Market Overview|Weekly Comment

Does the market have it right this time?

Market Overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Volatility continues to be a feature of markets and last week was no stranger to that. Eagerly anticipated was the latest meeting of the US central bank, the Federal Reserve, to determine any changes to monetary policy. The meeting itself produced little in the way of new information. However, in the subsequent press conference, Fed Chairman – Jay Powell talked more forcefully about the need to raise interest rates in the near future. The market is now pricing in five quarter point interest rate rises for 2022, compared with a pre-Christmas forecast of three. US GDP grew by 6.9% annualised in the fourth quarter of last year and inflation is running at 7% (although the Fed’s preferred indicator of inflation is cantering at a less frenetic pace of 4.9%). The Fed is clearly intent on getting more on the “front foot” with regard to targeting inflation, as strong demand in the economy continues to meet supply constraints, putting more upward pressure on prices.

The US results season is now well underway, with roughly one-third of companies already reporting. Aggregate earnings are up 24% year on year, slightly ahead of forecasts. An impressive 77% of companies have beaten consensus earnings numbers, but this is below the levels of the previous four quarters. More important have been outlook statements, and a common theme across a variety of sectors is that demand is strong, but supply chain issues remain a problem. Meanwhile, more companies are having to deal with higher input prices with varying ability to pass these on to customers. Some very good businesses have seen their share prices hit in what has been another period of sharp market rotation.  As ever, this provides attractive buying opportunities for longer-term investors.

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