The broad US equity indices ended the week lower on Friday, pressured by week economic data, banking stability concerns and uncertainty about the US debt ceiling situation. Meanwhile, technology stocks in the US have bucked the trend recently, with the Nasdaq-100 trading near its highest levels since August 2022.
The Dow Jones Industrial ended Friday’s session down only marginally at 33,300.62 points, but nevertheless lost 1.1% over the week. The S&P 500 lost 0.16% on Friday to close at 4,124.08 points, down 0.29% for the week. The tech-heavy Nasdaq-100 lost 0.37% in Friday trading to finish the week at 13,340.18 points. Despite Friday’s loss, the tech index finished the week in positive territory, up 0.4%.
Week economic data pressured markets at the end of the week, with the University of Michigan Consumer Sentiment Index coming in at 57.7 for May, the lowest reading in six months. The survey showed that consumers’ expectation for inflation for the next five years reached its highest reading since 2011 at 3.2%.
More US data released Friday showed that import prices increased for the first time since December 2022 in April. Import prices were 0.4% higher in April than in the previous month. Despite the spike in April, they were still down 4.8% when compared with the same month a year earlier. The main driver for the increased import prices were fuel prices, which were up 4.5% in April. Import prices are relevant for calculating the Consumer Price Index, which is closely watched by the Federal Reserve as a gauge of overall inflation.
In Europe, the UK economy just narrowly managed to record growth in the first quarter of the year, data released Friday showed. Gross domestic product in the first quarter grew by 0.1%, after growing at the same slow pace in the final quarter of 2022. The sluggish growth figure came just one day after the Bank of England raised rates to the highest level since 2008 in an effort to combat inflation, which was over 10% in March. The UK currently has the highest inflation among G7 nations and at the same time the slowest growth. It is the only G7 economy that is still smaller than its size prior to the 2020 outbreak of the Covid pandemic.
In Asia, markets were trading mixed at the start of the week with a focus on Thailand, where the opposition party was likely to win the elections. The Thai baht strengthened against the US dollar following the election results. Thailand’s Set Composite opened slightly higher, before dipping into negative territory on Monday. In mainland China, the Shanghai Composite was down 0.5%, and the Shenzhen Component gained 0.1%. Hong Kong’s Hang Seng Index and Japan’s Nikkei were both up around 0.7%.
Corporate news in focus: Quarterly figures from AXA, Siemens Energy, Porsche SE.
Economic data in focus: Swiss Producer and Import Price Index (08:30 CET), Eurozone industrial production (11:00), New York Fed US Empire State Manufacturing Index (14:30).
All about global economic and market trends at a glance
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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
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Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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