Welcome to this week’s Market Wrap. The US Fed has hiked interest rates by half a percent this week, which ups their target range to between 0.75% and 1.0%. Meanwhile the Bank of England raised rates by another 0.25%. That’s the fourth rise since December and takes the overall level to 1.0%.

Both central banks are predicted to raise rates again as they fight surging inflation despite growing concerns about economic growth. The BoE predicted that inflation will hit 10% later this year, and a recession is very much on the cards. The impact on markets was unsurprising…

Index changes


This Week

1 Month

1 Year

FTSE 100

-1.5%

-1.8%

+5.3%

FTSE AIM All Share

-3.5%

-6.7%

-21.9%

S&P 500

-0.2%

-8.4%

-0.5%

FTSEuroFirst 300 (ex-UK)

-2.8%

-5.7%

-3.7%

S&P/ASX All Ordinaries

-2.0%

-4.1%

+2.2%

Source: Stockopedia, London Stock Exchange

Financial headlines

Reading the US financial press this week, there seems to be a growing sense of inevitability about the pressure on markets. The S&P 500 is now flat over 12 months but the real story is in the Nasdaq, where the tech sell off is easily seen.

Invesco’s QQQ ETF (NASDAQ: QQQ) has been symbolic of the surging tech boom in recent years (see chart). It mirrors the Nasdaq 100, which of course counts stocks like Apple (NSQ:AAPL) Amazon (NSQ:AMZN), Microsoft (NSQ:MSFT) and Tesla (NSQ:TSLA) among its heaviest weighted holdings. QQQ is down 21.2% year-to-date - taking the value of the ETF from around $400bn to around $309bn. Pretty brutal stuff and there could be more to come.

2SC2tMqgcXFeoAj1nWsXBt_6JOTja1ShHBaS_SzgEt6Ydmj7yJI0CV0sDAnvP1gUPtsa_iieR5GoGNd4PQwq-zXv3_RvVjkWF4clyBRxyCtJ-QPA7OK1F6BV1qkqejwgFGpvE1A_BXyJSEyAHw

But it isn’t just large caps feeling the pain. Small caps have been very badly hit by a confluence of factors. The Russell 2000 index of US small caps is trading 19% lower than the start of the year. That’s in a similar range to the experience of the UK’s AIM All Share, which is down 21% over 12 months. AIM, of course, is a very different market in terms of average stock size, but the sentiment is the same - small caps are under a great deal of pressure.

I saw an interesting tweet this week from Bill Gurley, the influential venture capital investor at Benchmark Capital. His comment - echoed in a response by Jeff Bezos no less - is that companies (and arguably their investors) are going to need to “unlearn” some of the staggering valuations that have passed as gospel in the…

Unlock the rest of this article with a 14 day trial

or Unlock with your email

Already have an account?
Login here