Weekly Market Wrap | 20 January 2023

In the past week, pessimism (i.e. bearishness) among individual investors about the short-term direction of the stock market slipped last week to its lowest level in 10 weeks. Neutral sentiment also pulled back, while optimism (bullishness) has rebounded. So, with positive investors sentiments picking up, here are this week’s top 3 news picks!

Topic #1: China’s hoping for more growth this year

Data released on 17th January from China’s economy showed that the country’s GDP growth rate in 2022 was 3%, the lowest in nearly 50 years, not including the years affected by the pandemic. 

Why should I care?

Despite facing difficulties in reaching the targeted growth rate of 5.5% due to widespread lockdowns, the economy did show signs of improvement in the last quarter of the year, as the GDP growth exceeded the predictions made by economists. Now that China is reopening, economists are closely monitoring the potential impact on inflation. Some experts believe that the reopening of the country will lead to an increase in demand for resources such as oil, which could result in an upward trend in prices. However, others argue that the reopening will lead to more efficient supply chains and increased availability of goods, which may ease price pressures. The upcoming year of the water rabbit is believed to bring patience and prosperity, but it remains to be seen how it will affect China’s economy.

Topic #2: Big US banks earnings fell short of investor expectations 

On January 13th, four of the largest banks in the United States, Citigroup, JPMorgan, Wells Fargo, and Bank of America, reported their Q4 2022 earnings. These financial reports offer a comprehensive view of the economy, as they reflect the performance of various sectors such as home, auto, and business loans, as well as capital market activities like deal making and trading.

While the banks’ profit statistics appeared positive at first glance, a deeper analysis of the reports revealed that they had set aside more cash for reserves than expected, and investment banking fees had decreased. This suggests that the banks are cautious about the potential for a deteriorating economy. This sentiment was echoed by JPMorgan’s CEO, who warned that the full impact of current economic challenges is still unknown. This caused investors to take note and led to a decline in bank stocks and US indexes.

Why should I care?

For the economy, these results from big banks serve as a warning signal. Banks have a wide range of customers and businesses, and they tend to notice changes in sectors early on. Therefore, if banks are showing concern, it is likely that the economy as a whole is also facing challenges.

For the markets, these bank results could set the tone for the rest of the earnings season. The current positive outlook for stocks, driven by falling inflation and a stronger-than-expected economic response to rising rates, could be affected if earnings reports continue to be negative. 

Topic #3: Tech layoffs stoking recession fears?

On 18th Januray, Microsoft, a leading tech giant, recently announced that it will be laying off 10,000 employees. The move is seen as a sign that the company’s growth is slowing, as confirmed by CEO Satya Nadella. The company is focusing on cutting costs in preparation for leaner times and investing in multi-billion-dollar deals in artificial intelligence with OpenAI. This strategy of cutting costs by laying off employees is indicative of a broader industry playbook, as can been seen in the image above. 

Why the FEDs are concerned and why you should be too?

The job losses may also be a concern for the Federal Reserve, which monitors the economy and job market to guide monetary policy. The Fed is highly attuned to unemployment rate and job market trends as they are important indicators of economic stability and growth. Layoffs in the technology sector, while a small fraction of the total workforce, can still have a negative impact on the economy and job market. Furthermore, layoffs in the technology sector are particularly concerning for the Fed because they are often seen as a leading indicator of economic trouble, potentially signaling a broader slowdown in the economy.

If the unemployment rate is high, the Fed may lower interest rates to stimulate job growth and economic activity. However, if the unemployment rate is low, the Fed may raise interest rates to prevent inflation from rising too quickly. Therefore, the Fed will not be happy with tech layoffs because they increase the unemployment rate and can be a sign of a broader economic slowdown.

IndexLevel1 Week1 MonthFrom Jan 1 2023
S&P 500 (US Stocks)3,9720.30%2.43%3.88%
Nasdaq 100 (US Tech Stocks)11,1402.15%4.03%7.25%
CSI-300 (Chinese Stocks)4,1812.54%9.16%7.55%
Bitcoin (in USD)22,6236.89%34.64%36.25%
Source: Google Finance, as of 21st January, 2023

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