Instead of headlines proclaiming “10% wiped from value of computer giant”, “S&P closes at record high” was the headline splashed across many investment outlets on Friday morning.
After ebbing and flowing for the last six weeks, the US S&P 500 index closed at a new all-time high on Thursday evening. It may surprise many to learn that this was actually the 55th all-time high of 2021 for the large-cap bourse. Investors have been encouraged by a strong start to Q3 earnings season, with most companies that have reported beating earnings estimates. It wasn’t the case of “a rising tide lifts all boats” however, as IBM’s share price fell around 9.5% on Thursday after missing revenue targets.
Data released on Wednesday showed that UK inflation slipped to 3.1% in September, from 3.2% in August. The slight dip has done little to deter investors’ from believing that the UK will be the first major central bank to lift interest rates. While many of us have become accustomed to falling rates over the last decade or so, 2021 has bucked that trend with countries such as South Korea, Norway, Brazil and Chile already hiking interest rates.
Evergrande, the Chinese property behemoth which caused turbulence in markets in September, returned to the forefront of investors’ minds this week as its proposed $2.6bn asset sale was abandoned, stoking fears of the company’s ability to meet debt obligations without this injection of cash. While the exposure to China in our portfolios is minimal, China is now the second-largest economy in the world and therefore what can appear as domestic issues can spill over into global markets and as such a situation we continue to monitor.
With inflation fears and a more optimistic growth outlook returning, bond yields continued their march higher this week. Despite the moves, the German 10-yr bund still has a negative yield of around 0.08%, although this is the highest level it has been over the last 12 months.
As we look ahead to next week the big news on domestic shores is likely to come from the Autumn Budget, taking place on 27th October. The budget can create volatility in UK stocks, particularly if there are unexpected announcements. It is something we will follow closely and look forward to covering next week. As always, we will be looking behind the headlines to get to the detail and understand the impact.
Andy Triggs | Head of Investments, Raymond James, Barbican
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