The hawkish tone by central banks, which sent stocks tumbling in January, seems to have been pushed to the sidelines for now.
Markets seem to have shifted to a more risk-on tone on the back of a robust earnings season which has pushed stocks higher in the first half of February. The MSCI All Country World Index, which lost 4.96% in January, has printed 2.21% month-to-date (MTD). Emerging markets continue to outperform their first world counterparts, with the MSCI Emerging Markets Index advancing 2.61% as compared with 2.15% from the MSCI World Index (MTD).
Bond yields have continued their advance after stronger than expected US payrolls data and sticky inflation added to concerns of an aggressive tightening cycle by the Federal Reserve. US CPI printed 7.5% (y/y) for January, beating a forecast of 7.3% and marking the largest rise in 40 years. This has lifted market expectations of a 50-bps hike in March to 88% and 100 basis points by June to 95% (data from CME Group). The large rise in consumer prices also pushed the 10-year treasury yield to above 2% for the first time since August 2019.
US stocks markets posted their worst monthly return since the start of the pandemic in January due to persistent inflation and a hawkish Federal Reserve. This caused the rate-sensitive Nasdaq to lose a staggering 8.98%, followed by the S&P 500 by -5.26% and the Dow Jones Industrial Average with -3.32%.
It has since been a bumpy ride as earnings results from mega-cap tech stocks – which have been mixed – seem to be driving the direction of the market. Two worthwhile mentions are Meta Platforms (formerly known as Facebook) which issued disappointing results and led to $200 billion being wiped from its valuation – the biggest loss in market value by any US company in history. A day later eCommerce giant Amazon reported robust earnings coming out of the holiday season and jumped 13.5% – the largest daily rise by any US company in history. The mixed results have increased volatility in markets; however, they have for the most part surprised on the upside which has led to a month-to-date recovery in the Nasdaq Composite Index and the S&P 500, advancing 1.76% and 1.59% respectively.
Chinese stock markets followed the global trend in January and ended the month in the red. We have since seen a rebound in the Chinese market as cheap valuations entice bargain hunters, easing monetary policy and optimism over earnings results provide much-needed relief. As such, the Shanghai composite index – which lost 7.65% in January – has advanced 3.67% month-to-date.
The United Kingdom’s blue-chip index also joined the global rally after hitting a two-year high on Wednesday following remarks from Prime Minister Boris Johnson that the remaining Covid restrictions may be scrapped. This led the FTSE 100 2.51% higher month-to-date and puts it on track to end in the green for the third consecutive month.
Nothing seems to be getting in the way of the rise in commodity prices which advanced for the third consecutive month as measured by the Bloomberg Commodity index. The index ended January up 8.77% and has continued this momentum into February leading to a staggering rise of 14.6% year-to-date. The big driver this year has been the oil price with Brent crude oil jumping 18.62% thus far. Metals prices, after having a slow start to the year, have also begun to surge sharply with platinum and copper rising 5.59% and 2.94% respectively (YTD). Gold has nearly erased losses made in January and is currently down 0.14% year-to-date.
The rand has had a strong start to the year despite the ongoing domestic problems such as load shedding and high unemployment. It appears that after four months of currency depreciation the rand has reached a level of undervaluation that is enticing to the marketplace. This coupled with the Reserve Bank raising rates has pushed the rand to gain 3.82% against the greenback in January, followed by 4.96% against the euro and 4.42% against the pound.
Locally, equities had a slow start to the year with the FTSE/JSE ALSI printing a meagre 0.81% in January. Stocks have since followed the global trend higher in February with the Alsi advancing 3.32% month-to-date. The advance has been led by the resources sector which is up 5.57%, followed by the financials with 3.40% and industrials with 0.43%. Property continues to edge lower with -2.17% (MTD).