February came in with large uncertainty as to what direction the global markets are heading in. While investors eagerly hoped that the period of falling (often to sub-zero levels) government bond yields are over, the stocks would also get in a better shape and fill shareholders’ pockets after a lean beginning of the year. Sadly, on this occasion, the reality did not match expectations. Let us take an insight of the global markets during the first week of February to see where the biggest action took place.
The hot spot was the U.S. stocks with a sharp fall of 3.3 percent for Nasdaq Composite, which posted its biggest one-day drop in three weeks. This was mainly because of LinkedIn, a professional network site, whose shares collapsed by 43% due to the announcement of poor annual financial performance. Also, S&P 500 did not do well – the index slipped by 1.85 percent, whilst the Dow Jones Index fell by 1.29%. Overall, the movement of the major U.S. stock indices was caused by the data showing a slowdown in US jobs growth last month. Furthermore, investors headed for the exit alarmed by China’s slowdown dragging on the global trade.
While the U.S. stocks kept upsetting investors, other stock indices around the globe shrank, too. Nikkei 225 dropped by 1.32 percent after sharp rise at the end of January. A 4.82% decrease in FTSE Eurofirst 300 index during the week followed a continued trend and has already fallen by 10.75 percent, or 154 points, in 2016. Most likely, the decline is strongly influenced by the mounting tensions around Brexit and growing worries about a global recession among investors. Also, a strong correlation between decreasing oil prices and stock indices can be identified. It seems like the hopes that cheap oil will shore up the overall consumption have let investors down. Instead, it is more likely that it negatively affects the global demand by reducing household purchasing power in those countries, where oil is a major income item for the government. People are getting more cautious, spending less and saving instead.
To sum up, the equity markets have not been performing too good lately and putting it this way markedly overrates the actual situation. Perhaps, it is time for investors to think about alternative investment opportunities. While the prospect of the Fed raising rates dimmed and equity markets stumbled, gold with its year-to-date gain of 10.6 percent may ring a bell and attract more and more stability and, at the end of the day, profitability seekers.
By Toms Talo
Market Analyst at the Investment Fund