Quilter Cheviot|Weekly Comment

Surge in tech stocks ends losing streaks

Our weekly market overview from Quilter Cheviot

By Richard Carter, Head of Fixed Interest Research

Last week, the MSCI All Country World Index experienced a 2.6% rise (5.6% YTD), signalling a positive shift in the markets. Notably, most major benchmarks – including US large caps – reversed their three-week losing trend, buoyed by a robust set of first-quarter earnings.

The US tech sector led the charge, propelled by strong performances from Apple and a late-week rally by chipmaker Nvidia. Alphabet (Google) also saw its shares soar after announcing first-quarter earnings that exceeded expectations, coupled with the company’s inaugural dividend distribution.

In the performance race, growth stocks eclipsed value shares and small-caps edged out large-caps. The US growth index reported a 3.7% return (8.4% YTD), US value index 1.4% (5.3% YTD), and US mid-cap 2.8% (down 0.8% YTD).

Despite a positive week for markets, US inflation is still a major talking point. Data from the Federal Reserve (Fed) hinted at the potential for rising prices amidst slowing growth. The core personal consumption expenditure index climbed at an annualised rate of 3.7% in Q1, with the closely viewed metric still comfortably surpassing the Fed’s 2% long-term inflation goal.

In the UK, large-caps rallied 3.1% (6.8% YTD), while mid-caps saw a 2.3% increase (1.8% YTD). The British pound gained strength against the US dollar, closing the week at 1.25, a slight uptick from 1.24.

In Europe, easing tensions in the Middle East and upbeat earnings reports lifted spirits. The MSCI Europe ex UK Index broke its three-week losing streak with a 1.7% gain (7.0% YTD). The euro held steady versus the US dollar, ending the week at USD 1.07 for EUR.

Yen sinks to 34-year low

Following the Bank of Japan’s (BoJ) decision to hold interest rates steady, the Japanese yen tumbled to a 34-year low on Friday. The Japanese currency traded as low as ¥157.78 to the dollar after BoJ Governor Kazuo Ueda indicated no immediate concern for inflationary pressures. There was further weakness on Monday as the pair traded through the ¥160 level before falling back amid talk of a market intervention.

The BoJ’s unanimous vote to maintain interest rates between 0 and 0.1% comes after a recent shift away from negative interest rates, the first increase since 2007. Ueda’s comments suggest a cautious approach to further rate adjustments, despite market expectations influenced by the US Federal Reserve’s stance on high interest rates to combat inflation.

The yen’s volatility has fuelled speculation about potential intervention from the Japanese government. After a brief rally, the yen experienced a sharp decline, highlighting the challenges faced by Japan’s monetary authorities in navigating economic pressures while managing inflation and supporting the national currency.

This cautious stance amidst global economic pressures and contrasting policies – such as the US Federal Reserve’s high-interest rates to curb inflation – has led to heightened market speculation.

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