Market Data 
While most of the market is focused on the US CPI print and what the Fed does next, we have noticed something very interesting happening in global stock markets: global stock market leadership is changing on a regional and a sectoral basis.
Stock markets around the world are hitting record highs and risk sentiment is strong. However, unlike other risk rallies in the past year, this one seems to be broad-based and not only driven by tech. For example, the S&P 500 is less than 10 points away from its record high reached in March, and it was driven higher by the tech sector. In contrast, the FTSE 100 reached a fresh intra-day record high on Wednesday, and it was led higher by industrials. Two very different sectors are driving stock markets on either side of the Atlantic.
The broadening out of the stock market rally is something that investors have been looking for in recent months. As you can see in the chart below, which shows the market cap weighted S&P 500 and the equal weighted S&P 500, which strips out the effects of the mega tech companies, the market cap-weighted index has increased at a faster pace than the equal weighted index over the past year. However, in the past month, something has shifted, and the equal weighted index has outperformed the market cap weighted index.
S&P 500 and SPW
Source: XTB and Bloomberg
This suggests that in the short term, the market is favouring sectors outside of tech like consumer discretionary and utilities. Overall, we do not expect the tech sector to underperform during this period, without the tech sector the US stock markets won’t be able to attempt fresh record highs, instead, the current market rally may lift multiple sectors at the same time.
This theme is evident when you look at the sectors that have been leading the S&P 500 in the past few weeks. Semiconductors are the leading sector in the US index YTD, however, in the past month the top five best performing sectors in the US include industrial production, consumer electronics, passenger air travel, water utilities and investment banking. When consumer discretionary and financials are rallying in an index, this can be a sign of strong risk sentiment. The drivers could be 1, the prospect of rate cuts from the Fed coming sooner than expected, and 2, AI benefits spreading beyond tech. The second point is worth looking at in more detail. We often talk about AI benefits in terms of the implementation of the technology into businesses and how it will boost efficiency and cut costs etc., however, now people are widening the AI conversation to include the power generation needed to fuel AI, which will be a major consumer of electricity. Utilities and minerals are both sectors that could benefit from an AI boom due to the electricity generation needed to power AI models and the copper that will be necessary to boost power grids. Thus, this stock market rally may not all hinge on where tech goes next and on the exact timing of Fed rate cuts.
Looking beyond the US, as we mention above, the FTSE 100 and other European indices are also rallying. For example, on a currency adjusted basis the FTSE 100 is higher by 2% in the past 5 days and the Eurostoxx 50 index is up by 1.6%. As you can see in the chart below, which shows the S&P 500 (white line) and other global indices, the US index has led global indices for the past year.
Global stock markets
Source: XTB and Bloomberg
However, in the past 6 months, the Eurostoxx 50 index has outpaced gains in the S&P 500, and in the past month the FTSE 100 is leading the global stock market pack, followed by the MSCI world index.
To conclude, there is a shift in markets, and the recent risk rally is benefiting a broader array of markets, stocks, and sectors. usually, usually a sign of a strong and healthy market rally, which may have legs.
