Please see below article received from EPIC Investment Partners this morning, which provides a global market update.
The global market rout that began on Monday showed signs of easing on Tuesday, with the Nikkei 225 rebounding more than 8% after its worst day since 1987. However, investors remain on edge as they grapple with the implications of a potential US economic slowdown and the Federal Reserve’s policy stance.
The catalyst for the sudden risk-off sentiment appears to be growing fears of a “hard landing” as central banks, particularly the Fed, attempt to tame stubborn inflation without tipping economies into recession. Friday’s shockingly weak U.S. jobs report crystallised these concerns. It raised doubts about the health of the economy and the Fed’s ability to engineer a soft landing while keeping rates at 23-year highs.
According to Mohamed A. El-Erian, the market turmoil can be attributed to five key factors: worries about a US growth slowdown undermining “American exceptionalism”, concerns that the Fed’s policy stance is too restrictive, crowded investment positions being caught offside, geopolitical risks in the Middle East, and domestic political developments ahead of the US presidential election.
Nonetheless, the volatility outburst underscores the precarious and non-linear path to policy normalisation. As central banks attempt to delicately balance cooling demand whilst avoiding a hard landing, markets are prone to air pockets. Investors should brace for choppy and potentially divergent conditions across asset classes in the coming months. In this environment, selectivity and relative value are crucial.
Within equities, companies with pricing power and resilient margins are likely to weather the storm better. In fixed income, high-grade credit offers attractive yields with lower default risk. Wealthy nations’ bonds are a strong addition to the portfolio aside from plain vanilla US Treasuries given global recessionary risks.
Looking ahead, incoming US inflation and jobs data, as well as the Fed’s Jackson Hole Symposium, will be key watchpoints for any hints of a monetary policy pivot. More broadly, staying nimble and reactive will be critical as even small data surprises can spark outsized market moves in this fragile environment. While the path ahead might remain bumpy, the volatility spike does not fundamentally alter the broader macroeconomic backdrop at this stage.
In this “middling” macro regime, a focus on quality, value, and resilience across asset classes remains the prudent approach. If the market’s ups and downs leave you feeling a bit queasy, just remember: every roller coaster eventually comes to a stop.
Please check in again with us soon for further relevant content and market news.
Chloe
07/08/2024