Small Caps, AI Stocks Lead Global Rally Amid Record Market Highs
Market Overview and Key Developments
By Jamie McGeever
ORLANDO, Florida, June 2 (Reuters) - World stocks rose to fresh peaks again on Tuesday as no major change in U.S.-Iran tensions, together with a general calm across currency and bond markets, encouraged investors to keep buying. In the U.S., small caps and non-tech sectors outperformed.
The Stealth Rally of Small Caps
In my column today, I look at the almost stealth-like rally of small caps this year. While all the headlines have centered on the hyperscalers and Big Tech behemoths, the big winners from the AI frenzy have actually been small-cap tech stocks.
Recommended Reading
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. AI frenzy stokes inflation heat too: Mike Dolan
2. Trump administration to ask U.S. AI firms to voluntarily submit models for cybersecurity tests
3. How a nudge from Nvidia propelled frugal Micron into the AI boom and a $1 trillion market cap
4. Euro zone inflation jump reinforces case for June rate hike
5. China seen tapping deeper into oil stockpiles as imports hit decade-low
Today's Key Market Moves
Stocks and Sectors
• STOCKS: MSCI All Country, MSCI Asia ex-Japan, MSCI Emerging, S&P 500 all hit record highs. Europe +0.8% on tech optimism, cyclicals lift UK 0.3%.
• SECTORS/SHARES: Seven S&P 500 sectors rise, four fall. Utilities +2%, comms services -2.6%. Marvell Technologies +32%, Hewlett Packard +20%, Super Micro Computer +7%, Alphabet -4%, Microsoft -4%, Dell -7%. Boeing -3%
Currency and Commodities
• FX: USD/JPY nudging 160, traders on Japan intervention alert. Bitcoin -6% toward $66,000.
• BONDS: 10-year JGB yield -11 bps after strong auction, biggest fall since April last year. Pace of BOJ taper also in focus. U.S. yields -3 bps at long end.
• COMMODITIES/METALS: Oil +1%, gold steady.
Today's Talking Points
Alphabet's $80 Billion Equity Raise
* Alphabet scoop
Google's parent company Alphabet stunned investors late Monday, announcing it will raise $80 billion in equity financing, with $10 billion coming from Berkshire Hathaway. In many ways it makes sense - debt is getting pricier, there's a huge AI capex bill to fund, and $80 billion is a fraction of $4.5 trillion market cap. So why not?
The concern is not so much the amounts involved, but the direction of travel. At the end of March, Google had $126 billion cash on hand, but its AI capex spend this year will be almost $200 billion. It has already issued more than $85 billion in debt over the last year, now this equity capital raise.
U.S. JOLTS Data and Labor Market Trends
* JOLT from the blue
U.S. "JOLTS" data on Tuesday showed that job openings in April rose to the highest in two years. The increase was the fastest in five years. There is clearly demand for workers, and so far at least, very little evidence that AI is destroying jobs. But is the labor market as tight as this suggests?
Perhaps not. Some 90% of the openings were concentrated in one sector, professional and business services. The rate of hiring, layoffs and quits fell too, a sign of a stagnating rather than buoyant market. As ever, something for everyone in the numbers, as eyes turn to May's payrolls report on Friday.
ECB Rate Hike Expectations
* ECB June hike baked in
Euro zone inflation is above 3% for the first time since September 2023, figures on Tuesday showed, virtually sealing the deal on a 25-basis-point rate hike from the ECB next week. Traders are leaning towards a further 50 bps of tightening by the end of the year.
Assuming the ECB does move next week, it will join the G10 central banks of Australia and Norway in raising rates, and a growing clutch of authorities in emerging economies. The Bank of Japan is also expected to tighten next week. How long before markets are fully pricing in a rate hike from the Warsh Fed?
What Could Move Markets Tomorrow?
Key Events and Data Releases
• Developments in the Middle East
• PMIs for U.S., China, Japan, euro zone, UK, and others (May)
• Reserve Bank of New Zealand Chief Economist Paul Conway speaks
• Australia GDP (Q1)
• Bank of Japan Governor Kazuo Ueda speaks
• European Central Bank officials scheduled to speak include board members Frank Elderson and Piero Cipollone
• U.S. ADP private sector employment (May)
• U.S. services ISM (May)
• U.S. factory orders (April)
• U.S. Federal Reserve officials scheduled to speak include Governor Michael Barr and Dallas Fed President Lorie Logan
Subscribe for Daily Market Insights
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Disclaimer
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Nia Williams)
