Investment Insights

Middle East Tensions and Reduced Rate Cuts Send Markets Lower 

  • Apr 23, 2024
  • Craig Farley

Since October last year we have seen an optimistic investment climate that has seen the benchmark index in North America rise by a quarter as excitement over a multitude of interest rate cuts and artificial intelligence took hold.  


However, the past three weeks has seen a consistent decline as tensions in the Middle East escalate, whilst money markets have now factored in only one or two rate cuts this year (rather than six cuts forecast late last year) from the US Federal Reserve. Importantly, the yield on the US Treasury 10-year note has risen from 3.9% at the end of 2023 to 4.6% today. 

Having said all that, a slight calming of nerves occurred in the past few days since Israel’s attack on Iran has not caused any reprisals at present. It is also the start of the first quarter results season, and although the numbers so far have proved comfortably ahead of expectations, the company guidance and tone looking ahead this year is a little less positive. 

All of this resulted in -8%, -7% and -5.5% falls in the respective Russell 2000, Nasdaq 100 and the S&P500 indices last week. Elsewhere, Continental Europe and the UK have proved more resilient as they lack the technology components of North America. Also, there is still a high probability of a first European Central Bank interest rate cut in June, as the economy is still struggling, and inflation is coming to heel more quickly than the thriving US economy. 

Star technology and ‘chip’ maker Nvidia is in a ‘correction’ phase. It is up over 50% year to date but has still lost a little over 20% during the last month! Even though its results beat expectations, a whole host of competition from large and small companies is now trying to catch up and take bites out of Nvidia’s Breakfast, Lunch and Dinner.  

Could Apple be the next big winner from artificial intelligence as its smartphone impacts our daily lives more than any other? Yes, it is sure to be complex and it will be more difficult than offering a larger screen, but Apple’s dominance in the market has not changed. Can it produce something special later this year when it launches its next generation iPhone?  

Netflix profits, revenues and subscriber additions all beat forecasts, but second quarter and full year guidance underwhelmed the market with the shares retracing 9%. However, the price remains up an excellent 13% since the start of the year. 

Two thirds of S&P500 companies report results this week, so it will be critical to learn whether guidance edges more positively. Microsoft releases its results tonight after trading hours and expectations are for a 15% increase in both profits and revenues. Investors will be keen to hear how their cloud-computing businesses are performing and if the company can say anything about how they will make money from its generative artificial intelligence software such as its Copilot offerings. 

Alphabet (Google to you and me) announce their results on Thursday night – analysts expect earnings and revenues to rise 29% and 13%, respectively. Importantly, will they be able to say anything that will change opinion about the future of search when it comes to artificial intelligence?    Investors should look out for market moving announcements later this week. Friday is the key date, as we see the latest data from the Federal Reserves preferred inflation measure and the University of Michigan consumer sentiment survey.  

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.