Daily Brief: You Know Things Are Dicey When Investors Are Abandoning Every Single Market

Daily Brief: You Know Things Are Dicey When Investors Are Abandoning Every Single Market

almost 2 years ago3 mins

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It’s nice to know we can all agree on something in these divisive times: investors pulled money out of every market last week, according to a Bank of America report out on Friday

What does this mean?

It’s not exactly a ringing endorsement for the global economy when investors are bailing on everything all at once, but that’s exactly what happened between May 4th and May 11th. Global bonds lost a net $11 billion even after higher US interest rates pushed up yields, while cash and gold funds hemorrhaged $20 billion and $2 billion respectively. Stocks weren’t spared either: investors pulled $6 billion out of the market, most heavily those of European and emerging market (EM) companies. That makes sense: the Russia-Ukraine conflict is leaving Europe’s investors with a nasty taste in their mouths, while EMs are at risk from high food and energy prices, the rising cost of debt, and China’s economic slowdown.

Why should I care?

Zooming in: Tech, tech, tech… kaboom.

Tech stocks were particularly badly hit, suffering their biggest weekly withdrawal of the year at over $1 billion. Not that it’s especially surprising: the tech-heavy Nasdaq 100 index did just post its sixth-straight weekly drop, as the Federal Reserve’s aggressive rate hikes push investors to dump expensive-looking stocks. Even Apple – a supposedly stable blue-chip company – is down 20% from its peak, putting it squarely in bear market territory.

Nasdaq

For you personally: Buy the dip?

Hey, look on the bright side: the analysts behind the report have pointed out that the fact that investors are pulling money out of every market – safe havens and risky assets alike – could be a sign of “true market capitulation”. In other words, sentiment is now so negative that we might be near the bottom of the market – something you might be tempted to capitalize on…

Keep reading for our next story...

Honda Gave A Mixed Results Update

Honda image

Honda gave a mixed results update on Friday, with the Japanese carmaker unable to shake the same nagging problems that have been lingering for months now.

What does this mean?

First, the good news: Honda sells a lot of cars internationally, meaning its revenue is worth a lot more when it’s converted back to a flailing yen. That pushed up its full-year sales by a better-than-expected 10% from the year before. But there are reasons to be nervous: the company sold just 4.1 million cars last financial year – fewer than it did the year before and the year before that. That suggests these supply chain disruptions and chip shortages aren’t going away, and won’t be anytime soon. Layer on Chinese lockdowns and higher raw material costs, and the company’s expecting its operating profit to shrink 7% this year from last – not exactly the 8% increase analysts were banking on…

Yen

Why should I care?

The bigger picture: The yen gives with one hand.

The weaker yen comes with a downside: it makes already-pricey imported commodities even more expensive, which could end up denting Japanese carmakers’ profit margins. That’s partly why they all seem to be letting investors down right now: Nissan’s profit projections fell short of forecasts too, and Toyota – renowned for its strict cost management – is predicting that its operating profit will drop by 20% this financial year.

Toyota Nissan forecasts
Source: The Wall Steet Journal, FactSet

For markets: Expectations probably shouldn’t be this high.

Japanese companies have another problem on their hands: the gap between consumer inflation and producer inflation – which reflects the rise in prices that factories charge wholesalers – hasn’t been this big since 1980. That suggests Japanese companies are going to have to take a hit to their profit margins, even as analysts’ estimates for Japanese company profits are at their highest in 17 years, according to Bloomberg. So whether analysts end up downgrading those estimates or companies end up missing them, investors are going to be disappointed.

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