Weekly Market Recap

Talk turns to tapering

24/05/2021

Week in review

Australian wage growth 1.5% y/y 1Q21
Australia unemployment rate falls to 5.5%
Australia consumer confidence falls to 113.1

Week ahead

U.S. consumer confidence
Australia capital expenditure
RBNZ monetary policy statement

Thought of the week

Tapering talk by the U.S. Federal Reserve last week added to already elevated investor nerves as bond yields rose and selling pressures in equity markets intensified. A sell-off in equities is perhaps not unusual given the strength in equity markets over the past year. It’s worth remembering that the S&P 500 was at an all-time high only a few weeks ago. Investors would probably not be so nervous if valuations were lower, but the elevated price of equities is amplifying concerns and adding to selling pressures in certain sectors. This week’s chart illustrates that the sectors in the U.S. equity market which have fallen the furthest from their recent peaks in April and May are also the ones where price-to-earnings ratios are the richest against their 10-year average. The strength in the earnings outlook should continue to support equities more broadly, particularly for cyclically geared companies, but highly valued sectors and companies may face continued pressure.

Highest valued sectors face greatest selling pressures

Sector return since recent market peak and forward P/E ratios

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Data reflect most recently available as of 19/05/21.
All returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.

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