facebook, Netflix, and Tesla, which due to the arcane nature of index stock classification, are actually in the Consumer Discretionary and Communication sectors. Take these stocks out of the S&P 500 ex IT Index, and it was actually down 1.5% so far this year.

There has been much debate about what is driving markets and whether it is expected interest rates, the impact of new developments in AI or, more recently, the debt ceiling. This graph suggests that earlier in the year, the ebb and flow of recession and inflation fears may have been foremost on the markets mind, but a view that the tech giants are the only companies in the world with the wherewithal to dominate this new technology space race may have been a dominant force. It is also likely that retail trading, leveraged via options, might be amplifying these effects.  So far at least, the politicking around the debt ceiling and whether the US might be forced to default on debt payments has not been as influential for markets as the headlines might suggest.

Aside from some jumpiness in very short-term US Bills, bond markets have been relatively calm, with government bond yields just starting to edge a little higher in recent days. Many commentators expected an increase in bond volatility as the debt ceiling crisis approached, but there is an alternate theory that US Treasuries would actually rally if the credit rating agencies were forced to downgrade US Government debt, as amidst the resultant turmoil around the world, Treasuries would remain the safest asset, relatively speaking. So, maybe, bond markets in their infinite wisdom, have decided that it is all too hard. Currency and commodity markets have also been quiet, with the US Dollar strengthening modestly in recent weeks. Lastly, corporate bond markets also remain sanguine at the close of a US reporting season that suggested corporate America remains reasonably healthy.

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