Welcome to the last week of Q2. Let’s take a look around the landscape.
It is easy to think that the stock market is where it’ is, but as the S&P 500 hits a record high, 75% of that is because of Apple, Nvidia, Microsoft, Meta, Alphabet, Amazon, and Tesla. Tech stocks are significantly contributing to the S&P 500’s performance, with the index up 106% over the past five years with tech stocks included, compared to a 69% increase without them. This year, the S&P 500 is up 16% overall and only 9% without technology stocks.
Meanwhile, the Russell 2000 – up .58% for the year, 1.62% last five days. The S&P 600 is down 1.57% year to date, up 1.97% previous five days. Those are both proxies for small businesses.
The U.S. consumer spending growth has slowed down this year, indicating a potential cooldown in the economy. May retail sales increased by 0.1%, hampered by falling gas station sales. Excluding gas stations, sales rose by 0.3%. Spending in housing-related categories declined while spending in hobby shops, clothing shops, and e-commerce stores increased. The “control group” data, which feeds into the consumer spending category of GDP, rose by 0.4% in May, slightly lower than expected.
This is why digging into the numbers is important. A cursory look at the headling S&P 500 number would have said everything is great. It’s more subtle than that – it’s level. The slowdown in consumer spending growth is a critical indicator of potential economic challenges ahead. Businesses need to monitor these trends closely as they could signal reduced consumer confidence and spending power. When considering the SMB market, buyers look a lot more like consumers, and as many SMBs also serve consumers, you’re a lot closer to those buyers than a shareholder investor.