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.
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…
