Written by Richard Warne.

Wow! Just like Guy Fawkes night, both equity markets and bond markets have kicked off the month at a rocketing pace, with the MSCI All Country World Index +3.3% in Sterling terms and the Barclays Global Aggregate Bond Index +2.3% (local terms) and +0.8% in Sterling hedged terms. A nice seasonal winter warmer with the days drawing in and getting steadily colder.

As we near the tail end of the Q3 earnings season in the US, it feels like Groundhog Day, as US indices continued to make new all-time highs. Dovish commentary from the Federal Open Market Committee (FOMC) in the US, and the Bank of England (BoE) meetings in the UK, sent bond yields falling as central banks continue to attempt to control inflation against an uncertain macro backdrop. FOMC Chairman Powell’s ability to weave a fine line, feeding a dovish enough tone, encouraged investors to add risk. However, under the surface, companies that reported last week, certainly delivered a mixed bag of results.

Investors punished any company that missed their earnings. Companies that benefitted from the Work From Home (WFH) last year, during the pandemic, had a chastising week. Roku (TV streaming), Peloton (home fitness) and Chegg (educational services) all sold-off sharply after materially guiding below market expectations. It appears expectations versus reality are starting to bite, with some of the valuations on these WFH themes previously hitting unsustainable highs.

On the flip side, we saw companies that are benefitting from economies reopening, coming to the fore, and beating expectations. Many signalling how they are dealing with supply chain issues or inflation, which are topics hot on the lips of many investors now. Under Armour (sportswear & apparel) beating expectation by cost-cutting and staying tight on inventory. While Nike (sportswear & apparel) had a strong week after they announced that their Vietnamese factories are returning to full operations after the COVID-related shutdowns. Live Nation (live entertainment) rebounded following positive earnings.

A positive week for markets, but not all fireworks. Treason and plot in equal measure.

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