Stocks Rise in Roller-Coaster Ride

(Cover Image Source: Matt Bowden)

Global stocks moved higher, albeit with some wild trading swings. Concerns over higher interest rates and Ukraine kept investors on edge but strong corporate earnings reports provided some optimism.

The blue-chip S&P 500 and technology focussed Nasdaq gained 2.4% and 2.8% respectively over the week, reducing some of the losses from their worst month since March 2020. The FTSE 100, with higher exposure to energy and value stocks, was an outlier and rose 1.1% in January.

Technology stocks have been front and centre of the market sell-off in the new year but stellar earnings reports from tech titans, Apple and Microsoft, helped to turn the tide last week.

Apple’s sales rose 11% to a record $123.9 billion in the last 3 months of 2021 despite ongoing supply chain problems, particularly the global microchip shortage, which the company believes cost it more than $6 billion in lost revenues. The iPhone, boosted by the launch of its latest models in September, accounted for 58% of total revenues and reclaimed its number one position in China. Apple also revealed it now has 785 million paid subscribers to its various services, including iCloud, Music and Apple TV+, a 165 million increase in the last 12 months.

Microsoft also beat analysts’ forecasts, announcing a profit of $18.8 billion for the fourth quarter of 2021, driven by 46% revenue growth in its cloud services operations. Management also provided upbeat guidance as it continues to benefit from the pandemic shift to online.

Stake building in FTSE 100 companies by activist investors has gained traction. Activists build significant stakes in publicly listed companies to gain influence and drive a strategic overhaul to unlock shareholder value. Last week it was reported that Europe’s largest activist investor Cevian Capital has built a holding in Vodafone, which follows similar recent moves by others into BT Group, GlaxoSmithKline, Shell and Unilever. Vodafone, a long-time laggard, ended the week 12% higher.

Last Wednesday’s Federal Reserve meeting was a focal point for markets and the initial reaction wasn’t kind as the S&P 500 more than erased a 3.4% intraday gain to close lower. Chair Jay Powell signalled the Fed will embark on a rate hiking cycle starting in March in a bid to regain some control over multi-decade high inflation. Markets are pricing in a further 4 rate hikes in the remainder of 2022.

The prospect of higher rates, and no further escalation of tensions between Russian and the West over Ukraine, sent bonds into retreat - 10-year German Bunds yields moved back above zero for the first time since March 2019. Other safe-haven assets, including gold (2.5%) and silver (-6.3%) also lost ground.

Brent crude climbed above $90 per barrel. Geopolitical risk has underpinned recent gains but there are more fundamental drivers. OPEC+ has held firm capping production and the shift towards renewable energy has led to a worldwide underinvestment in supply.

Recovering risk appetites helped cryptocurrencies halt their tumultuous slide. Bitcoin, the largest by market value, gained 4.4%, and Ether, the number 2 token, was 9.7% higher.