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.