Please see below todays (27/04/2023) Daily Investment Bulletin from Brooks Macdonald:
What has happened
US technology shares had a good day yesterday, helped by strong results in the sector. Weighing against this positivity is ongoing concerns around the US regional banking sector which has remained in focus. Ultimately the bearish sentiment won out, with the equity market falling on the day.
US regional banks
First Republic was down an additional 30% yesterday with the share price hitting an all-time low. To show how much equity value has been destroyed, the bank had a market capitalisation below $1bn at one point yesterday, that’s from a peak of just under $40bn. First Republic are reported to be looking for support from the large US banks, emulating the deposit support they received during the March crisis. It appears increasingly likely that if the bank cannot find support from the private market it would need to go to the FDIC for support. The FDIC are alleged to have threatened to downgrade First Republic’s rating if a private deal is not forthcoming. Such a downgrade would limit the bank’s access to the Fed’s liquidity facilities and would likely catalyse another crisis of market confidence. All of this is reoccurring at the same time as the Fed is in its communication blackout window ahead of the upcoming interest rate decision. Given the uncertainties the market downgraded the chance of a 25bp interest rate hike below 75% at one point yesterday.
Technology
One of the positive stories within markets has been the robust earnings of technology heavyweights. The software sector was up over 4% yesterday, outperforming a falling market, as Microsoft surged over 7% due to better than expected results that showed the company’s cloud unit grow revenue by over 30%. After the US closing bell Meta delivered its results, also coming in above market expectations which will help support the wider technology sector in today’s trading.
What does Brooks Macdonald think
While the tug of war of market sentiment is largely taking place between stronger tech earnings and weaker US regional banks at the moment, the US debt ceiling is not far from investors’ minds. Republican House Speaker McCarthy tweaked his proposed debt ceiling bill which passed through the House yesterday but will fail at the Democrat controlled Senate. The bill represents the starting gun on negotiations which could create a significant market risk over the summer.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Carl Mitchell – Dip PFS
Independent Financial Adviser
27/04/2023