Weekly Market Update

Rising Rates Rattle Stocks as Geopolitical Risks Emerge

October 20, 2023
This week rates have headed resolutely upwards, and stocks have not liked it much with most markets heading steadily downwards throughout the week.

This week rates have headed resolutely upwards, and stocks have not liked it much with most markets heading steadily downwards throughout the week. That said, losses amounted to around 2% and are only down a percent or so for the last few weeks. During that time long-term bond yields have risen by around 0.5% in the US and almost as much as that in Australia. This could have been because stronger retail sales and employment data are likely to reinforce central banks' intentions to hike rates a little further or at least talk about keeping them higher for longer, which they have mostly done.

Or it could be because of increased issuance and the lack of a price incentive for buyers (the Fed is now trying to shrink their balance sheet by selling bonds) as has undoubtedly been the case in the last few months. However, since turmoil erupted in the Middle East almost 2 weeks ago, rising geopolitical risk and the impact on the oil price in particular is probably the most proximate cause. The widespread nature of the stock market weakness here and abroad speaks to the multiple causes but the spike in the gold price suggests that risk appetite in markets is receding rapidly as investors seek a haven, but the underlying supply and demand dynamics of the Treasury market suggests that this time around government bonds are not the haven that investors are looking for.

Australian stocks are down over 1% for the week, and although most sectors were weak, consumer discretionary and healthcare stocks were among the worst performers, down over 3% each. In the former case, this reflects concerns about the impact of high inflation and rising interest rates on consumer spending while in healthcare it was CSL.

CSL has been caught up in the negative sentiment affecting healthcare stocks that are not related to the obesity GLP-1 drugs. Most local fund managers feel that this may be overdone and that some of the share market reaction could be because many large global fund managers are rotating into the GLP-1 drugs and dumping others including many of our national champions. ResMed has also been in the red as less obesity could plausibly lead to less demand for sleep apnea machines but also the week the tide appeared to turn, ResMed was one of the best performers.

Elsewhere in Australian equities, the biggest positive contributors to the index return last week were Woodside Energy, BHP, Northern Star Resources, Newcrest Mining and Whitehaven Coal. Strong gains in these energy and materials stocks has helped cushion some of the losses seen offshore, particularly amidst more encouraging economic news from China where the latest official GDP numbers were well above expectations.

Global equities were also mostly lower. The MSCI World Ex Australia index has gained in AUD terms as the Australian dollar fell, but the hedged index is down just over a percent. In the US, tech and energy stocks outperformed with the top contributors being Microsoft, Netflix, ExxonMobil, Procter & Gamble and Chevron. On the other hand, Apple, Nvidia, Tesla, Amazon and AstraZeneca were the main detractors.  The data has been noisy but there is some evidence of strength in sectors poised to benefit from rising inflation and rates while some traditionally growth-oriented segments are facing valuation headwinds unless they look like they could dominate in the AI era but even there we are now seeing some volatility on valuation concerns in stocks such as Nvidia.

In fixed income, increases in yields have been notable because of the level they have reached but in absolute terms have been incremental, resulting in moderate price declines. The Australian composite bond index fell 1.1% and the global aggregate index dropped 1.4% in hedged AUD terms. Credit spreads widened slightly amid some risk-off sentiment as recession probabilities seemed to increase again. The reporting season in the US has got off to a good start but only 10% of companies have reported so there will be much more for the markets to chew on in the coming week.

The Implications of Trump's (likely) Clean Sweep: A Turning Point for the Global Economy

November 8, 2024
Read More

Markets Hold Steady with Eyes on the U.S. Elections and Economic Updates

October 31, 2024
Read More

Key Insights from the H&B NSW 2024 Wealth Symposium

October 30, 2024
Read More

Markets Mixed as Australia Shows Resilience Amid Global Slowdown Signals

October 30, 2024
Read More

10-Year Series Part 5: The Anglo Saxon Property Reset and Productivity and Energy that Doesn't Cost the Earth

October 30, 2024
Read More

10-Year Series Part 4: Japan -Euthanasia of the Saver & Eurozone Competitiveness Differentials

October 16, 2024
Read More

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

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