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Weekly Note

The Week In Markets – 26 February – 4 March

This has been another tough week on a humanitarian front, and we want to continue to extend our thoughts and best wishes to everyone impacted by the Ukraine crisis. The purpose of the weekly note, as always, is to report on financial markets, which too have endured a difficult end to the week.

This week has seen heightened volatility across most asset classes as markets attempt to price in a prolonged Russian invasion and the associated risks this would create. As Simon Evan-Cook alluded to in yesterday’s monthly note, uncertainty is something that markets dislike, and uncertainty has increased over the last few trading days.

Safe-haven assets have generally rallied this week, albeit, with bumps along the way. At the start of the week, we witnessed significant falls in developed government bond yields (prices rise). The likely driver of this is the expectation of slower economic growth, which could deter central banks’ from raising interest rates at an aggressive pace. However, it is still likely that the US Fed will raise interest rates by 0.25% this month. Fed chair, Jay Powell, spoke to the House of Financial Services Committee and clearly showed his support for a modest interest rate rise in March to help curb inflation, while acknowledging it was too early to determine the economic impact of Russia’s invasion of Ukraine.

While government bonds and gold responded to the escalating conflict by rallying, equity markets hit more turbulent times, with big falls on Thursday and Friday (at the time of writing). French president, Macron, spoke with Putin for 90 minutes, with little success and it became clear a resolution was not close and there could be worse to come. While the sell-off has been broad-based, European equities have generally fared worse than US equities, which is a clear reversal from the trend in January and February this year.

The commodities sector looks poised to finish the week with its biggest weekly gain since the 1960’s. Brent crude oil briefly touched $119 a barrel this week, the highest level since May 2012. European and British gas prices pushed higher with the benchmark Dutch gas price hitting new all-time highs. Rising oil and gas prices will hit the consumer hard which will be a drag on economic growth and is something we need to pay attention to. Consumer balance sheets are generally robust given the ability of many to deleverage and save during COVID-induced lockdowns, however, higher energy prices could see this trend reverse. It wasn’t just oil and gas rising this week, copper hit a new all-time high while wheat prices have risen nearly 75% in 2022. Ukraine and Russia are two of the major exporters of wheat globally and their supply is likely to fall significantly.

As is customary for the first Friday of the month, US Non-Farm Payroll data was released. This is normally a key focus of the market; however, it has been left in the shadows by the geopolitical concerns. The data was very strong, showing 678,000 jobs had been added to the economy against the consensus of 400,000 and the unemployment rate fell to 3.8%. These numbers highlight the underlying strength of the US economy at present and will likely encourage the US Fed to raise rates later in March.

The backdrop of a Russia war makes it uncomfortable to be invested currently and will stir up a range of emotions for investors. While the cause of the concern is different this time, many of the emotions people are feeling will be similar to the initial COVID-19 crisis in March 2020, a period where uncertainty engulfed markets and assets sold off indiscriminately. With hindsight this was the opportune moment to actually be increasing risk. While we don’t want to take undue risks in portfolios, it can be helpful to look back to other crisis moments in history.

Andy Triggs | Head of Investments, Raymond James, Barbican

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Month In Markets – February

The Month In Markets - February 2022

February will be remembered as a historic month, sadly for all the wrong reasons. The invasion of Ukraine by Russia towards the month end has severe implications, providing an uncomfortable reminder of the events that preceded the second world war. With lives at stake, it feels trite to write about finance right now, but that’s the purpose of this note, so I’ll run through some of the things that happened to markets over the month.

“Prediction is very difficult, especially if it’s about the future.” Niels Bohr, Nobel

I was pleased to be able to meet many of you earlier in February, albeit only virtually. I was even more pleased to hear Andy Triggs, Head of Investments at Raymond James, Barbican, say he wasn’t going to make any predictions about how the then-tense stand-off on the Ukrainian border would play out. 

At the time, there were many grand, serious-sounding geopolitical strategists confidently claiming that Putin was bluffing. They are now busy washing their faces, while Andy’s remains reassuringly egg-free.

