As the old Chinese curse goes (paraphrased slightly); may you comment on interesting markets. Accordingly, having drummed my fingers on a weekly basis through the dead calm of last summer, I’m now looking back on those beige days with teary-eyed nostalgia.
Because this week has – so far- been brutal. At least it was if you’re looking at a global stock market index: down about four percent with a day left to play.
As I’m sure you’re aware, this isn’t the first grim week of the year. Far from it; the market news flow has a distinctly slow and grinding feel to it. This stands it apart from other recent negative episodes, such as the pandemic sell-off in 2020, which were sharp, but relatively short-lived.
But look deeper within the market data, and you’ll find other “interesting” titbits that make this week’s movements stand out.
In stark contrast to much of this year, and most of the last fifteen years too, this week’s nosedive was led by the US: Up until Thursday at least, American shares were down by almost five per cent for the week. But everywhere else, including the UK? Not so bad – generally off by a per cent or two, and they’re erasing much of that in Friday’s early trading (UK equities are still positive for the year, amazingly).
This is bordering on weird. If US equities tumble, European and Asian shares usually follow suit, and with more gusto too. But not this time. Has the long run of US market exceptionalism come to an end?
Another change was that America’s sell off was truly inclusive (and not in a good way). For most of the year it’s been tech and other growth shares getting walloped, but this week everything joined in, including previously immune ‘value’ shares.
Commentators are putting this down to investors beginning to worry not just about inflation and interest rate rises (which growth stocks hate like cats hate swimming), but also an economic slowdown, which isn’t great for anything – including value stocks.
Is this a start of a new trend, or just a blip? Absent a crystal ball, only time will tell.
I don’t want to leave you on a note of bad news, so how about a bad-news-might-be-good-news vibe instead?
We heard this week that global fund managers had raised cash to their highest levels since soon after the 9/11 attacks. Ominous as it sounds, you’ll note that they didn’t raise cash to their highest levels just before 9/11 (it would have been mighty suspicious if they had), just as they hadn’t raised cash to their highest levels before this year’s sell-off – which would have been useful given what we’ve just seen.
So, this is something – jumping in and out of the market – they’re clearly not good at (dirty secret: nobody is). Perhaps, even, it’s a contrarian indicator that news has got as bad as it’s going to get? Well, let’s see what next week brings.
In the meantime, have a great weekend,
Simon Evan-Cook
(On Behalf of Raymond James, Barbican)
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