Head of Equity Strategy
Summary: E-commerce has been the worst performing theme basket over the past year as the pandemic led bubble has burst, but last week the industry experienced a relief rally as the lower than estimated US inflation print triggered lower long-term US interest rates. The rally in e-commerce stocks was the strongest among the smaller caps in the theme basket suggesting that retail investors were driving the price action last week.
E-commerce stocks have a monster week on lower US inflation print and China’s reopening attempt
Last week was historic in many ways when you look at the size of the market moves across different asset classes on the back of a lower than estimated US inflation figures and China’s commitment to ease its Covid policy. The lower US inflation print pushed down long-term interest rates and pricing of the Fed’s terminal rate was also lowered adding fuel to the narrative of ‘peak rates’. As we commented in our equity note Today we celebrate US inflation and tomorrow we think the inflationary pressures in the US services sector are still very high and have been stuck at very high levels for five straight months. In any case, the market has chose to disregard the underlying picture and has gone all-in on the ‘peak rates’ narrative and that China will be successful in easing its Covid policy despite rapidly rising case numbers.
The biggest winner last week based on these events was our e-commerce basket gaining 19.4% during the week easily outpacing cyber security, our second-best performing basket, up only 13.6%. While last week’s performance is spectacular the e-commerce basket is still the worst performing basket over the past year, and when we compare the performance relative to the MSCI World Index (see last chart) it becomes clear that the entire industry went into a bubble state before deflating back to where it came from before the pandemic, in relative terms to the overall equity market. While the Chinese e-commerce stocks had a good week they were not the outlier last week. The real signal was that the upper half of the basket had a median stock price performance of 11.5% while the lower half had a median stock price performance of 25.4% suggesting that relative lower quality companies outperformed. This behaviour suggests that retail investor flow was the dominant marginal price setter last week.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
