The week has come to an end and it followed the same narrative as the past few weeks. Unfortunately, this means that the majority of major indices were down again and that most investors are in the red this week. This wasn’t necessarily limited to one region though as both Europe and the US have seen markets pull back.
If we look at the S&P500 we see a pullback of 5.18% over the past week, while the Eurostoxx 50 and the AEX lost 1.21% and 2.34%, respectively. The markets that did go up were from Asia as both the SSE composite index and the Hang Seng index were both in positive theory with a return of 0.01% and 2.34%, respectively.
The reason that both the Hong Kong index and the Shanghai index were positive was due to the fact that China cut its 1-year interest rate by 10 bps and its 5-year interest rate by 5 bps. On the day of the announcement, China’s big tech (Alibaba, JD, and Tencent), all gained over 5%.
Economic news was a mixed bag this week, for example, the Eurozone consumer confidence was -8.5 beating consensus estimates of -9. Additionally, the French industrial confidence rose to the highest level in 4 years, as the panelists reported a stronger order book. On the other hand, the INSEE’s broader business index hit the lowest level since last April.
US Economic data was mainly negative as the weekly jobless claims climbed to a 3 month high, driven by an increase in cases due to the Omicron variant. Furthermore, initial jobless claims increased 55k to 286k (seasonally adjusted). The US government expects that this is just a blip due to the Omicron variant and that this will normalize soon. Additionally, existing home sales tumbled and the backlog of houses authorized for construction, but not yet started increased due to labor shortage and higher material costs.
Eurozone bond yields fell at the end of the week as investors fled to safe assets amid geopolitical tensions between Russia on one side and the USA and NATO members on the other side. The reason for the tensions is that Russia moved around 100,000 troops to the border of Ukraine, which raised suspicion of a potential invasion. As a reaction, Canada, the US, and other members of NATO send troops to Ukraine in order to protect it from an invasion by Russia. In order to de-escalate the situation, there have been talks between the US and Russia in Geneva. However, talks seem to be in a deadlock and Russia send a large military force, including equipment able to fire short-range missiles, to Belarus in order to threaten Kyiv. The standoff with Russia (in combination with high inflation) has already led to an increase in interest rates, which grew from 9% to 10% in Ukraine.
The fact that the US is involved in the peace talks could mean bad news for US equities in case of escalation. Previous wars that involved the US, such as the Saddam war, led to an average decrease of 15% in US equities. The sectors that are most affected by the wars are consumer discretionary, IT, and airlines, while the gold and energy sector tend to profit from wars involving the US. Thus, be careful when picking stocks if tensions continue to rise.
Another week of bad returns, however as stated most of the market experienced this downfall. Thankfully still 18 out of the 25 groups, currently participating, are beating the MSCI. On top of the leaderboard is Alpha Investments with an impressive weekly return of 0.67% among the badly performing markets. There were also quite a number of groups performing even worse than the market. INVICTI took the cake in that respect with a M2 of -13.89%. Invictus means unconquerable but apparently what they don’t want people to conquer is the last place.
There are still a lot of groups that are not participating. I would say, don’t be scared, you can’t do much worse than INVICTI is doing at the moment.