That’s one good reason not to make such predictions, and particularly not to invest off the back of them. Life is complex; things that shouldn’t happen frequently do. But he also set out another reason: Even if you’re right, markets often do the exact opposite to what you’d expect.

I talked about this in the December note: How markets can appear psychopathic, sometimes reacting positively to bad news. Those of you on the call will remember we ran through some geo-political events from the past, showing how the markets’ shock can be surprisingly short-lived. The instance that stands out for me, because I remember it well, was the day the second Gulf War began in 2003. Having fallen more-or-less constantly following the tech burst in 2000 and then the 9-11 attacks, markets actually rose that day, marking the start of a bull market (i.e. rising prices) that lasted four years.

And so it was in February. As you can see from the chart, European markets sold off on the 24th February, the first day of the invasion, but US markets rose and, by Monday, European markets were back where they started. It’s hard to know for certain why this happens, only to say that markets hate uncertainty (which is why they had been steadily falling for weeks) and Putin’s actions – unfortunately – ended any uncertainty about whether Russia would invade.

That’s not to say markets won’t yet begin to fall again. They’ve remained volatile into March, and no doubt will do so for some time to come. (Predicting that “markets will be volatile” is one of the few safe predictions in investing, which is why so many of us commentators predict it. It’s like telling people to “expect weather”). We’ve simply traded one uncertainty; will Russia invade Ukraine? for others; will Russia invade a NATO country? So this is very far from an all-clear on the investing front.

Another theme we’ve expounded on at length is inflation and its likely impact on interest rates. This is so important for your finances; almost everything else is noise, which is why we spend so much time on it. So in last month’s note we covered the rotation within markets: How everything that had performed well for the last ten years – when inflation was falling – had started to do badly, while everything that had done badly had started to perform well. And all because of inflation’s comeback tour.

Well, it’s all started to rotate back the other way again. And it’s due to what’s happening in Ukraine. You can see in the chart that government bonds (called gilts in the UK, and Treasuries in the US), which hate inflation, continued to fall in the first two weeks of February, but as invasion concerns mounted, they started to rally.

Partly this is because investors use these bonds as financial safe havens in times of stress, often selling riskier assets, like shares, in order to buy them. This pushes the prices of bonds up, and shares downwards.

But it’s also because investors are concerned that the war in Ukraine might lead to a slowing of economic activity, which means central banks are now less likely to raise interest rates to put the brakes on. This too is positive for bonds, but potentially bad news for shares.

Although, as always, it’s never quite as simple as that. Shares don’t like the fact that war might slow the economy, but they do like Central Banks’ responses. But what it has meant so far is that many of the parts of the stock market that had collapsed in January, most notably technology shares, have sprung back to life again. While some areas that had rallied, like European banks, have slumped. The rotation, in other words, is rotating.

But even that’s not that simple. Energy prices, which performed well in January, performed well in February too. So that part of the initial rotation continues. This is due to the threat of a cut in supply from Russia. This too then plays back into the inflation story, as higher energy costs feed into rising prices too. This potentially puts us on a path to stagflation – a grim combination of slowing economic growth and higher inflation. Hardly any assets like this scenario, and may explain why the rally in bond prices was somewhat muted given the severity of the news.

One set of assets that has, unsurprisingly, been walloped are Russian shares, bonds and the rouble. Sanctions, primarily those stopping Russia’s central bank from selling its piles of dollars and euros, have caused the rouble to collapse. Thankfully your portfolios have precious little exposure to anything Russian, so the direct effect of this to you is negligible.

Finally, as you can see from the chart, gold has been a useful investment for us this month. Gold can be a capricious beast. We hold it as insurance, but, like many insurance contracts, you can never be quite sure what it’ll pay out on until after the event. Thankfully, this event seems to be covered, and its rising price has helped your portfolio to weather this storm.

