#in the Media
#in the Media
11/29/2023 11:00:00 PM
#in the media

Market Watch: Tesla, Nvidia, the stars leading Wall Street’s recovery, and why NZ is lagging.

With interest rates riding high, is it time for investors to reduce risk and head for cash?

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Could it be that global share markets have finally turned?

Here in New Zealand the Reserve Bank remains cautious and the local NZX50 remains subdued but United States markets are now betting the Federal Reserve’s next move will be a rate cut.

That’s seen equity and bond prices rally on Wall Street as yields fall.

The benchmark S&P 500 Index and tech-focused Nasdaq Composite Index are both up by almost 10 per cent since the start of October.

The Reserve Bank’s “hawkish turn” last week (which suggested no local rate cut until the middle of 2025) pushed back against that international optimism, Pie Funds founder and chief investment officer Mike Taylor said, talking on the Market Watch video show.

But whether the RBNZ could really hold rates that long wasn’t clear, he said.

“The starting point for us at the moment is that our core inflation is running higher than say the US or in Europe. Whereas here, you know, with inflation rates still in the mid-fives, it’s a bit hard to start saying that they’re looking at cuts next year.”

However, the big caveat was that if the global economy started to slow, we would see a local slowdown too, Taylor said.

“It would be unusual, to say the least, for other major central banks to be cutting and for us to be hiking or on hold,” he said.

But from a “signalling point of view” it probably made sense for the RBNZ to not take a backward step.

It was clear that the US economy was doing well now though, he said.

Positive signs in the most recent data showed people were still travelling and spending. Black Friday and Cyber Monday sales were up in the US on previous years.

That was now being reflected on the market, with several hot stocks leading the charge.

This year had been all about “the magnificent seven”, Taylor said.

That group is Alphabet (Google), Apple, Amazon, Meta (Facebook and Instagram), computer chip maker Nvidia, Tesla and Microsoft.

If you excluded those stocks and just looked at the remaining 493, the S&P 500 would basically be flat for the year, Taylor said.

“And if you look at other sectors such as small caps, they’re actually even down in 2023.”

That suggested people were buying growth stories again and there was optimism about the medium term, even though the companies exposed to the reality of the economy right now were still battling to retain earnings.

Bond markets were also starting look optimistic about the future.

About a month ago, we saw the US 10-year [treasury bond yield] touching 5 per cent a number of times and it was causing stress for financial markets.”

Since then a couple of famous hedge fund managers have been reported as saying they’d closed their position on short-term rates, which signalled a peak, Taylor said.

Since then there’d been even more good news on inflation in the US.

“As a consequence, November has been one of the best months for bonds since 2008.”

Until last week that optimism had been filtering through in New Zealand and we had even seen Westpac cut some mortgage rates.

That’s had a “bit of cold water poured on it” by the RBNZ last week, Taylor said.

The Market Watch video is produced in association with NZ Herald and Pie Funds. Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.

Information is current as at 5 December 2023. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary.

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