Mac and Coke to go please

What a week that was, what a start to the year for portfolio managers, one that clearly demonstrates the benefits of a diversified portfolio. There was a brief reversal on Friday after brutal moves in the tech sector, but there has been a clear shift in leadership in the past few weeks. Software stocks have taken the brunt of the sell-off, whilst other areas of tech, such as chip makers, remained resilient. Smaller-cap stocks have also held up, as value continues to outperform growth. This rotation will benefit well-diversified portfolios; those that have performed well over the past couple of years with highly concentrated portfolios may have taken some pain. On the plus side, the underlying message is positive: if value is doing well, it’s because people believe growth is plentiful and they can afford to seek opportunities.

What to look forward to this week, more earnings reports for one, Coca-Cola and McDonald’s, a popular combination for those who want a meal on the go. Let’s see if the results hold up. Core weave has become a popular trading stock, and it will be closely followed. Earnings season, on the face of it, has so far been a positive one in the US, with just over half of the S&P 500 reporting a year-over-year rate of earnings growth is 13%, well above analysts’ overall expectations. Those who have disappointed in some way or sent a cautious message have been hard hit.

Looking at the macroeconomic events this week. In the US, the delayed publication of official US labour market and inflation data could influence expectations for Fed policy. Expectations are for the unemployment rate to have held at 4.4%, while earnings growth looks to have cooled to 3.6% from 3.8%. The update to CPI inflation could be more market-moving if there is any material change in the headline or core rates. The market is expecting a modest dip from 2.6% in the previous month to 2.5% this week. On Thursday, there is a major data release for the UK economy, and the one likely to make the most headlines will be the preliminary estimates for Q4 growth. Other reports on Thursday include industrial and manufacturing production, business investment, and the list goes on. Obviously, Starmer’s position remains under scrutiny, which also influenced the pound last week. Ongoing speculation as to his position could further influence currency and bond markets.

Stocks in Asia had a good day as Japan’s Nikkei index surged at the open. Sanae Takaichi’s call for a snap general election has paid off. The LDP received a clear mandate to govern, and Takaichi leads the LDP. How the bond and currency markets will respond to her election is another matter. Her majority allows her to overcome not only legislative gridlock but also bureaucratic inertia. Stocks in general seem to be starting the week on a positive note around Europe.