All this paints a highly confusing picture. We do not know how these events will play out – nobody does, and you should treat with caution anyone who claims they do. It’s no time for glib “I’m-sure-it’ll-all-be-fine” statements either – we’re as concerned about the world as I’m sure you are. 

In the face of this, and in respect of your capital, we believe balance and diversification are the best options. Placing your assets into a single asset or market based on a prediction risks too much if that prediction proves wrong. And as events have shown, trying to predict the actions of a man like Putin is likely to end badly.

Simon Evan-Cook

(On Behalf of Raymond James, Barbican)

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

Citizen of the World

Events in Eastern Europe over the last week have correctly dominated TV, radio, newspaper and online news. It also meant that almost all equity or bond investors made losses during February, many for the second consecutive month unless – like the U.K. equity market – there was high proportional exposure to commodity sector shares.

Weekly Note

The Week In Markets – 19 February – 25 February

Many of our readers will no doubt be aware that this week has been historic for all the wrong reasons, with Russia invading Ukraine. We know it is a difficult time and our thoughts are with those people affected by these events.

Focusing on the impact on markets, we have seen big swings in global equities this week. It’s worth remembering that equity markets are typically forward-looking, and the potential geopolitical risks were in part already discounted into prices. However, it appears that the full invasion witnessed towards the end of the week was not ‘in the price’ and we saw European and Asian markets fall heavily on Thursday. The US equity market, after opening in the red, staged a remarkable comeback and actually ended the day up, with the S&P 500 closing 1.5% higher. Japanese equities rose by a similar amount overnight and UK and European equities are in positive territory today at the time of writing. At this stage, it’s not 100% clear what the endgame will be, and with that uncertainty still lingering, there is potential for asset prices to remain volatile in the short term.

Safe-haven assets have responded to the turmoil, with prices generally rising this week. Within bond markets, investors are beginning to question whether central banks will be able to raise interest rates as aggressively as expected, into what could be a slowing global economy. Other safe-havens such as gold and the US dollar also performed well. It’s a timely reminder of their insurance like characteristics and it is why they are held in our clients’ portfolios.

The oil price broke through $100 a barrel, climbing to eight-year highs on concerns around global supply. Russia produces around 11 million barrels of oil a day, much of which is exported, and this supply could be impacted if Western sanctions escalate. European natural gas prices also spiked; Russia currently supplies around 35% of Europe’s natural gas and again this supply could become strained. Rising commodity prices will do little to soothe concerns about inflation, although it should be remembered that higher energy prices act as a quasi-tax on the consumer and could have the effect of dampening demand for goods and services and this is deflationary.

There was some positive economic data released this week, although clearly this has been overshadowed by Russia’s invasion of Ukraine. Services and manufacturing PMI data for the UK came in ahead of consensus and US GDP for Q4 2021 was revised higher to 7%.

Periods, like we are going through now, are highly emotive and it can feel very difficult to be invested in asset markets. History has repeatedly shown us that these uncomfortable moments are often also opportunities, especially for investors with a long-term time horizon, who can look through the short-term headwinds. At an investment committee level, we try to do this in an objective, structured way to ensure we are making appropriate long-term decisions for the portfolios.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 12 February – 18 February

With Storm Eunice arriving today, preventative measures have been taken to minimise damage, with schools shutting, transport networks closing, and people being advised to stay indoors. The word “storm” is used frequently when describing the weather, but the classification of a storm is when the wind is measuring 10 or above on the Beaufort Scale (55mph or higher). 

This week’s weather system seems to have reflected the current mood in markets. It’s been unpredictable and varied, with moments of sunshine, but as we head towards the end of the week there is potentially worse to come. 

Geopolitical tensions have continued to dominate newsflow this week. On Tuesday there were reports of troop withdrawals from Russia, however, these claims were denied by NATO who stated this was not being witnessed on the ground. Risk assets (equities) advanced on hopes of a diplomatic solution to the crisis, and then fell away again as tensions seemed to escalate. Throughout the week both the US and UK have held regular briefings and shared a lot of intelligence with the media and public. It is seen as a clear strategy to try and remove the element of surprise from Putin and helps them control the informational war. While equities have been choppy, safe-haven assets such as gold have performed strongly. The precious metal price topped $1,900 per ounce on Thursday, which was an eight-month high. Government bond yields have fallen from recent highs in another indication that safe-haven assets are in favour this week.

