Markets ended up on the back foot after an unexpected U-turn by Fed Chair Jerome Powell on inflation. Or was it so unexpected?

December 20, 2021
Markets ended up on the back foot after an unexpected U-turn by Fed Chair Jerome Powell on inflation. The large local miners and banks fared much better but Australian market was dragged down by quite big reactions to news from a handful of stocks.

The one constant in the short-term behaviour of markets is their ability to surprise. Few would have expected the markets to like the news that Jerome Powell had conceded that the maybe inflation pressures were more persistent than the Fed had presumed as Fed credibility has been seen as a cornerstone of the recent bull market.

He even went so far as to banish the often repeated and emphasised word ‘transitory’ from the Fed’s lexicon. After all of that rates didn’t rise and, at first at least, markets rocketed higher by more than 2% in one day. Market pundits then spent the rest of the week furiously retrofitting a plausible explanation. These ranged from covering of hedged or short-positions put on by those that had been worried by this possibility (probably the most likely but still a bit of a mind-bender) and relief reflecting increased certainty that Fed was was ‘on the case’ (and so feared inflation is now less likely).

The fact that markets gave up those gains over the next two days supports the former technical explanation while the fact that interest rate sensitive stocks like utilities and real estate trusts performed well throughout the week supports the latter, more fundamental thesis. We’ll see, but either way tech stocks were especially volatile but this time it was the large household name FAANG stocks (plus Tesla) that were the lightning rod rather than the smaller profitless NASDAQ stocks that have been under pressure in the past few months. Looked at through that lens maybe option fuelled retail flows is a factor in all of this as well.

In the domestic market we saw a different type of volatility and one which is perhaps quite typical of our relatively concentrated market where individual names can have a big impact. On the face of it Healthcare, IT and Consumer Staples weighed on the market but it was really the largely stock specific woes of CSL, AfterPay and Woolworths that had the biggest impact. CSL fell 10% after raising $6.3bn (the second largest public equity raising ever seen in Australia) in order to diversify into kidney disease.

Afterpay fell another 15% after the US regulator started investigating it other Buy Now Pay Later companies and whether they might be encouraging excessive borrowing while avoiding the usual controls that credit card issuers are subject to. Afterpay is now 50% of it’s January highs and 30% below when Square (now Block) offered to buy the company with it’s own shares (which have suffered a very similar plight).

Lastly, Wooolworths' trading update pointed to higher than expected COVID costs and less than expected sales. Coles swiftly followed suit. The large banks and miners along with those interest rate sensitive sectors (Real Estate Trusts and Utilities) held up well but, by the end of the week, the local market was down just over 1%.

Given that the Chair Powell and, by extension, interest rate markets were the proximate cause for much of the volatility overseas it was again perhaps surprising that bond markets were so calm. Credit spreads still show no signs of any corporate distress. Again there are a myriad explanations for this that are doing the rounds but perhaps the most compelling one is that bond markets sense that there is simply too much debt around for rates to rise much or for long. Debt tends to dampen future growth so maybe bond markets fell things are not as rosy as equity markets would have us believe.

Stocks Stumble, Bonds Steady as Growth Fears Loom

August 2, 2024
Equity markets declined over the past week, with the S&P/ASX 300 down -3.3% and the MSCI World Ex Australia index falling 2.7% in local terms, but only -0.9% in Australian Dollar terms for the unhedged Australian investor. Most of the falls happened overnight as a higher-than-expected GDP number put upward pressure on short-term rates.
Read More

October's Financial Flux: A Precursor to Change in Investor Fortunes

August 2, 2024
During October, global markets experienced a downturn amidst inflation worries and the threat of rising interest rates, leading to a 2.7% fall in global equities and a 3.8% drop in Australian stocks, with tech sectors and major companies like Nvidia and Tesla taking notable hits. Despite the gloom, the materials sector saw gains, and gold shone brightly as a safe haven, appreciating by 7.3%.
Read More

Australian Dollar Slides on Divergent RBA and Fed Policy Messaging

August 2, 2024
Most markets were up slightly this week as the US tech stocks led the way for most of the week before falling back overnight as Jerome Powell struck a more hawkish tone, implying that while rates in the US may be near their peak they might have to stay there for a while longer.
Read More

Why CHG Integrated Wealth partnered with InvestSense

August 2, 2024
Read More

Markets Trek Higher on Approach to Peak Inflation

August 2, 2024
Stocks continued their strong November rally this week, as hopes grew that inflation has peaked and the Fed is nearing the end of its rate hiking cycle. The S&P 500 rose 1.9% on Tuesday following the cooler than expected US CPI print, bringing its gains for the month so far to 7%.
Read More

