A LONG WAY DOWN
Equity markets on both sides of the Atlantic dropped last week as concerns over big tech valuations gave investors cause for concern. Unofficial payroll & job layoff data gave a gloomy picture of the US jobs market which added to uncertainty.
This week, data is light we will get inflation data from the US despite the shutdown - investors will watch closely. Markets may turn to global investor and business survey data for indications of sentiment. In Europe, revised GDP releases will give insight into the health of the EU economy.
News is emerging this morning which suggests that a deal may be reached to end the shutdown in the US. The Continuing Resolution (CR) would agreed to hold existing funding levels until the end of January, reinstate fired workers, ensure backpay and guarantee a vote on healthcare supports in December.
Investor concerns about the valuation and spending levels of the big tech firms came to the fore last week with the Mag 7 firms leading markets lower. The high levels of capital spending commitments caused investors to question whether earnings can continue at the levels needed to support planned expenditure. Beijing-based Moonshot AI released it's Kimi K2 Thinking model which reportedly cost less than $5m to train, NVIDIA's Jensen Huang went on record to state that China will win the AI race and OpenAI's finance chief suggested that the $500bn start-up might look to the US government to provide a funding backstop.
The US Government is now in the longest shutdown in history. One of the implications is that official economic data is not being released meaning investors need to look elsewhere for information on the US economy. Two private jobs releases painted a gloomy picture of the employment market - the ADP payrolls saw just 42,000 jobs added and year-over-year wage growth of 4.5% while the Challenger report showed over 150,000 announced layoffs in October - a 183% increase on August's number.
Americans voted in elections on the 4th of November in a first test of support for the Trump administration - the result was a triumph for the Democratic party. The results of the New York Mayoral and the Virginia & New Jersey Gubernatorial votes are leading some commentators to believe that Trump's coalition of voters may be collapsing.
In Europe, positive Purchasing Manager Index (PMI) data was overshadowed by weak consumer spending and below consensus German manufacturing activity.
Equity markets had their worst week since the post-liberation day announcement in April. The S&P 500 closed down 1.63% for the week. The tech-heavy NASDAQ 100 lost 3.04% while, in Europe, the STOXX 600 was down 1.24% through the week. AI valuation & spending concerns were the main catalyst with the continuing government shutdown and murky employment data also adding to investor concerns.
Bond yields rose last week, (bond yields rise as bond prices fall) as the continuing government shutdown and resulting lack of data casts uncertainty over the Fed's December rate decision. The 10-year US Treasury yield rose by 20bps over the week from 4.08% to 4.10%. The German bund equivalent was up by 22bps to 2.72%.
- Tue 11th EU - Germany ZEW Economic Sentiment Index
- Thu 13th UK - GDP data - US - October CPI
- Fri 14th US - October PPI
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.