Defensive positioning was reflected in this month’s Bank of America investor survey, which showed cash allocations at the highest level since May 2020. Interestingly, this is used by some as a contrarian indicator, and they will see high cash allocations as a clear buy signal.

Inflation concerns continued to rumble away with the latest UK CPI number coming in at 5.5%, a 30-year high, with items such as clothing and footwear seeing big jumps in prices. Over in the US, the Fed’s meeting minutes were published and the language was less hawkish than feared. The US consumer, despite seeing their cost of living being squeezed, provided some positive news this week with US retail sales coming in at 3.8% (month-on-month), considerably ahead of expectations.

The Office for National Statistics (ONS) UK House Price Index showed price increases of 10.8% for 2021, putting the average price of a UK home at £275,000. London has been a laggard compared to other UK regions, as people left the city and opted for more space as work from home policies were put in place. However, there are reports of a ‘boomerang effect’ occurring with young workers flooding back to London given offices are re-opening and COVID measures are being removed. 

Markets, in general, have been stormy in 2022, facing wind and rain in the form of inflation and geopolitical risks. The key questions remain about how long these forces will persist, and what impact they will cause should they strike. Forecasting is a notoriously tough thing to do accurately and as such our focus remains on diversification in portfolios to avoid some of the worst weather conditions, while also being able to make hay when the sun shines again. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 5 February – 11 February

If one was to google the year 1982 a few things would likely appear; the birth of Prince William, the Falklands War or Liverpool winning the league. What most won’t know about 1982 is that US inflation was 7.5% that year and, until this week, had never been reached again.

The headlines on Thursday were dominated by US inflation, which came in ahead of expectations, at 7.5%, a 40-year high. Shelter, energy costs and used cars were some of the key drivers of inflation – used car prices are now a staggering 40% higher than they were 12 months ago. The data added to the expectation of US interest rate rises, which was further fuelled by comments from St. Louis Federal Reserve President James Bullard who called for a 1% hike in rates by July. The market reacted immediately yesterday, with US equities snapping a strong two-day winning streak to end down on the day, led by the more growth-orientated equities. The trend of rising bond yields (and therefore falling prices) accelerated, with the US 10-year Treasury bond rising through 2% for the first time since 2019.

Staying with the 7.5% figure, the UK economy grew at 7.5% in 2021, the fastest pace since World War II. It’s worth remembering that 2020 was a year where the economy collapsed by nearly 10%, and so a strong rebound was expected. A UK survey showed that starting salaries rose in January by their third-highest rate on record, as workers are demanding higher wages to compensate for the increased cost of living. The Bank of England Governor, Andrew Bailey, made himself unpopular with comments suggesting workers should be restrained in pay expectations in an effort to stop wage inflation spiralling out of control.

We haven’t written about COVID-19 for a while, and this week Boris Johnson suggested that all COVID measures could be scrapped at the end of the month, nearly two years after the initial lockdown in March 2020. Some suggested this was an attempt to deflect away from “partygate” and indeed there were rumours that the top UK scientists had felt blindsided by the news.

Russia-Ukraine tensions appear to have moved up another notch this week, with Russia carrying out military drills with Belarus. Boris Johnson also commented that the crisis has now entered its “most dangerous moment”. Oil prices have remained high on the fears of future supply issues.

At an asset market level, many of the equity indices have partially recovered from recent lows around 24 January. However, the bond markets have continued to drift lower on the back of expectations of robust global growth and higher inflation in the year ahead. At the moment the market narrative is completely focused on inflation, and I’m sure it was similar in 1982. Who would have thought the next 40 years would see negative interest rates, deflationary pressures and falling bond yields. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

The Month In Markets – January

The Month In Markets - January 2022

It’s been a white knuckle start to the year. As you can see from the chart, markets have plotted some dramatic courses, with global equities down by almost 8% at one point. But this picture plays down what’s been happening within markets: This is where the month’s real action happened.

