Wild swings in stocks and a sharp run-up in government bond yields are putting the spotlight on next week’s US inflation data, as investors brace for more volatility across assets.
A turbulent week in markets ended with a surge in Treasury yields to their highest level in more than two years after surprisingly strong US jobs data stoked expectations of a more hawkish Federal Reserve.
Robust data on inflation — which hit its highest annual level in nearly four decades in December — could further bolster the case for a more aggressive Fed and extend the climb in yields, dulling the allure of an equity market struggling to rebound from last month’s tumble.
We could potentially get a very difficult number to digest next week on the inflation front and that has the potential to cut the markets off at the knees
Jack Ablin,
chief investment officer at Cresset Capital Management
Due out on Thursday, the US consumer price index for January is expected to have risen 0.5 per cent, culminating in an annual rise of 7.3 per cent, which would be the largest such increase since 1982, according to a Reuters poll.
“We could potentially get a very difficult number to digest next week on the inflation front and that has the potential to cut the markets off at the knees,” said Jack Ablin, chief investment officer at Cresset Capital Management.
The yield on the benchmark 10-year US Treasury note, which moves inversely to prices, has climbed about 40 basis points in 2022 to more than 1.9 per cent as investors factor in at least five rate increases from the Fed this year.
The climb has weighed on equities overall, while contributing to steep declines in the shares of many tech and growth stocks, whose valuations rely on future profits that are discounted more steeply as bond yields rise.
The benchmark S&P 500 is down about 5.6 per cent so far to start the year, with the tech-heavy Nasdaq logging a nearly 10 per cent drop.
“The reason why people are hitting the reset button ... is because valuations were pulled forward a lot," said King Lip, chief strategist at Baker Avenue Asset Management. "With rising rates, the valuations just can’t be justified. So whenever there is a little bit of a miss [on earnings] is when these stocks get punished quite a bit."
The forward price-to-earnings ratio for the S&P 500 has fallen to 19.5 times from 21.7 times at the end of 2021, while the forward P/E for the S&P 500 tech sector has dropped to 24.4 from 28.5, according to Refinitiv Datastream.
Some investors believe stocks have further to fall before they become attractive.
Analysts at Morgan Stanley on Friday urged clients to sell into equity rallies as “a tightening Fed historically brings lower returns and great uncertainty for equities” and wrote the S&P 500’s fair value is closer to 4,000.
Others are questioning whether the growth stocks that have led the markets higher for years are ceding leadership to so-called value stocks, comparatively cheap stocks that are expected to do better in a rising rate or inflationary environment.
The S&P 500 value index, replete with shares of energy firms, financial companies and other economically sensitive names, had declined 1.4 per cent so far this year as of Thursday, versus a 10.2 per cent drop for its S&P 500 growth counterpart.
You are seeing gradually higher market interest rates that is causing investors to reassess and to look at near-term profitability and the value and cyclical trade
John Lynch,
chief investment officer for Comerica Wealth Management
That disparity would be close to value's biggest annual outperformance over growth in two decades.
"You are seeing gradually higher market interest rates that is causing investors to reassess and to look at near-term profitability and the value and cyclical trade," said John Lynch, chief investment officer for Comerica Wealth Management.
The market was also digesting a topsy-turvy week of high-profile earnings. Shares of Google parent Alphabet and Amazon soared after their respective quarterly reports, while megacap peer Meta Platforms tumbled after the Facebook owner's dour forecast.
Next week, reports are due from Walt Disney, Coca-Cola and Twitter, with Nvidia set to report the following week.
As with Meta Platforms, any disappointments in reports – especially from companies whose valuations remain expensive – could result in severe market fallout, investors said.
"It’s been a volatile start to the year with investors swinging between concerns over Federal Reserve tightening and confidence in the economic recovery," Art Hogan, chief market strategist at National Securities, said in a research note.
"Meta aside, a solid earnings outlook is helping to ease the uncertainty, at least for the moment."
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Uefa Champions League Group F
Manchester City v Hoffenheim, midnight (Wednesday, UAE)
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
How to wear a kandura
Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
- Wear 100 per cent cotton under the kandura as most fabrics are polyester
Don’ts
- Wear hamdania for work, always wear a ghutra and agal
- Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying
Fourth Arab Economic and Social Development Summit
As he spoke, Mr Aboul Gheit repeatedly referred to the need to tackle issues affecting the welfare of people across the region both in terms of preventing conflict and in pushing development.
Lebanon is scheduled to host the fourth Arab Economic and Social Development Summit in January that will see regional leaders gather to tackle the challenges facing the Middle East. The last such summit was held in 2013. Assistant Secretary-General Hossam Zaki told The National that the Beirut Summit “will be an opportunity for Arab leaders to discuss solely economic and social issues, the conference will not focus on political concerns such as Palestine, Syria or Libya". He added that its slogan will be “the individual is at the heart of development”, adding that it will focus on all elements of human capital.
