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European stock markets were lower at the start of trade on Monday as bulls licked their wounds after the worst week for Wall Street since March 2020. The FTSE 100 retreated under 7,450, though there were some notable gains for Vodafone and Unilever. The former rose over 4% on reports it’s looking to buy rival Three, whilst Unilever jumped over 5% from reports activist hedge fund Trian has built a stake. Heaps more pressure on Alan Jope after the rather swift GSK reverse ferret.

It was a tough week for Wall Street: The Nasdaq is 14% below its all-time high, sliding 2.7% on Friday. The S&P 500 is over 8% below its record high. Bond yields surged early in the week but retreated later on as the US 10yr moved from above 1.9% to under 1.75%…but selling unabated. Sense that investors who were happy longs a couple of months ago are calling this the end of the bubble they’d always anticipated…can’t have it both ways…but lots of capitulation and we need to see when a level is reached where we start to see some sense again and fundamentals make sense again. If you think the Fed’s going to hike 4 times this year you’ve had a full year’s worth of multiple compression in a week, even if valuations are still higher than they were before March 2020…bounce will come soon though the unknown is the Fed reaction function to higher inflation + tight labour market + falling stock market. Do they think we need to do more to tame prices, or do they think the market is performing the tightening on their behalf? We should find out this week. Market needs to find a level – S&P 500 is below its 200-day line and very oversold but not yet testing the weak spots from July and October last year.

S&P Chart 24.02.2022

Tech wreckage continues with richly valued megacap quality swept along with even more overvalued speculative tech…ARKK down 10% for the week, the Fang+ index about 8%. Crypto markets continue to feel the heat with Bitcoin sinking under $35k. Value rotation not entirely vanished from this market but not strong enough to offset damage. Discrimination is not very evident. Earnings misses are making waves across entire sectors – NFLX and JPM. In this kind of environment there are clearly going to be plenty of beaten-up stocks that have been swept along in the tide offering good value. A case of one or two rotten apples spoiling the bunch, or just a bad bunch? Lots of megacap tech reporting this week may help steady the ship, or rock it further?

The market is looking for a level– Nasdaq 100 futures finding some temporary support at the lows of Jul and Oct last year.

Nasdaq Chart 24.01.2022

This week is all about inflation and the Fed. Does the Fed complete its hawkish pivot by signalling QE to end sooner than expected? Perhaps…it may also give legs to the idea that it could kick off the hiking cycle in March with a 50bps move. Heavy data week sees US GDP and PCE figures out after the Fed.

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