We saw similar trends in December, albeit to a lesser degree. You’ll see them described as a ‘market rotation’ in the press. But what does that mean?

We’re used to hearing about stock market sell-offs and rallies, or bear and bull markets. These simply describe whether the market is falling or rising. A rotation refers to a change within the market and doesn’t imply that the whole market is moving in any particular direction. Instead, it means that one part of the market that was winning has started to lose, while another part that was lagging has taken the reins.

You could compare it to politics. The UK has continued to grow over the last 30 years, but every now and then its leadership changed – and not just the prime minister, the entire ideology underwent a seismic shift. Think of the landslide move from Conservatives to New Labour in 1997, or the crumbling of that movement and the return of the Conservatives in 2010.

We see similar shifts within markets too. In fact, when I look back on my career in the investment industry (26 years and counting – where did it all go?) stock markets, like politics, have see-sawed at least twice between different super-tanker themes and ideologies. We may now be experiencing another.

The first, in my career anyway, was the tech bubble of the late 90s. I remember getting caught up in the greed and excitement for the next big money-spinner, I’m just grateful I was only in charge of my own money at the time (of which there wasn’t much and, thankfully, I was too boringly conservative to consider borrowing to speculate).

Then came the rotation. Tech stocks and funds – good or bad – wobbled, collapsed, then flatlined for years. There were a few funds that had steadfastly resisted the urge to go all-in on tech (although many either folded, closed or sacked their managers), and these sailed serenely higher as the tech hoopla deflated. The whole experience made a big impression on me.

It’s easy to forget now, from our 2022 tech-tinted lenses, but technology stocks and funds became untouchable outcasts in the noughties. Sure; it wasn’t a great ten years for stock markets – the average global equity fund only made 6% – but it was truly dire for the once-mighty tech sector. The average tech fund lost 62% in that time*.

*Source: Morningstar. As measured by the Investment Association’s sector averages; IA Global and IA Technology and Technology Innovations. **Source Morningstar. The S&P GSCI Energy Index

So, by 2010, having talked of nothing else just ten years earlier, very few people even mentioned tech investing, let alone bought technology-focused growth funds (and this is a couple of years after the launch of Apple’s world-changing iPhone). This silence and disinterest, so it turned out, was a fabulous buying opportunity.

The flipside of this trend has been energy and commodities. After a dismal 90s, these captured investors’ attention (and money) in the noughties as tech limped into the background. Now they were viewed as the chief beneficiaries of the era’s sexiest story: They would power the emergence and growth of China.

So as tech funds lost 62%, and the global stock struggled to a measly 6%, energy stocks rose by 90% in the noughties**. This meant that, while tech funds languished at the foot of the decade’s fund performance tables, the top was filled with energy and commodity specialists, or funds invested solely in energy-dominated markets, like Brazil or Russia. And, just as at the peak of the tech frenzy a decade before, investors could think of little else, and shovelled in more money expecting a repeat of the previous ten years’ stellar run.

Then came the rotation. Natural resource stocks and commodity prices wobbled, collapsed, then flatlined for years. While those funds that had resisted the urge to join the party (ironically, in many cases, by picking up unloved technology stocks) sailed serenely higher as the commodity hoopla deflated.

The next ten years painted a mirror image of the experience in the noughties: energy stocks lost 41% in that time, while tech funds wrestled back control of the narrative, producing 311% between 2010 and 2020.

*Source: Morningstar. As measured by the Investment Association’s sector averages; IA Global and IA Technology and Technology Innovations. **Source Morningstar. The S&P GSCI Energy Index

So those are rotations. They’re not common, but they do happen. A changing of the guard that can turn successful strategies into failures overnight.

So are we seeing another regime change now?

