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US equities peak, led by ‘Magnificent Seven’

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Global equity market concentration has reached its highest level in decades.

The 10 largest stocks in the MSCI All Country World Index now account for 19.5 per cent of the widely followed benchmark of 23 developed and 24 emerging markets.

According to MSCI data going back to 1994, this ratio was less than 9% in 2016, well above the “dotcom” era peak of 16.2% in March 2000.

In the MSCI World Index, which covers only developed markets, 10 heavyweights, all US companies, currently account for 21.7 per cent of the total market value, bringing the US share of the index to almost 71 per cent.

The companies that make up the ‘Magnificent Seven’ are: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.

Dimitris Melas, head of MSCI index research and product development, said the concentration was “certainly higher than it has been in the last three decades, possibly longer”.

The degree of concentration is even higher, as the top 10 includes two separate share classes of Google’s parent company Alphabet, as well as five other stocks from the so-called ‘Magnificent Seven’ and three other US companies (Eli Lilly, Broadcom and JPMorgan).

According to Elroy Dimson of Cambridge University and Paul Marsh and Mike Staunton of the London Business School, the 10 giants account for 28.6 per cent of the total market capitalisation of US markets, up from 11.9 per cent in 1995 and the highest level since 1966.

According to the Financial Times, the growth of the global giants poses a potential risk to investors seeking the benefits of diversification, traditionally favoured by investors as a way of boosting returns without taking on additional risk, in index-tracking instruments such as exchange-traded funds.

“With 71% concentration in a single country, investors are disproportionately exposed to the US macroeconomic environment and primarily US investor sentiment, and you don’t get the diversification you might expect from investing in a global ETF,” said Todd Rosenbluth, head of research at VettaFi, a consultancy.

Concentration in both the US and global equity markets has risen rapidly after falling between the 1960s and the 2007-08 crisis.

Marsh believes this trend is linked to the increasingly oligopolistic nature of many sectors: Data from the LBS team shows that in 1900, during the era of the ‘robber barons’, the top 10 stocks accounted for 38.1 per cent of the US stock market.

“The industry concentration we’re seeing now is all about technology. What we’re seeing in the technology sector is monopoly power, but not the kind of monopoly power that regulators are used to regulating,” says Marsh.

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Trump and Biden neck-and-neck in key battleground states

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US President Joe Biden and Republican rival Donald Trump are running neck-and-neck in the November presidential election, according to a new Reuters/Ipsos poll.

Forty per cent of registered voters in the eight-day survey, which ended on Tuesday, said they would vote for Democrat Biden if the election were held today, while the same proportion chose former US president Trump. This is little changed from Biden’s 1-point lead in the Reuters/Ipsos poll conducted on 29-30 April.

According to the poll, which has a margin of error of about 2 percentage points among registered voters, many voters remain undecided nearly six months before the November 5 election.

Twenty per cent of registered voters surveyed said they had not chosen a candidate, were leaning towards third party options or might not vote at all.

Thirteen per cent said they would vote for Robert Kennedy Jr, who entered the race as an independent, if he appeared on the ballot with Trump and Biden. In the previous poll, conducted in April, Kennedy had 8% support.

While the ongoing lawsuits against him challenge Trump, Biden faces difficulties because of his age and his stance on the Gaza war.

When respondents were not given the option of voting for a third candidate or saying they were not sure who they would vote for, both candidates were tied at 46 per cent among registered voters; 8 per cent of respondents declined to answer the question.

Among registered voters who say they are “absolutely certain” they will vote in November, Biden leads by a slim 3-point margin.

In the 2020 presidential election, when Biden defeated Trump, only two-thirds of voters went to the polls.

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Pro-Palestinian protesters demonstrate inside CUNY Graduate Center in Manhattan

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In the US, pro-Palestinian protesters briefly occupied the lobby of the CUNY Graduate Center in Manhattan on Tuesday night, nearly two weeks after a massive police crackdown at the City College of New York (CUNY) and other campuses.

Students demonstrated for several hours in the lobby, hanging banners and calling the centre’s library the “Aqsa University Library”.

Aqsa University, the oldest public university in Gaza, was demolished during the Israeli occupation.

Outside the Graduate Centre, a group of protesters waved Palestinian flags in the rain in support of their friends. Dozens of police lined the street outside the building, but did not enter.

Students participating in the demonstration called on the administration to negotiate divestment from “Israeli arms, technology and surveillance companies”.

At 10.30 p.m. US time, the students emerged from the Graduate Centre and declared victory, telling protesters on the street that after negotiations, the CUNY administration had agreed to take their demands to the entire student body.

The protesters then evacuated the library and staff immediately began cleaning it.

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US announces new tariffs on China

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US President Joe Biden has slapped new tariffs on cheap electric vehicles, batteries, solar equipment and other products imported from China.

“President Biden’s economic plan supports investment and creates good jobs in key sectors vital to America’s economic future and national security,” the White House said in a statement.

Claiming that China’s “unfair trade practices” in technology transfer, intellectual property and innovation threaten American companies and workers, Washington said Beijing was also flooding global markets with “artificially low-priced exports”.

In this context, the White House announced that Joe Biden had directed the US Trade Representative to increase tariffs on $18 billion of Chinese imports under Section 301 of the 1974 Trade Act in order to “protect American workers and businesses” in “response to China’s unfair trade practices” and to “remedy the resulting injury”.

Arguing that American workers and businesses can outperform anyone else “as long as there is fair competition”, the White House claimed that the Chinese government has long resorted to “unfair, non-market practices”.

“China’s forced technology transfers and intellectual property theft have created unacceptable risks to America’s supply chains and economic security by allowing it to control 70, 80 and even 90 per cent of global production of critical inputs needed for our technologies, infrastructure, energy and health care,” the statement said.

It also noted that these “non-market policies and practices” have contributed to China’s growing overcapacity and export surges that “threaten to significantly harm” American workers, businesses and communities.

“The actions taken today against China’s unfair trade practices are carefully targeted at strategic sectors where the United States, under President Biden, has made historic investments to create and sustain good-paying jobs, unlike recent Republican proposals in Congress that would threaten jobs and raise costs across all sectors,” the Biden administration said, also criticising Republican proposals.

The new tariffs announced by the White House are as follows:

– From 25 per cent to 100 per cent in 2024 for electric vehicles;

– Tariffs on lithium-ion batteries for electric vehicles from 7.5 per cent to 25 per cent in 2024;

– For semiconductors, from 25 per cent to 50 per cent by 2025;

– For solar cells from 25% to 50% in 2024;

– 0% to 50% in 2024 for certain medical products such as syringes and needles;

– Tariffs on certain steel and aluminium products from 0-7.5% to 25% in 2024.

National Economic Council Director Lael Brainard told reporters that they were designed to ensure that US green technology and manufacturing industries “are not undermined by a flood of unfairly low-priced exports from China in areas such as electric vehicle batteries, critical medical devices, steel and aluminium semiconductors, and solar energy”.

According to Axios, Biden administration officials said they do not know how or if Beijing will retaliate, but they expect Beijing to speak publicly and raise its voice.

“I hope we don’t see a significant response from China, but that’s always a possibility,” Treasury Secretary Janet Yellen told Bloomberg.

White House officials argue that the tariffs will not increase US inflation because the amount of goods they target is too small.

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