Weekly Market Update

Markets think we're there - but are we?

February 7, 2023
Markets think ‘we’re there’ in the global fight against inflation – but are we? Last week the RBA also proclaimed confidently that local inflation had peaked, so you might think it’s all downhill from here...

Markets think ‘we’re there’ in the global fight against inflation – but are we? Last week the RBA also proclaimed confidently that local inflation had peaked, so you might think it’s all downhill from here. This is certainly what investors want to hear. As we all know the real market moving action is in the US, and the evidence so far this year has seemed to corroborate that view – with goods deflation tumbling and US services inflation at least slowing. Nevertheless, markets waited with bated breath in the early part of the week to see if Jerome Powell and the Federal Reserve Open Market Committee (FOMC) shared this sanguine view. The graph below shows the market atmosphere before and after the FOMC rate decision and following press conference. Tumbleweeds rolled through the stock exchanges in the early part of the week until the Fed press conference, when markets came to life quite dramatically. Powell was quite adamant in an interesting Q&A session that he thought markets were overestimating how quickly inflation in services would subside. Investors must have been expecting him to talk markets down even more than he did, as just the mention of good price disinflation sent interest-rate-sensitive tech and real estate stocks sharply higher, while stronger caveats about services and wage inflation were largely ignored. A US payrolls report on Friday has since dampened market enthusiasm somewhat, but European and US markets remained up by a couple of percent last week, while gains in Asia and Australia were more muted. The UK market also caught some of this updraft, and the FTSE 100 hit all-time highs, being one of the few markets not to fall in 2022.

Bond yields initially fell, but jumped again after the US jobs report, and ended the week where they started, underlying the fact that – as Chair Powell was at pains to project – there is still a significant degree of uncertainty about where rates go from here. It has been suggested that Chair Powell was somewhat taken aback that his comments were perceived as being dovish, and he might just be about to set the record straight in an interview that is scheduled for early morning in Australia. Since Friday, a raft of other central bankers from around the world have also sought to dampen the markets enthusiasm, including the RBA who today raised rates by an expected 0.25%, while also adding a more measured comment at the end of their statement saying that they "expect that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target". Local bonds yields rose and equities fell, which might imply a new zeitgeist, and that last month’s news is just that – last month’s news – now that central banks are all getting on the same page, a different page than the one the market has been reading.

With half of the S&P 500 now having reported, it looks like corporate earnings will be down on year earlier by a few percent, but they were not quite as weak as expected in the last quarter. This has bolstered hopes of a soft landing.  Much of the earnings slowdown has been concentrated within real estate and tech stocks.  While the prospects for real estate remain uncertain, there was hope at the end of the tunnel last week for the tech titans that came from an unlikely source. Most of these companies are now under pressure by investors to focus on profitability after a 2020/2021 hiring spree that was more aimed at aspirational revenue and market share growth than increasing near term cash flows. Meta (formerly Facebook) was forced to start this journey early, and a year after its fall from grace, and only three months after its last round of extensive layoffs, it was able to deliver a 40% surprise uplift in profits. The market in turn rewarded it with a 25% increase in its share price, also helped by its mercurial CEO’s apparent shift towards operational efficiency (increasing ad revenue as well as investing in the less tangible ‘metaverse’). Amazon, Apple, and Alphabet (Google) all reported lacklustre results and warned of deteriorating operating conditions, but these warnings were largely overlooked on the back of slightly lower rate expectations, underlying again the relative importance to the market of interest rates vs earnings – for the time being at least. Meta’s experience suggests that the focus of markets might yet shift to individual company profitability at some point, especially if earnings continue to slow.

Commodity markets were generally on the back foot, and the local miners were the biggest detractors during the week for the ASX, so it was left to CSL and a handful of local consumer and real estate stocks to keep the local market in positive territory. CSL has benefited from continued momentum in plasma collection and distribution as post-COVID pent-up demand continues to unwind, a common theme in healthcare at the moment. Local retailers were confounded at the Australian Bureau of Statistics announcement last week that retail sales fell in the last quarter. The market is putting this down to seasonal adjustments, while anecdotal evidence suggests more buoyant conditions. This will be confirmed (or otherwise) as the local reporting seasons gathers pace next week.

Finally, bonds continued to have a good run last week, although that appears to be very much last week’s news as rates have started to ease up again this week.

Markets Steady Amid Geopolitical Tensions and Inflation Concerns

October 16, 2024
Read More

10-Year Series Part 2: QE Addiction and the Non-Bank Credit Boom

October 11, 2024
Read More

How Elections, Central Banks, and Geopolitical Tensions Moved Markets

October 11, 2024
Read More

10-Year Series Part 3: The Future Ain't What It Used To Be & Geopolitics

October 11, 2024
Read More

Strong U.S. Jobs Report and China's Disappointing Stimulus

October 11, 2024
Read More

Markets Brush Off Fed Rate Cut as the Outlook Remains Uncertain

September 30, 2024
Read More

The Santa Rally, Finally

August 2, 2024
After a volatile start to the month the traditional Santa Rally kicked in during the penultimate week of the year in the lead up to Christmas Day (and has continued overseas in the overseas markets that have been trading since then).
Read More

2021 In Review

August 2, 2024
It turned out to be another banner year for markets, the third straight one in a row, taking most markets, and especially US markets, to all time highs.
Read More

Tech stocks on the back foot, interest rate expectations rise

August 2, 2024
It turned out to be another banner year for markets, the third straight one in a row, taking most markets, and especially US markets, to all time highs.
Read More

Interest rates expectations continue to set the tone

August 2, 2024
Markets were more settled last week, but interest rate expectations continued to set the tone with the US market proving especially sensitive.
Read More

Markets slid again last week, with a concentrated sell off in US tech

August 2, 2024
Markets slid again last week but the selling was concentrated in US tech, most of which is down 10% or so this year. Much of last week’s selling occurred in the last 2 sessions of the week.
Read More

Bulls and bears traded blows that resulted in multiple 4% round trips during the week

August 2, 2024
The to and fro of US markets last week resembled the titanic struggle between Nadal and Medvedev with bulls and bears trading blows that resulted in multiple 4% round trips during the week.
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