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.

Markets Retreat on Fading Rate Cut Hopes Before Late Rally

August 2, 2024
Risk assets broadly declined last week as economic data showed resilience and central banks pushed back against aggressive market pricing for rate cuts, puncturing investor hopes.
Read More

Global Equities Up on Hopes of Economic Stimulus

August 2, 2024
Last week saw a notable upswing in global equities, driven by optimism over a potential economic stimulus in China and dubious results in corporate earnings.
Read More

U.S. Jobs Report Sparks Market Shift

August 2, 2024
Amid a mixed bag of US corporate earnings and a strong jobs report fueling rate hike expectations, global markets face contrasting fortunes, highlighting the complexity of forecasting economic trends in a time of technological growth and geopolitical uncertainty.
Read More

S&P 500 Breaks 5,000 Amid Mixed Economic Signals and Rate Cut Speculations

August 2, 2024
It was an up and down week for markets after a strong finish the prior week.
Read More

Unpacking a Volatile Week Amid Inflation Warnings and Surprising Strengths

August 2, 2024
Markets gyrated last week as hotter-than-expected US inflation data sparked an initial tech rout before recovering. Meanwhile better-than-feared earnings results and recession-resilient emerging markets outperformed.
Read More

Global Markets Navigate Mixed Signals: Earnings Surges, Inflation Divergences, and the Persistent Volatility Ahead

August 2, 2024
Global markets were mixed this week as investors digested the latest economic data and corporate earnings results.
Read More

Another good (inflation) and bad (politics) week for markets

August 2, 2024
Read More

Nvidia's Volatile Week & Divergent Global Performance

August 2, 2024
Read More

Markets End Financial Year on a Turbulent Note

August 2, 2024
Read More

Delicately Balanced Markets React to Mixed Economic Signals and Political Uncertainty

August 2, 2024
Read More

US Inflation Decline Triggers Market Shift

August 2, 2024
Read More

A Week of Contrasts in Global Markets: From Record Highs to Renewed Growth Concerns

August 2, 2024
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

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

It's going to be a long six months

August 2, 2024
Join Jonathan Ramsay and Andrew Hunt as they discuss what the future holds for the Chinese growth model, Where to from here, and what will the implications be for the west…
Read More

What is a fair way to compare funds?

August 2, 2024
How Can We Do Apple With Apples Comparisons For Industry Funds With Different Asset Allocations And Levels Of Illiquid Investment?
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