Equity markets had a negative week with losses of 3% for the S&P 500 Index and the Euro Stoxx 600 Index, as the US Federal Reserve indicated additional rate hikes might be needed and company outlooks reflected a slowing economy.
The rout in equity markets has investors looking for answers. The big questions relate to recent market performance, economic growth and recession risk.
Equity markets were again up for a volatile ride this week, mostly on the back of continuing geopolitical unrest. The kick-off on Monday was negative, as concerns around the trade war between the US and China deepened again following the arrest of Huawei’s CFO in Canada.
A ‘Santa Claus’ rally should have been triggered this week by the comments from US Federal Reserve Chairman Jerome Powell hinting at possibly approaching the end of the US central bank’s rate-hiking cycle and the agreement by US and Chinese presidents Trump and Xi Jinping to suspend further tariffs increases for 90 days.
A truce has been called in the trade dispute between the US and China. The countries established a 90-day period to resolve differences, with no escalation in tariffs during that time.
Equity markets had a positive week with gains of 4% (S&P500) and 1% (Eurostoxx 600), fuelled by the more relaxed words of the US Fed. Equity investors are eagerly looking forward to a trade deal between the US and China, hopefully closed at the G20 in Buenos Aires this week.
Those investors who happened to have invested in Facebook, Apple, Amazon, Netflix and Alphabet (Google) -the so-called FAANG stocks- at the beginning of this year, may have sabered their magnum champagne too early, when they saw the returns at the end of the third quarter (average +42%). By now they may wish they had opened their prosecco instead, because since the last quarterly meeting of the investment club the return of these stocks on average was -22%. What happened?
Economic growth has slowed and business confidence has fallen, although the main confidence indicator is still consistent with decent growth. Europe and emerging markets, in particular, have suffered, while the US economy continues to power ahead, based on the stimulus provided by the Trump administration’s lower corporate tax rates and business-friendly policies. In Europe, relatively moderate growth is expected, while core inflation will likely continue to undershoot the ECB’s 2% target.
After the US midterm elections, the relief in the equity markets did not last very long. For most of the week, equity markets were in negative territory. In Europe, political news dominated the headlines.
The US midterm elections are now behind us. Wall street and poll projections proved to be correct. The Democrats have gained control of the House of Representatives for the first time since 2010 and the Republicans maintain their majority in the Senate.
It is finally over. The US midterms, which have been widely viewed as a referendum on US President Donald Trump, have concluded. The Democratic party has taken over the House of Representatives and Donald Trump’s Republican party retained the majority in the Senate.
This week, after a difficult October, we saw some recovery in equity markets worldwide. Also, we saw unusual stock price movements in response to results of some companies, both on the upside and the downside.
Last year the hype around crypto coins and blockchain reached a high in society and prices of crypto coins skyrocketed on financial markets. This year, the story is more painful and the fear of missing out has abated. Is the hype over or are circumstances normalised? Will the technology of blockchain, crypto coins and initial coin offerings (ICOs) evolve with time? These are still interesting questions.
Now that the earnings season in full swing, the focus of investors moves to the quarterly results and a bit away from fears regarding rising interest rates.
After the sell-off of last week, markets stabilised a bit in the last days. Especially the US earnings season helped investors to regain confidence. Morgan Stanley, Goldman Sachs and JPMorgan were able to beat estimates and Netflix is back on track with strong subscriber growth.
Despite market turbulence, economic and company fundamentals remain solid. The ABN AMRO Investment Committee continues to prefer the relative attractiveness of stocks over bonds. Within alternative investments, commodities are favoured over real estate and hedge funds.
Equity markets have been under pressure for the last few days, with an acceleration on Wednesday. The S&P500 and Nasdaq dropped respectively by 3.3% and 4.1%. Most likely triggered by US Treasury yields, that rose last week to the highest level in years.
Sunday’s first round of Brazil’s presidential election marked a clear victory for far-right candidate Jair Bolsonaro. Brazilian equities surged on Monday, as investors cheered Bolsonaro’s victory.
After the hard-fought US presidential election in 2016, the midterm elections are seen as a bellwether of the nation’s mood and its satisfaction with Donald Trump. The outcome will likely affect the prospects for Trump’s legislative agenda, but US economic growth is expected to be solid no matter who controls Congress.
Last week, we saw political tensions in Europe weighing more on market sentiment. There is still a lot of uncertainty regarding the outcome of Brexit and the Italian budget deficit talks.
