Making sense of this crazy world
It’s all about tech
Technology stocks delivered their best month since the Covid pandemic, on the back of strong earnings and further huge spending on AI. The enthusiasm and momentum for these stocks are the antithesis of concerns over the wider market, manifesting from the Iranian conflict. Quite a bit of the commentary this week is related to mega tech stocks.
This very subject was covered off nicely by Francis Chua, a Multi-Index Manager at Legal and General Investment Management, who kindly spoke at our seminar yesterday. A really good turnout of 90 people for our event, which was focused on how we need to get used to change and how we need to adapt to it, both from a Financial Planning and investment perspective.
Outside of the tech space, sentiment is focused on energy and supply chains. Higher oil prices favour energy-heavy sectors of the market, yet damage others. This is one of the reasons why the FTSE 100 can appear steadier than one expects, considering the miserable headlines around the UK economy. Remember, the FTSE 100 is not an indicator of the health of the UK economy, as around 70% of its earnings come from overseas. The FTSE 100 has a meaningful exposure to global commodities and energy.
Under the surface of every major stock market index are numerous sectors, and there has been a marked difference in their behaviours recently, which is exactly why a globally diversified portfolio matters.
Trying to work out what is going to happen is not easy, nigh on impossible actually. The uncertainty was summed up neatly by Jerome Powell, who said the Federal Reserve “does not yet know what the economic consequences of the conflict will be”.
Crude prices fell this week, arguably for all the wrong reasons – dropping below $120 a barrel but not because energy flows resumed through the Strait of Hormuz, but, as oil traders have warned, sharply higher prices are beginning to hurt the broader economy and weaken demand.
However, European stocks rose on Thursday, April 30, driven by the European Central Bank (ECB) and Bank of England (BoE) holding interest rates steady. The markets were further boosted by the retreat in oil prices and a busy day of corporate earnings.
This perfect storm of indicators used to be called “stagflation”, but ECB President Christine Lagarde rejected this description of the current state of affairs after keeping European interest rates on hold. “Europe is in a completely different situation than when the Middle Eastern crisis caused a stagflation economic shock in the 1970s”, she said.
This week’s content:
- Sentiment around economic indicators
- The tech rally powers US stocks to the best month since 2020
- AI mania, with caveats
- It’s been a big week in the mega-cap technology space
- The main risk for investors around tech
- Dissent at the Fed
- Emerging market stocks hit a record high
- What are we watching out for?
- Conclusion
Sentiment around economic indicators
- Indermit Gill (World Bank Chief Economist) described war-driven price rises as hitting economies “in waves: first energy, then food, then inflation”, adding that “war is development in reverse”.
- Mark Zandi (Moody’s Analytics) warned that even if the conflict ends soon, “the damage has already been done… there’s no going back on oil prices (in the near term)”.
- Pierre Gramegna (European Stability Mechanism) put it simply: “If [the war goes on] longer, the impact on inflation is what would worry me most.”
- On a brighter note, China’s recent data suggests some resilience: Hao Zhou (Guotai Junan International) said “Industry still looks comparatively firm”, while Zhiwei Zhang (Pinpoint Asset Management) noted the manufacturing survey had “not been adversely affected” and that export orders improved.
Continues…
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