Tech stocks, which have been in charge for more than a decade, have been wobbling for a while. But what we saw in January felt a little more like collapse. Most of the severe falls have so far been limited to smaller, more speculative stocks. But even some of the giants began to look vulnerable: Netflix, which put the ‘N’ in the ‘FAANGS’ acronym, fell by more than 28% over the month, having reported disappointing subscriber growth.

At the same time, energy companies fared well. Fuel prices are marching higher, while years of underinvestment mean new supply, which in previous years brought the price back down again, is scarce.

You can see this reflected in the earlier chart. The UK stock market has a large weighting in energy companies and hardly any exposure to tech shares – and it rose while other markets sold off. In contrast, the US has a far larger weighting to tech stocks, and it was walloped.

I’m wary here that I’ve made this sound too simple: If this is a rotation, why don’t we pull all your money out of the last decade’s winners and put it into its laggards?

One reason is because the ‘bait and switch’ of a long trend followed by rotation is just one of the markets’ regular tricks. Another is to present an apparently easy rule for making money (in this case simply switching horses every ten years), then whip it away at the exact point investors have figured it out.

So we shouldn’t be too quick to declare this a permanent rotation. The world is different now to when the tech bubble burst and energy stocks came to favour: Today central bankers seem more interested in keeping stock markets high; many tech firms are now quasi-monopolies, not flighty dotcom start-ups; and we have a far greater focus on using technology to move us permanently away from fossil fuels.

Indeed, as the month drew on, the rotation began to ebb, and fears over a war with Russia over Ukraine began to drive markets instead, dragging everything lower (you can see this on the chart when the UK and Europe start to play catch-down with the US).

This provided a timely reminder that balance is key. Just as we didn’t push all your money into one type of investment last decade, we’re not going to push it all into another for this one either. Diversification may reduce the chances of getting rich quick, but it’s the best way we know to avoid getting poor quickly, and that’s where our priority lies.

Simon Evan-Cook
(On Behalf of Raymond James, Barbican)

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

Weekly Note

The Week In Markets 29 January – 4 February

There are some weeks when writing the weekly round-up is quite challenging; newsflow may have been slow, markets benign and frankly nothing too interesting to report on. Then there are weeks like this one, where there are a multitude of topics to discuss, covering a wide range of subject matter.

We will start on domestic shores, with the Bank of England’s (BoE) decision on Thursday to raise interest rates by 0.25%, up to 0.5%. Interestingly the vote was 5-4, with four members voting for an immediate 0.5% hike in rates. This hawkish sign of intent from the BoE led to a sharp rise in sterling and a sell-off in government bonds, with yields rising (therefore prices falling). While rising interest rates can feel painful and create market volatility it’s worth remembering that at the start of 2020 (pre-COVID-19), UK interest rates were 0.75% and therefore we are so far witnessing a reversal in some of the extraordinary measures put in place during the pandemic. The million-dollar question is how high the BoE (and other central banks) will take interest rates.

It wasn’t just UK bonds that suffered on Thursday, it was an ugly day across the board with rising government bond yields a clear theme. In Europe we saw inflation once again surprising to the upside, coming in at 5.1%. The European Central Bank has been very dovish in their approach and has suggested that they will hold off raising interest rates in 2022, however, this high inflation print has piled pressure on them to act, and the movements in Eurozone bonds suggests the market is pricing in higher interest rates sooner rather than later.

Oil prices continued to push higher this week, with the US Crude benchmark breaking through $90 a barrel, the first time this price has been reached since 2014. A combination of supply issues and fears, coupled with cold weather in the US pushed the price of black gold up. With multi-year high prices, it’s no surprise that the stand-out sector in markets this year has been energy.

