Digging out his crystal ball, Fabian Wiesner, Head of Distribution Partnerships, SimplyBiz, reflects on recent market moves as he tells us why he feels a bit early to jump to conclusions as he points out just a few reasons why it pays to remain calm during market turbulence
Headlines have not been far short of reading “Bloodbath in the stock market” over the past few weeks. All major markets have been selling off and inflicting some pain on investors around the world. It seems the old adage “Sell in May and go away” might be holding true this year. Usually, it’s to do with how boring and benign the summer months can be in normal year (whatever normal means now is a topic for debate itself, I guess). It would currently hold true as, this year up to the end of May, investors would have seen upside of 12.04% in the Nasdaq100, 7.17% in the FTSE100, and 15.62% in the Nikkei.
Although all still positive now (YTD at the time of writing – 5/8/24), since the end of May those same indices returned -3.46% in the Nasdaq, -3.23% in the FTSE, and -18.26% in the Nikkei.
Not such a bad strategy after all, but not something you can put in a client recommendation.
Now there are talks about emergency Fed meetings, and emergency rate cuts – it all feels a bit sensationalised. Most of this is coming from the camp that is comparing the rate hike cycle to that of the mid 2000s, and comparing what happens next to a 2007 style crash. Again, it’s all a little premature to be running around doing our best Chicken Little impression…
Jobs data – why did it cause so much panic?
After we saw a semi-uninteresting period from May – July this year, the market got a “nice” little shake up in the form of the U.S. Non Farm Payrolls. The expectation from the market was lower numbers than the previous months, however, as with all expectations, sometimes they get let down. The data showed a significant surprise to the downside, and the market took this as an attack on all things good.
Fears are now that the U.S. is done for, joblessness is on the rise, the Fed has strangled the economy into submission, the three horsemen have appeared carrying wanted posters for Nvidia, Tesla, Apple, and anyone that’s touched them over the past 12 months. Can the future be this dark though, really?
The reality is, that while undershooting expectations, the Jobs forecasts are looking to be on the up post this August update, however, it seems that we are all quite fickle and are seeing this as the beginning of the end. Almost like an “I told you so” moment after months and months of great performance spurred on from the AI wave that most have been happily surfing.
The odds are that the Fed will, in fact, cut rates in September, but it won’t be spurred by just one Jobs report. It will be the combination of lower inflation, the amount of time we have had rates held at over 5%, and the fact that the Fed has started to achieve what it set out to do with its increases. Market pricing is around 3.5% U.S. base rate over the next 12 months. However, this is all still just speculation.
A few months ago, there would have been little reason for the Fed to cut rates, as the news flow was good, the company profits were good, the economy wasn’t breaking (creaking, but not breaking), and, as long as the consumer kept spending within reason, everyone was happy. Soft landing here we come. So, this could be an overreaction, or something more technical in nature, and less a fundamental break.
So, what am I getting at here, with my soothsayers’ bones and my crystal ball? The truth is that it’s all just too early to tell. The AI trade had to turn at some point, we all knew that. Sometimes Jobs data can be disappointing, we understand that. Rates are high so the Fed will have to cut eventually, we know that too. So really, when isolating each individual part of the story, there is less to be concerned about in the immediate future. My bet is that we’ll see a bit of a bounce back before we see the full story play out. However, one thing is for certain – when the U.S. sneezes, the rest of the world catches a cold.
