Market review

Market review

Weekly review 22 April 2024: Market volatility

The strong growth trajectory of the equity markets fizzled out last week when equities took a global tumble, led by the USA. Also the markets’ hopes concerning the Fed’s rate cuts were dialled back.

Last week, equities fell more than two per cent globally. The decline was the largest in a long time, with, for example, the S&P index falling every single day of the week. In particular the shining stars of the equity markets, technology stocks, took a nosedive in some cases, causing the entire market to fall.

Last week’s biggest casualty can be considered Japan, where both equities and the yen fell markedly, whereas the week’s winner was Europe and more specifically Finland. In Europe, equities got off easier than other markets and in Finland the week was significantly better than the global average.

Earnings season reaching a critical point

In Europe, the Q1 earnings season is only just starting, but in the USA the earnings season is further along. During the current week, the majority of the pivotal tech companies will release their earnings and close to 40 per cent of S&P companies will report their earnings.

This week, the market may be shaken by the US earnings season. It is worth taking an interest at least in the earnings reported by tech companies and the guidance given by them.

For both the ongoing earnings season and the entire year, the majority of earnings growth expectations are now resting on the shoulders of the seven major tech companies. However, the combined value of the Magnificent Seven fell 10 per cent during the previous week and a half.

In terms of earnings growth, where the entire US stock exchange is expected to experience growth of some 10 per cent this year, the corresponding expectation for the Magnificent Seven is around 50 per cent. Nevertheless, a significant portion of the Seven’s earnings expectations rests on the shoulders of one company, Nvidia, which has skyrocketed in recent years.

Rate cut hopes turning into rate hikes?

There is currently a huge contrast between the interest rate hike plans of the European Central Bank (ECB) and the US Fed. The ECB is steering the market towards June’s rate cut, while the Fed has even hinted at a rate hike.

Currently, the markets are pricing in slightly more than one rate hike for the Fed this year, compared to six at the start of the year. At no stage has the Fed, however, forecast the six rate cuts expected by the markets; at the turn of the year it was still predicting a total of three cuts for this year.

Regardless, the Fed has recently communicated that US inflation, which seems reluctant to fall, has altered the central bank’s expectations. It does not even rule out that its next key interest rate move could be upward.

It seems fairly likely then that the ECB would start its rate cuts before the Fed – a historical rarity. The ECB is not, however, entirely alone with its interest rate cut plans, because, for example, Switzerland has already begun rate cuts and Canada is headed in that direction too.

In terms of data disclosures, the week will be uneventful, but next week has some drama in store, especially with regard to interest rate development, when the Fed holds its meeting and the United States discloses its financing plans.

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