Weekly house view | S&P500

THE WEEK IN REVIEW 

Two remarkable things happened last week: Taylor Swift touched down after a whirlwind trip from Tokyo just in time to see her boyfriend’s team win the Super Bowl and, with a total return of 1.4%[i] in USD, the S&P 500 hit the 5,000 mark for the first time in its history. With little new economic data, the index’s gains came, as before, on the back of a narrow group of mega-cap tech-related companies, whose generally upbeat Q4 earnings reports offset reduced expectations for early rate cuts from the Fed. Indexes outside the US did well, with Japan’s Topix index [ii] reaching a 34-year high thanks to a weak yen and a run of strong corporate results. Things also started to look up for Chinese equities, with the MSCI China index gaining 2.9% [iii] (in USD) last week, with buyers back in response to further signals of official support. Further intimations from the Fed that a March rate cut was off the table and ISM data showing a strong rebound in services activity pushed US Treasury yields higher last week. European governments bonds also suffered in reaction to hefty recent bond issuance as well as pushbacks from ECB hawks against the idea of early rate cuts. The US dollar continued to rise against other major currencies, including the defensive Swiss franc. Oil prices rose strongly on forecasts that US production would flatline this year as well as Middle East tensions.

GEOPOLITICS

Highlighting the economic impact of attacks on shipping in the Red Sea by Yemen’s Houthis, a shipping giant warned of an uncertain 2024 earnings outlook linked to the disruption and an oversupply of container vessels.

KEY DATA

ISM’s purchasing managers index for the US non-manufacturing sector rose strongly to 53.4 in January from 50.5 in December.German industrial production dropped by 1.6% in December on the previous month. This was the seventh straight month of decline. Industrial production in Germany declined by 3.0% in 2023 overall. Retail sales in the euro area dropped at a year-on-year (y-o-y) rate of 0.8% in December. While China’s headline consumer price index (CPI) rose 0.3% on a monthly basis in January, the index fell at a y-o-y rate of 0.8%, the fourth consecutive month of y-o-y price declines. The Chinese purchasing price index declined by 2.5% y-o-y in January.