Global markets sold off on Friday, as US markets (S&P 500 index -1.9%) continued to plummet with investors braced for the Fed’s meeting later this week.
Last week saw stock experience their worst week since early 2020 (the US market index was down 5.7% in a shortened week) when the outbreak of the pandemic hit markets. Technology shares bore the brunt of the sell-off amid shaky earnings announcements and prospects for higher US interest rates.
All sectors were down except for Consumer staples, which managed to hold flat. Tech stocks continue to slide lower led by Netflix (-21.8%) the first of major technology stocks report providing weak guidance, triggering competitor Disney to slide -6.9%. Microsoft (-1.9%) and Apple (-1.3%) were also down ahead of their earnings result later this week.
European Markets (Stoxx 600 index -1.9%) were also sold off sharply with basic resources leading losses as all sectors traded in negative territory.
The panic in the market this year is likely to continue for the next few days heading into the Fed’s meeting this Wednesday, as we see valuations of stocks re-rate lower to adjust for higher interest rates. Their major priority of the Fed will be to control inflation as markets wait for any clues on how much the central bank will raise interest rates this year and timing around hikes. We think that it could be an example of "sell the rumour buy the fact" on Wednesday, and markets may bounce later this week. US earnings season also gets into full steam, with Philips, J&J, GE, Microsoft, Tesla, Intel, McDonalds, Apple, Visa, Chevron, Caterpillar and Colgate-Palmolive reporting this week
Netflix shares slumped -21.8% on Friday, and are down -42% from all-time high reached in October 2021, as subscriber growth starts to slow after benefiting from a spike in subscriber numbers over the peak of the pandemic. Netflix added 18.2m subscribers in 2021, just under half the 36.6m that were added in 2020, stating that ongoing competitions will restrict further growth.
While a quality company that is growing, the rate of growth going forward does not justify Netflix’s share price which is why we were HOLD rated since its initial spike and we still remain HOLD rated until we see a more attractive valuation that represents a ‘stable’ growth outlook.
Australia & New Zealand Market Movers
The Australian market was hit hard on Friday (ASX 200 index -2.3%%), as rising interest rates globally rattled global markets, marking the indices largest weekly loss since October 2020.
Materials led losses giving back recent gains, after being able to buck the sell-off trend for most of the year as pressure spreads across the market, with profit taking for lithium miners reporting heavy declines on the day after its explosive run over the last 18 months. Rio Tinto fell -4.1% after Serbia blocked the miners plans for a flagship lithium mine.
Tech stock continue to sell off as investors question their loft valuations, with all sectors in the red.
The New Zealand market (NZX 50 index, -1.2%) sold off on Friday, following US lead to end the week down -3.5%, as global rates continue to rise and test asset valuations.
A2 Milk led the market down -4.2% to hit an almost 5-year high, the current sell off hitting growth stocks the most, Pacific Edge and Fisher and Paykel another growth stock down -4% and 3.5% respectively.
Tower insurance fell -2.8% after announcing it was investigating the financial impact of the underwater volcano and tsunami in Tonga, stating that reinsurance would be ~$11.25m, within their $20m allowance for 2022.
3 Things Markets will be Watching this Week
- The US Fed Interest rate decision this week will be closely watched.
- US earnings season gets into full steam, with Philips, J&J, GE, Microsoft, Tesla, Intel, McDonalds, Apple, Visa, Chevron, Caterpillar and Colgate-Palmolive reporting this week.
- Locally, Australia and New Zealand’s CPI (inflation) data is released.