U.S. Jobs Report Sparks Market Shift
What happened in the markets last week
At the beginning of the week, Australian inflation data fell slightly below expectations but indicated a positive trajectory, boosting the local market. Subsequently, the U.S. earnings season took centre stage, revealing a mixed performance in corporate America. While strong tech earnings drove stock prices higher, overall earnings seemed to decline when adjusted for inflation.
U.S. jobs report and market performance
The most significant news came with Friday's release of the U.S. jobs report, showcasing robust growth with the addition of 350,000 jobs and upward revisions for prior months. This led to a 20 basis points increase in the 10-year Treasury yield, tempering earlier optimism about inflation and declining rates. Expectations for rates in the coming years have risen, impacting the Australian yield curve, especially in crucial three-year terms that may affect mortgage rates.
Despite flat or negative earnings growth in certain sectors during the U.S. earnings season, tech and AI-related companies, the 'magnificent seven,' drove stock prices higher. Sectors like healthcare, materials, and energy lagged, reporting declines in earnings, suggesting varied economic experiences within the U.S. Questions arise about whether this indicates a soft landing and when the Fed might consider rate cuts. The blind market anticipates a recession and lower rates later in the year, while the market follows economic data, which currently does not indicate a recession.
Global market overview
In 2024, Japan has seen an 8% increase, and the Nasdaq is up by 5%, benefiting from a corporate renaissance. In contrast, the UK and emerging markets are slightly down. Differing perspectives on China's economy and innovation pace warrant further research.
Performance of Passive Funds in January
Passive funds outperformed in January, benefiting from increased duration and higher allocations to the US. Overall, Growth portfolios saw gains of around 1-1.5%, while defensive portfolios returned approximately 0.5%.
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