Market Pulse | Goodbody Wealth Management

Goodbody

A concise overview of the key themes driving financial markets and investor decisions around the world.

  1. 12/06/2021

    The Powell Pivot | 6 December 2021

    • The Powell pivot became the major talking point last week. During his testimony to Congress he said that the Fed does need to talk about a faster rate of tapering. He also pushed inflation concerns up the agenda. No doubt part of this was in response to the White House putting tackling inflation as a priority. As a result, there was a meaningful increase in interest rate expectations over the week. • The encouraging thing from last week was the reaction of the fixed income markets. Our fear has always been that as we moved towards normalising monetary policy, there could be a lot of volatility in the bond market which would undermine all asset classes (an interest rate scare). That did not happen last week. Yes, there is a bit of pain in the short end but longer dated yields fell and that is what is important to other asset classes. • Of course, Omicron is in the background and there is risk that its spread causes dislocation in the global economy. Perhaps this is what the bond market is thinking. One problem with this thinking is that if the dislocation does become significant then monetary tightening probably goes off the agenda. The Delta variant did cause some turbulence in the global economy and in equity markets but the growth rate remained high and the impact was short lived. Using that as the ‘playbook’ it says stick with your long-term strategy and that is what we will be doing and looking at last week’s reaction in the fixed income makes us a little bit more comfortable about that.

    6 min
  2. 11/30/2021

    Hit is painful, but no change to asset mix | 29 November 2021

    • Covid and the new variant will be the main focus in the short term. The reopening theme was already under pressure as infections were rising rapidly in Europe and this gained further momentum on Friday with some very extreme moves in prices. • This should not impact too much to views on asset positioning. Policy makers will remain very supportive, which is important, and the experience with the Delta variant has been quite benign. Friday was a shortened trading day in the US but the equity market it saw the second largest daily inflow this year from retail investors. • The equity mix is the more pertinent question and the hit to the reopening trade is a painful journey. But it seems like a lot of bad news has been priced in now so without some firmer information it would be difficult to add value reacting to the developments. • Last week we were still getting good indications on economic performance. The US is still leading. High frequency indicators (restaurant bookings, passenger traffic, credit card sales etc) were all back to new highs for this year. In fact, it looks like we are back into an upgrade cycle for the US economy although that should not last too long. There were also indications that China would start more efforts to support the economy Premier Li called on the provinces to step up infrastructure spending and the PBoC said it would be doing more to stabilise the credit market. The global economy looked set to have a quite strong finish. This was feeding into earnings as well. We are still getting upgrades, even in the euro area where the outlook has become most clouded. Earnings growth for 2021 was pushed up 1% over the last week. The environment remained very equity friendly.

    6 min
  3. 10/18/2021

    Earnings season off to a strong start | 18 October 2021

    • We got inflation updates from the US which were also somewhat encouraging. Both CPI and PPI came in below expectations. In the CPI report we did see some of what we hoped were transitory pressures (Travel and Lodging, second-hand car prices) subside. On the other hand, there is upward pressure on property costs which will be more sustainable. So, we are likely to have a higher level of inflation but not at some of the extreme levels we have seen in recent months. • China is a bit more mixed. Q3 GDP missed forecasts as did Industrial Production but much of this occurred in September as power outages spread. So, the weakness is not due to lack of demand. On a positive note, Retail Sales accelerated in September as the number of lockdowns declined. • The reporting season will capture more of the headlines over the next few weeks and the start has been promising. The consensus forecast is that Q3 earnings for the S&P 500 will be up 30% YoY, 11% higher than at the start of the year. Even over the last four weeks this was increased by 1.6%. • What we have seen over the last week supports our positioning, a strong growth background with easing in inflation pressures translating into very strong earnings growth. Equities benefit and bonds remain reasonably well behaved. What could derail it is the rampant energy prices and power supply issues. Governments seem alert to the potential growth impact so policies will be implemented to alleviate income pressure from the higher prices. Supply response has been muted so far but that could change and normally does.

    7 min

About

A concise overview of the key themes driving financial markets and investor decisions around the world.