Tech Takes the Wheel, Again
Tuesday’s action was classic risk-on. Futures pointed lower into the open and yet moved higher throughout the US trading session, with tech (including NVIDIA) leading the way.
However, this time it might be different because we’re seeing broader market participation. The equal-weighted S&P 500 index has a year-to-date gain of 1.71%.
And that’s pretty close to its weighted average sibling.
Perhaps technology is leading the way, but other stocks are following behind.
That said, the small caps, as shown using the IWM ticker, are still struggling to move into positive territory after the first five months of trading.
Why are the small caps struggling?
Tariffs, Trade, and Tensions
Trade policy is creeping back into headlines—and not in a good way. The U.S. is once again sparring with China over old trade agreements, while court rulings on Trump-era tariffs are stirring market nerves. Investors don’t love unpredictability, and that’s exactly what this is. If policy turns protectionist again, earnings outlooks for manufacturers, autos, and even retailers could take a hit. Large companies can weather the uncertainty better than small caps.
BoC Rate Call Incoming
The Bank of Canada announces its rate decision today, and while it may seem like a local story, it’s not. If the BoC hikes or talks tough, that tone could ripple into expectations for the Fed. With inflation not quite dead and central banks still walking a tightrope, any surprise could rattle markets. Pay attention to the tone of the press conference—it matters.
Data Check: Not Breaking, But Bending
ISM PMIs: Services PMI is still expanding (above 50), but manufacturing slipped to 48.5 in May—its second month underwater. That’s not full-blown contraction, but it’s close. If both drop and stay below 50 for a couple of months, it’s a clear slowdown signal.
Consumer Spending: Still strong—April retail sales were solid—but watch this space. Some of the strength could be due to pre-tariff buying. If spending cools off in the next two to three months, markets won’t like it.
Business Investment: Core capital goods orders (NDCGXA) haven’t rolled over, but growth has stalled. If those numbers dip to multi-month lows, it’s a clear sign that companies are pulling back.
Jobs Market: Holding up—for now. April job adds were strong, and weekly jobless claims remain low. But if those claims spike above 300k or monthly job growth drops below 100k, that resilience story could crumble fast.
The S&P’s 6,000 Problem
Right now, the S&P is priced for perfection. There’s no hint of a slowdown baked into valuations. That’s a problem if economic momentum really is fading. The index hasn’t had a real test since March, and any data miss—especially on Friday’s jobs report—could bring a reality check.
Takeaway
This isn’t panic time, but it’s definitely not autopilot. If you’re riding the rally, know where your exits are. The economy isn’t flashing red, but it is sending some early yellow lights. This week’s rate decisions, consumer data, and labor market reads will either confirm the strength—or expose the cracks.
Stay alert. Stay nimble. And keep one eye on the headlines… and the other on the data.
