Commentary
Global equity markets continued to decline during past week, as mixed corporate earnings, uncertainty around interest rates, and geopolitical headwinds weighed further on investors’ sentiment.
In the US, the hotter-than-expected preliminary GDP print fueled fears on persistent inflation and consequently, a “higher-for-longer” interest rate environment. In 3Q23, the US GDP grew by 4.9% – the strongest growth in 2 years. Importantly, however, growth was partly fueled by transitory factors, such as inventory accumulation and defense spending. Moreover, analysts argue that declining stock prices could have a negative wealth effect on richer households, therefore, potentially dampening consumer spending. From this perspective, the impact on inflation may not be as significant as it may seem initially.
On the earnings side, most of the large tech companies, like Microsoft, Alphabet, Meta Platforms, and Amazon surprised on the upside in terms of both revenue and net income. However, most of them declined as investors rather focused on problems, such as rising expenses, slower growth in innovative ventures, and hints on higher uncertainty ahead.
Lastly, the European Central Bank left interest rates unchanged on last week’s meeting. Officials stated that current rates could well be restrictive enough to tame inflation, while the ECB President Christine Lagarde called the Euro Area economy “weak”, therefore, showing no incentive to rise rates any higher.
