American markets today, Wednesday, viewed several hours before the 9:30 a.m. Eastern time opening look to start quite positive with the S&P 500, Dow and Nasdaq all in positive territory at time of writing. Canadian markets also look positive with the TSX 60 firmly ensconced in the green.
European markets are already open at time of writing and major indicators there including the FTSE 100, Dax and Cac 40 all positive.
Amongst precious metals, gold is down while silver is flat, although both are changing as I write this column.
Amongst currencies, the British pound sterling, Euro and Canadian dollar are all up against the American greenback. Yesterday’s mixed trading in the dollar was due to markets awaiting key inflation data, with an expectation of over 7%, according to Lawrence Kaplin, Chief Market Strategist at London-based payments specialist Equals Money. Kaplin figures the dollar will continue trading in a tight range until tomorrow’s data release.
At the same time, American credit data also tell a story. “Data released yesterday revealed Q4 2022 US credit card debt rose by the most in history, once again demonstrating the US consumer’s insatiable spending appetite,” Kaplin explains.
This follows yesterday’s mixed market in which tech stocks including Microsoft and Apple and banking stocks including Bank of America, JP Morgan Chase & Co. and Wells Fargo all showed gains.
French President Emmanuel Macron’s upbeat report on his meeting with Russian President Vladimir Putin helped by calming some fears about Russian’s intentions. Macron said that Putin had guaranteed that Russia would not make any aggressive moves towards Ukraine. (A spokesperson for the Russian government later denied that this assurance had been given.) Still, Macron’s version of events calmed oil prices and some market fears but only partially accounts for the good news, according to Scott Ladner, chief investment officer of Charlotte-based Horizon Investments. “Today’s gain is probably due to some of the Macron headlines, but it is also just recognition of the fact that the economy is in pretty good shape and we probably overdid it a little on the downside,” he said in a Reuters report.
Developments in Europe point up one of the many decisions currently facing investors: the extent to which portfolios should contain European equities.
That may be easier said than done, in the estimation of James Athey, Investment Director at Aberdeen Investment Management in London.
Some forecasters suggest that the likely bear market in bonds which may lay ahead will drag on the big tech stocks which dominate the major American indices and favor the more cyclical and cheaper-looking value stocks which in turn favors the composition of European indices.
Athey urges restraint on that premise. “I believe that some caution is warranted here,” he says. “There is no question that the prominence of the mega cap tech stocks has played an outsized role in the richening of the US averages in the last few years,” he adds, suggesting that the high valuations attached to some of these names are not sustainable.
Still, the performance gap between European and North American stocks is driven by other causes including the greater structural weakness and vulnerability of the Eurozone economy.
The monetary union will continue acting like a straitjacket, stifling growth and causing dissension and political instability. Political developments in France and Italy and the relative newness of the German coalition government add to the uncertainty.
Athey projects slowing growth momentum as monetary and fiscal policy morph from being tailwinds to headwinds.
“I expect this year to be a test domestically for the Europeans and a falling US equity market will act more like an anchor than a buoy,” he says.
This does not mean avoiding investments in Europe but it does warrant being very careful and selective. It can also mean working with an advisor to adjust the relative weightings of North American and European equities one or more times during the year.
Amongst other upcoming news today, watch for an update on the streaming wars as the Walt Disney Co. releases first-quarter results. Disney’s theme parks may be in the spotlight. Investors will be listening for a projection on the post-Omicron world and an indication of how Disney plans to stake its place in the metaverse.
Also in the Disney category, Mattel Inc. reports fourth quarter results, likely boosted by sales of its Barbie and Hot Wheels product lines. Mattel may provide projections for its new license to manufacture Disney Princess dolls.
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investing is scheduled for release in January 2023.