Altman Drama Shakes Up Silicon Valley

August 2, 2024
It has seemed all week that, in quiet US holiday trading, the only thing moving markets was the ‘will they/won’t they’ speculation about the future role of OpenAI’s CEO Sam Altman.
Read More

Altman Drama Shakes Up Silicon Valley

August 2, 2024
It has seemed all week that, in quiet US holiday trading, the only thing moving markets was the ‘will they/won’t they’ speculation about the future role of OpenAI’s CEO Sam Altman.
Read More

Booming Small Caps to Bond Spreads Tightening

August 2, 2024
It was a mildly positive week for global markets, with the S&P/ASX 300 gaining 0.7%. International developed markets were down 0.4% in AUD terms as measured by the MSCI World ex-Australia index.
Read More

Big Tech Flexes Its Muscles With Late Week Surge

August 2, 2024
It was a mixed week in global financial markets as the market continued to assess the likelihood of a hard or soft landing next year and the implication for inflation and interest
Read More

Santa (Powell) Has Come Early For Markets

August 2, 2024
The last week in markets, as is often the case, was totally dominated by the US economy and monetary policy. In this case it was an encouraging inflation print on Wednesday, followed by the US Fed’s decision to keep rates on hold the next day.
Read More

Recap of 2023: Two Stories With The Same Ending

August 2, 2024
This week started with more optimism about the US economy and further stock market gains until a sharp pullback on Wednesday snapped the US market’s nine-session winning streak. Thursday then saw a recovery, putting the S&P 500 back on track for an eighth week of gains, after US inflation data showed a gradual economic cooling in line with Fed hopes.
Read More

Rocking the Boat - Equities Stumble After Big Tech Selloff

August 2, 2024
After outsized gains in big tech stocks last year, global equities have stumbled over the past week amidst a tech selloff, challenging the notion of their invulnerability and potentially signaling a shift in market optimism tied to recent liquidity trends.
Read More

Andrew Hunt's visit to New York and some key implications for global markets

August 2, 2024
Last week Andrew visited the InvestSense offices and shared his observations and findings from his visit to the United States, specifically New York.
Read More

Helping your clients assess the climate impact of their Portfolio

August 2, 2024
Nathan Fradley explains how the ethosesg technology can help you assess and design an ethical portfolio that aligns to an investor’s personal values.
Read More

Carbon credits and investing – is it the outcome we expect?

August 2, 2024
ETFs that invest in carbon credits are now available. Why should we assume that their price will go up over time? And does buying a carbon credit ETF actually contribute positively to emissions reduction? Will it actually generate the outcome investors are expecting? This article explores the issues around investing in carbon credits.
Read More

Better World makes a difference with investment in renewables

August 2, 2024
There are many direct assets and funds that contribute positively to climate action within the InvestSense Better World Portfolios. Meridian Energy is one of the stand-out direct assets in the portfolio with a climate energy focus.
Read More

Bad news equals good news

August 2, 2024
In recent years professional investors have got increasingly used to the fact that good news is bad news for markets because higher interest rates are likely to be necessary, and of course vice-versa. However, last week the effect was stronger than ever and stocks rallied mid-week amidst reports of widespread lay-offs and expectations of a weak US jobs report.
Read More

‘Buy the dip’ opportunism start surfacing

August 2, 2024
The US market finally market caught a bid last week. Early in the week the market was down few percent after an earnings miss by ad dependent social media platform Snap (of Snapchat fame) combined with weak guidance raised more doubts about the economy and economic resilience of tech companies.
Read More

US momentarily dips into official bear market territory

August 2, 2024
The seventh negative week in a row for the US sent it briefly into official bear market territory before it recovered slightly late on Friday. The world’s largest stocks (Apple, Microsoft Amazon and Google) are all down 25%.
Read More

How Mark Lewin saved 13 hours a week with Managed Accounts

August 2, 2024
Mark Lewin was a financial planner, but is now the Director of Back Office Heros. In his planning business he gained significant efficiencies by recommending and implementing managed accounts for his clients. He tells us how...
Read More
Icon of a letter

InvestSense insights, delivered straight to your inbox.

Icon of a letter

Get the latest industry news

Icon of a letter

Get the latest industry news

Icon of a letter

Get the latest industry news