The long and winding road that leads to your door will never disappear

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Another week, stocks struggled again in the face of rising yields in the government bond market. US ten-year treasury yields now offer closer to 5% than 4%. One can get over 4% across the curve from UK gilts. Along with this, the Mag 7 looks a little less mag than they did, at least some of them. Tesla is down almost 40% this year as the company deals with foreign competition in the face of a waning appetite for electric cars. Those who were persuaded that Tesla was more than just a car company are now questioning that notion. Apple is down more than 10% this year, Microsoft is trading in line with the S&P, Alphabet is doing slightly better, and the unloved Meta last year leading the pack. Every time one of the Mag 7 falls out of favour, historically, it’s been right to fill the proverbial boots, bearing in mind catching falling knives can leave one hurt.

So, for those interested in returns this year (excuse Bitcoin), the best commodities, followed by the US dollar, then stocks and cash, are all positive. Then we come to the not-so-good news: HY bonds, stocks equal-weighted, followed by investment-grade bonds, and bringing up the rear government bonds -5.5% year to date. Then you have Nvidia up 60% year to date. Money flows in the past week out of stocks and into bonds.

So far, only a relatively small percentage of the S&P 500 has reported; according to Factset, just over 70% of the S&P 500 have reported positive EPS, and just under 60% have reported positive revenue surprises. The problem is that tech stock enthusiasm has led to a big re-rating of the S&P 500 overall, not for the first time in the past few years. At some point, a bit of reality takes over.

Looking to the week ahead, the dollar and the oil price did not react to the news of the attack on Iran this week, which will offer some reassurance. The VIX has climbed over 40% in the past month, which indicates we have gone from greed to a bit of fear.

This week’s eyes will be on the Q1 GDP report, PCE prices, personal income, and spending figures. Durable goods orders, S&P global manufacturing and Services PMI, and a collection of marking names reporting earnings. Pepsico, Boeing, Philip Morris, Ford, Alphabet, Meta and Merck to name but a mall few. Consumer confidence for the euro area and the UK will be closely followed. We also get interest rate decisions from the Bank of China, Turkey and Japan.