Week in review
- U.S. Fed raises rates by 25bps
- Bank of England and ECB raise rates by 50bps
- Australian retail sales fall -3.9% m/m in December
Week ahead
- RBA official cash rate decision
- China CPI inflation
- U.S. consumer sentiment
Thought of the week
January was a good month for equities. The MSCI World Index gained 6.4%, the strongest January gain since 2019. The ‘less bad’ economic outlook and changing view on policy tightening has fueled the rally in stocks. However, markets are seemingly willing to look past the weakness in corporate earnings. The risk is that any downside to the earnings outlook creates an air pocket in markets and a pullback in the romantic story playing out in equities globally. So far close to half of U.S. S&P 500 companies have reported with 60% beating on earning estimates and 49% beating revenue expectations, well below historical averages. Earnings revisions are looking less negative, but earnings growth will depend on a company’s ability to defend profit margins as both input costs fall along with revenues as economic momentum wanes. The need to differentiate between winners and losers in a disinflationary environment means taking a very active approach to the equity market given the rally in the past few months.
U.S. Earnings revision ratio
12-week moving average