Market conditions remain highly volatile and although inflation is slowing down it remains persistent, while other indicators such as the unemployment rate, remain static. A lack of investor confidence, seen through the significant bearish sentiment in The American Association of Individual Investors' weekly survey, may indicate that investors expect a significant economic slowdown. Values of major currencies remain stable with the Pound Sterling appreciating slightly.
Economic Indicators:
As the three-month unemployment rate remains constant, the UK labour market is still very tight at 3.7%. This might be a good indicator highlighting a degree of stability in the job market. Moreover, the labour market is showing signs of cooling down as there are fewer vacancies, and according to IFA magazine, forward-looking earnings surveys show signs of easing. This means that wage increases in the future are less likely, and inflation expectations are decreasing, which might also reduce inflation. Currently, inflation is falling only at a marginal rate. Yet food prices' inflation is still increasing, with the Guardian reporting around 17% inflation in food prices in December. This data can impact the market in various ways. Firstly, the stable unemployment rate might help attract foreign direct investment because this economic indicator projects stability, influencing investment, helping UK firms and particularly the FTSE 100 index. On the other hand, the inflation in food prices will impact the lower and middle classes, which might increase wage rates in the future and result in general inflation.
Market Performance:
Despite a 0.3% gain over the last week and a solid start to the year for the S&P 500, experts believe this could be another down year for the index. The Market Insider argues that because the Fed is decreasing the size of its balance sheet by around $95 billion a month, there is a market liquidity loss. Along with the over-valuation of stocks in the indicator and an earnings slump on the cards, the S&P 500 might continue to underperform in the upcoming year. The tech-heavy NASDAQ has increased by 2.15% in the last week, offering a slight relief to tech investors who have been battered in the last few months. The Dow Jones Industrial Average trended downwards, losing 2.05%.
Sectoral Performance:
Financial bodies, including Credit Suisse, Goldman Sachs and Morgan Stanley, are decreasing their labour force to lower costs, showing investors that they are willing to take necessary steps to restore the previous levels of profit they once had. This is meant to restore their share values, with Goldman Sachs Group's stock falling by 6.09% in the last week. Credit Suisse and Morgan Stanley's stocks have also dropped by around 2%, highlighting a decline in investment in banks. The technology sector has seen an upwards trend. Apple's stock has increased by 4.30%, Microsoft's by 0.72%, and Meta's by 3.30% in the last week. The healthcare sector has been declining, with Novartis decreasing by 1.48%, Roche by 0.97%, Johnson & Johnson by 2.59%, and Pfizer by 5.03%.
Currencies:
The American Dollar and the Euro depreciated against the pound sterling with a market value of 0.81 and 0.88, respectively. The Swiss franc (CHF) also declined against the pound to a value of 0.88, with its value persisting in being similar to that of the Euro. This highlights an appreciation of the value of the Pound sterling that might allow the UK to export more goods from abroad, lowering the average price level, and thus reducing inflation levels.
Commodities:
Saudi Arabia and Russia are reportedly trying to stabilize oil prices. Discussing a similar case in 2020, the Middle East Policy Panel, claimed that these actions might be taken to allow access into developing nations, including India and China, thus increasing the demand of oil and in the future the revenues made from it. Moreover, the price of gold has decreased by 1.33% and the price of Silver by 2.83%. The price of commodities is known to stay stable over long periods of time, therefore this fall in price might be an opportunity for investors, allowing them to gain capital once the price increase again.
Market Outlook:
While the financial industry reels from the excesses of QE and tech companies employing austerity measures to rein in costs, equity market investments particularly in the US have lost their allure. As China opens and India remains on an upward economic trajectory emerging markets look like an interesting option for equity investors. Rises in interest rates has also opened interesting possibilities in the fixed income market. Investments in commodities also appear to be a good idea because of the decrease in the price of silver and gold.
Additional Resources:
1.https://www.bloomberg.com/news/articles/2022-12-15/wall-street-layoffs-2022-finance-companies-cutting-jobs-ahead-of-downturn?leadSource=uverify%20wall
2.https://www.theguardian.com/business/2023/jan/18/uk-inflation-dips-people-continue-to-feel-pinch
3.https://www.proactiveinvestors.co.uk/companies/news/1003895/ftse-100-higher-uk-retail-sales-in-surprise-fall-and-sse-plc-ups-eps-guidance-by-25-1003895.html
4.https://markets.businessinsider.com/news/stocks/stock-market-crash-sp500-outlook-recession-earnings-fed-tightening-bubble-2023-1
5.https://www.nytimes.com/2023/01/20/business/saving-money-inflation-economy.html
6.https://ifamagazine.com/article/rbcwms-chiriseri-decrypts-the-implications-of-recent-uk-economic-data-jobs-inflation-and-interest-rates