With elevated stock prices, particularly in the US, earnings season felt like a big event, and results would need to justify some of the valuations assigned to companies. After stellar results from Microsoft and Apple this week, all eyes were on Meta (previously Facebook) and Amazon. Meta’s disappointing results led to a fall of over 20% in its share price on Thursday, which was around £200bn in market value, and equated to a $29bn loss for Mark Zuckerberg. One of the standout figures from their results was that ‘Daily Active Users’ were down in Q4 2021, which was the first quarterly decline in the history of Facebook. The fall in Meta’s share price impacted the US market, which fell on Thursday, after rising for four consecutive sessions previously. Amazon’s share price declined heavily on the expectation of weak data, however, following strong results last night, the share price is up over 10% on Friday’s US market open.

As is customary the first Friday of the month sees the release of US Non-Farm Payrolls data. While the last couple of jobs reports have been underwhelming, January’s figure showed 467,000 jobs added to the economy against a consensus view of 150,000. Average hourly earnings also beat consensus, which is likely to do nothing to dampen expectations of US rate rises to help curb inflation.

Another volatile week in markets, and while it may not have felt that comfortable, global equities have actually ended the week higher than they started. This is often the case with investing, some of the most uncomfortable times are when the best returns can be made. To achieve this, we believe a robust process is required, one that helps strip out the emotion from investing. Our efforts to deliver this at Raymond James, Barbican will stand our clients in good stead through the years ahead.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Welcome to February!

There is a famous quote by the legendary Belgian professional cyclist Eddy Merckx that he “raced from 1 February to 31 October every year, competed for everything”. Unfortunately for financial markets there is never a defined season, and, whilst 2021 ended positively, January 2022 will go down into the history books as being a little bit more difficult.

Weekly Note

The Week In Markets – 22 – 28 January

For the final weekly round-up of January, I could have very easily copied and pasted the first round-up of the month. The themes of a pickup in market volatility, concerns around inflation and the increased expectation of rising interest rates have plagued asset markets all month, and this week was no different.

The volatility in equity markets was apparent on Monday with UK and European indices ending the day sharply lower. The US market initially fell by around 4% on Monday morning but staged a remarkable recovery to actually end the day in positive territory and reverse severe losses. Despite this bounce back, US bourses have generally drifted lower throughout the week. By Tuesday, January had officially become the worst January on record for the US S&P 500, outpacing the falls we saw in January 2009.

Staying with the US, the Federal Reserve met on Wednesday and although they didn’t raise interest rates, they have signposted a likely first rate hike in March, while also referencing “historically tight labour markets”. We had positive GDP data for the US, showing the economy grew by 5.7% in 2021 – the fastest growth since 1984. Strong GDP growth for 2021 was a theme this week, with French GDP reported at 7%, the highest since 1969. Against a backdrop of strong global growth and rising inflation, it’s no wonder that central banks globally are in the process of raising rates from record lows.

Fears of a Russian invasion into Ukraine have increased this week as Russian demands to bar Ukraine from Nato were rejected. Any invasion is likely to be met with economic sanctions and could have big implications for energy markets. Russia produces over 10 million barrels of oil a day and sanctions could see global supplies fall. It’s no surprise that oil prices rose throughout the week, at one point reaching $90 a barrel for Brent Crude oil.

PMI data for UK and Europe this week was a mixed bag; UK services and manufacturing reports highlighted expansion, but was slightly below consensus, while the equivalent German data came in ahead of consensus.

Against a backdrop of volatile equity markets, it was pleasing to see Apple and Microsoft (the two largest companies in the US) both release strong Q4 earnings reports. Apple reported its highest-ever quarterly revenue, beating estimates, while CEO Tim Cook commented that the supply chain issues were improving. Microsoft also released stronger than expected earnings growth. These stellar results should help calm markets and help justify the lofty valuations assigned to some of these high-quality technology companies.

The final paragraph could also have been copied and pasted from previous weekly round-ups, with a reminder that we continue to focus on being long-term investors and aiming to seek balance and diversification within portfolios. It’s fair to say that pretty much anything can happen in markets over one month, but over five, ten or even twenty years we expect fundamentals to be the main driver of markets, and by focusing on this we can take advantage of moments when prices disconnect from fundamentals.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

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