Global markets were lower overnight, as the US market (S&P 500 index -3.9%) went into freefall, officially entering bear market territory down 21% from its recent high. Friday’s inflation worries remain fresh in the minds of investors, with fears that aggressive rate hikes from the Fed would tip the US economy into a recession.
All sectors traded lower with energy and real estate leading losses, with the NASDAQ tech index down heavily shedding -4.6%. The CBOE VIX Volatility Index, Wall Street’s fear gauge, rose 6 points to 34.02 as investors price in more volatility. Other risk assets also suffered large losses such as crypto-currencies, with Bitcoin plummeting -15% down to below $23,000 per coin.
The narrative of “inflation has peaked” is slowly being extinguished in the US, and the market has moved to price in a more front-loaded and aggressive Fed tightening cycle. Looking at the next three meetings, through June, July, and September, a 75 basis point hike at one of them is now fully priced and expected by the market.. The US Treasury yield marked its largest single-day jump since 2020 up +20.5 basis points to 3.36% reaching a fresh 11-year high.
European markets (Stoxx 600 index -2.4%) were down as bond yields rise, increasing the risk of recession.
Spark (SPK.NZX)
Spark shares are currently down just under ~4%, given they are a utility stock sensitive to higher interest rates. We see limited downside risk for the stock’s earnings in a recession and is priced at an attractively net dividend yield of ~5.7% over the medium term, which is much better than most gentailer stocks.
We are BUY rated on the stock, and income investors should keep Spark on their watchlist for now and we believe there may be an even more attractive entry point over the coming months.
Australia & New Zealand Market Movers
The Australian market was closed for Queen’s Birthday yesterday.
The New Zealand market (NZX 50 Index -1.9%) fell sharply following the hot US inflation print over the weekend caused concerns more would have to be done by central banks to curb inflation.
Selling was across the market with risk assets hardest hit. A2 Milk suffered the largest loss down -9%. Interest rate-sensitive stocks were also weaker as the market fret the Fed would raise rates further and faster than initially indicated.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Central bank meetings dominate the week ahead with rate decisions due from the US Fed, Bank of England, and Bank of Japan.
- The latest CPI (inflation) data from the Eurozone is also due along with a range of housing data in the U.S and activity data in China. Locally, employment data in Australia and Q1 GDP in NZ are the highlights.