The week in review

What’s happened in markets?

Figures in the respective local currencies as at the end of trading on 7/1/2022.

According to figures released by the U.S. Bureau of Labor Statistics on Friday 7 January, the US economy ended the year with unexpectedly slower job growth, adding just 199,000 workers to the non-farming labour force in December. Economists had been expecting more than double that amount ahead of disruptions from the Omicron variant, which are likely to be felt in January.

However, with Labor Department figures also showing that US unemployment fell to 3.9% in December from 4.2% in November, the closely watched employment report suggests the jobs market still remains on track to meet the Federal Reserve’s (Fed) target for maximum employment.

Minutes from the Fed’s December meeting suggested that the fall in US unemployment may hasten plans to raise interest rates this year, as it tries to put a lid on high inflation. Officials also discussed reducing the Fed’s overall balance sheet as a second brake on the economy, suggesting the central bank will be more aggressive than anticipated in rolling back the economic stimulus policies it has put in place to keep financial markets stable.

Technology giant Apple began the new year on a positive note, becoming the first company to reach a market capitalisation of US$3tn during intraday trading on Monday 3 January – before ending the first trading day of the year just below that milestone. The stock first reached US$1tn in value in mid-2018 and achieved a US$2tn valuation in August 2020, just 17 months before reaching last week’s record valuation, underscoring its position as the world’s most valuable company.

An influential group of some of the world’s largest oil producers, known collectively as OPEC+, announced at its meeting on Tuesday 4 January that it will stick to its target of raising production by 400,000 barrels per day from February, based on indications that the Omicron coronavirus variant would have only a mild impact on demand. The 23-county alliance – which controls around half of global oil production capacity – has been gradually restoring output in monthly increments, aiming to relieve pressure on the global economy and regain pre-pandemic levels by late 2022.

What’s happened in portfolios?

Looking across the markets, we continue to see general optimism around COVID-19 and the Omicron variant, with a hawkish turn from the Fed pushing up cyclicals that stand to benefit from a high interest rate environment. Value stocks (+3.67%) outperformed growth stocks (-4.61%) on a 30-day basis, with a number of big lockdown beneficiary technology stocks underperforming amidst a continued rise in Treasury yields.

The energy sector benefited significantly from climbing oil prices (+9.10%), with a pronounced upswing on energy (+6.17%) versus IT (-4.32%) on a 30-day basis. Since the start of the new year, a noticeable upward shift in the yield curve triggered bonds to fall, with safe haven government bonds declining the most.

Looking across our portfolio, towards the tail end of December we slightly increased our equity positioning with a specific focus on value, which has played out well for investment outcomes.

We remain broadly favourable around equities and see a less conducive environment for fixed income assets, where starting yields are at historically low levels and inflation continues to pose a threat to mid- to longer-duration positioning.

Our preference for risk assets continues to play out well in today’s market environment, where we see our focus on equities, real assets and alternative strategies as a means of building in inflation protection, strong earnings and diversification.

What’s happening this week?

11 Jan • UK Gross Domestic Product (November) | 12 Jan • US Consumer Price Index (December) | 14 Jan • EU Balance of Trade (November)