Stock market party but why?

Katie Martin (0:06)

Pushkin. Stock markets are in party mode. May was the best month for the big US stocks index, the S&P 500, in a year and a half. We had gains of something like five and a half percent. Now, not to be a massive Debbie Downer, but people are really struggling to figure out why this is happening. Everything on some level is pretty terrible. In the past few days, that wise negotiator, President Donald J. Trump, has threatened to double tariffs on steel and aluminium, aluminum, take a pick, and he's pushing other countries for their best offers to avoid the other supersized trade taxes by Wednesday. US debt was downgraded not so long ago, investors are worrying about deficits again, and the world is waking up to the risk of additional taxes on foreign investments in the US. But as I say, party, party. So today on the show, we're going to try and at least attempt to figure out what is going on there and talk about what is actually happening with trade tariffs, at least today. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin, the pod that has infamously brought the taco trade directly to your ears. Listen to last week's pod if you have no idea what I'm talking about.

I am joined down the line all the way from New York City by the big man, actually kind of a big deal these days, Mr. Robert Armstrong from the Unhedged newsletter. And I learned just moments ago, listeners, that he's not allowed to wear shoes while he's recording this podcast. Rob, what's that about?

Robert Armstrong (1:47)

I can't wear shoes because I kick the table and it ruins the recording. And every time the producer, Jake, forces me to take my shoes off, and it's extremely infantilizing. And so it's like every time I do this show, it starts with a small humiliation that keeps me in my place.

Katie Martin (2:06)

Rob, I'm delighted to note that you don't think you're too famous to talk to me anymore now. But are you like wearing mirror shades indoors and like having assistants bring you yellow M&Ms and stuff these days?

Robert Armstrong (2:22)

That was my life for two days, 48 hours. Last Thursday and Friday, I had a personal assistant in my own plane to take me from interview to interview. But the plane and the assistant left me and I'm just a normal guy again today. No more interviews, nothing.

Katie Martin (2:39)

You're just a normal man.

Robert Armstrong (2:41)

The news cycle is just brutal, man. They just chew you up and they spit you out, Katie. Now, Katie, you said earlier that you don't want to be a Debbie Downer.

But is Debbie Downer not kind of your brand, Katie?

Katie Martin (2:57)

A bit of a misery, girls. It has to be said. No one's picking out yellow M&M's for me. So yeah, okay, fair, fair, fair, fair. Why don't you spin the other side of that, right? Why are markets so happy? Great month in May in the US. Now, I would say US markets are still only just positive on the year when the rest of the world has gone off to the races. Nonetheless, good May.

Robert Armstrong (3:20)

Okay, so let me just say, I did a little bit of mathematics this morning. Always a dangerous proposition. And I found that almost three quarters of the gains in the S&P 500 since the 1st of May, come from the following stocks. And I'm going to list these stocks. And you tell me if they sounded all familiar, if they have anything in common. The stocks are NVIDIA, Microsoft, Metta, Broadcom, Amazon, Tesla and Alphabet.

Katie Martin (3:55)

I mean, it sounds like the old magnificent 7 trade.

Robert Armstrong (3:58)

Mag 7, baby, it's back. We've just gotten into a time machine and gone back to when was the Mag 7 everything, kind of like mid last year, or maybe all of last year. And it's once again, it's those stocks that are powering the S&P 500 forward. And I don't know exactly what to make of that, other than these are stocks that have worked incredibly well over the last five years, and maybe people are just going with what works. You know, they like that story again. And potentially that might have something to do with the taco trade.

Katie Martin (4:36)

Walk me through that. So you think that taco is good for Mag 7?

Robert Armstrong (4:43)

Well, you might have been worried that Donald Trump is going to pick fights with everybody all over the world on every available topic. And the Mag 7 stocks have massive global exposures. Tesla and China is the most obvious example of that. But although they're not goods companies as a rule, with the exception of Apple, and it's interesting that Apple is not on that list, Broadcom has taken its place. These are very global companies, and if you're starting to doubt whether Trump is going to get in these big fights with other countries, maybe the prospects for these massive American global companies are a little bit better.