For almost a decade, investors have waited patiently for any hint of inflation in the US economy, a sign the recovery can sustain itself without emergency stimulus from the Federal Reserve.
Now they’re getting it, and many are shocked at the reaction.
It landed last week with the worst stock market plunge since January 2016. A stronger-than-expected employment report with signs of strengthening wage growth sent the Dow Jones Industrial Average down 666 points on Friday, bringing its five-day loss to almost 1,100 points. Share volatility surged.
Accounts of how concerned investors should be ran the gamut, from confidence traders will rush in and buy the dip, to warnings this time is different - that sell-offs that begin in the bond market have a habit of snowballing.
“It is now signalling, potentially, the end of this eight-year bull rally,” said Rich Weiss, chief investment officer and senior portfolio manager of multi-asset strategies at American Century Investments. The firm manages $179 billion. “The Fed is going to have to move the interest rates, the bond market is recognising that this incremental economic growth will spur on inflation from various sources.”
Little escaped the sell-off. All 11 industries in the S&P 500 tumbled, a co-ordinated plunge that had not happened since the month of Donald Trump's election. Yields on 10-year Treasuries surged as much as 6 basis points on Friday to 2.85 per cent, the highest in four years. Oil dropped and the Bloomberg Commodity Index capped its biggest weekly slide in two months.
Of all the threats, surging Treasury rates and their implications for inflation are vexing investors the most, with this year’s half-percentage-point climb calling into question a valuation case on equities tied to how much more you get from corporate earnings than in bond interest. For last week, anyway, nobody seemed to care about the ostensibly positive signals coming from the bond market, the idea that higher yields bespeak rising demand for money among borrowers.
“It’s kind of a strange time and we seem to be driven by a fear of what everyone wants, and that’s higher rates,” said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade. “Higher rates confirm a stronger economy, and the market was very afraid of that all week long. And that’s been a big reason for selling.”
Strategies that worked for years buckled in the rout. So-called short-volatility, in which traders bet that share turbulence will remain restrained, reversed, as Friday’s 29 per cent spike in the Cboe Volatility Index on Friday triggered a 13 per cent plunge in the ProShares Short VIX Short-Term Futures exchange-traded fund. About 27 million shares changed hands, the most since the Brexit vote.
An irony for bulls is that the sell-off arrived amid one of the best rounds of corporate earnings upgrades ever seen in the S&P 500. Combined estimates for 2018 profits among companies in the index have gone from $145.90 a share on December 15 to $156.20 on Friday, a rate of increase that is four times faster than any stretch since at least 2012, data compiled by Bloomberg show.
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Dow plunges 666 points in biggest daily point fall since December 2008
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In theory, the increase should help assuage fear bred by charts of the US stock market’s price-earnings ratio. Using profits from the last 12 months, companies in the S&P 500 are trading for 22.5 times income, a level that since the dot-com bubble burst is matched only during the aftermath of the financial crisis, when earnings were close to nothing.
Using 2018 estimates, on the other hand, stocks fetch a slightly sturdier multiple of 17.7, while going out to the 2019 forecast of $172.30 takes the P/E down to 16.
“During the core of earnings season, stocks almost always react to whatever their earnings announcements are, and broadly, earnings were positive,” said Kate Warne, investment strategist at Edward Jones. “But as investors worry about whether this is enough and whether it can continue, we’re likely to keep seeing stocks become more volatile.”
Central to the current anxiety is how far stocks have come in so short a time. Last month’s 5.6 per cent gain in the S&P 500 was the biggest for any January since 1997, and using the index’s total return it has now risen for 15 straight months. Friday’s selloff finally ended a streak of 404 days in which the S&P 500 sailed along without a 3 per cent decline from any previous point, a record in data going all the way back to 1928.
Michael Purves, Weeden & Co's chief global strategist, says investors should get used to turbulence given the strength of the market’s run-up. But it shouldn’t derail a bull market that is seven months away from becoming the longest ever.
‘‘I’ll bet you a bag of donuts that by Wednesday or Thursday of next week the equity market starts finding its footing against the backdrop of more stable bond yields,” Mr Purves said. “And then, like any bottoming process, the market tests it and tests it again and then all of a sudden, boom, new buyers come in.”
“The overall complexion here is that earnings have been pretty robust, economic data is holding together well, inflation is starting to pick up - there’s nothing really different in terms of an overall bull trend,” he said. “We were way over extended on the way up, we were so immune to it. I think we could get another 2 per cent or 3 per cent down. That would retract back to December levels when things went bonkers.”
Vidaamuyarchi
Director: Magizh Thirumeni
Stars: Ajith Kumar, Arjun Sarja, Trisha Krishnan, Regina Cassandra
Rating: 4/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
JOKE'S%20ON%20YOU
%3Cp%3EGoogle%20wasn't%20new%20to%20busting%20out%20April%20Fool's%20jokes%3A%20before%20the%20Gmail%20%22prank%22%2C%20it%20tricked%20users%20with%20%3Ca%20href%3D%22https%3A%2F%2Farchive.google%2Fmentalplex%2F%22%20target%3D%22_blank%22%3Emind-reading%20MentalPlex%20responses%3C%2Fa%3E%20and%20said%3Ca%20href%3D%22https%3A%2F%2Farchive.google%2Fpigeonrank%2F%22%20target%3D%22_blank%22%3E%20well-fed%20pigeons%20were%20running%20its%20search%20engine%20operations%3C%2Fa%3E%20.%3C%2Fp%3E%0A%3Cp%3EIn%20subsequent%20years%2C%20they%20announced%20home%20internet%20services%20through%20your%20toilet%20with%20its%20%22%3Ca%20href%3D%22https%3A%2F%2Farchive.google%2Ftisp%2Finstall.html%22%20target%3D%22_blank%22%3Epatented%20GFlush%20system%3C%2Fa%3E%22%2C%20made%20us%20believe%20the%20Moon's%20surface%20was%20made%20of%20cheese%20and%20unveiled%20a%20dating%20service%20in%20which%20they%20called%20founders%20Sergey%20Brin%20and%20Larry%20Page%20%22%3Ca%20href%3D%22https%3A%2F%2Farchive.google%2Fromance%2Fpress.html%22%20target%3D%22_blank%22%3EStanford%20PhD%20wannabes%3C%2Fa%3E%20%22.%3C%2Fp%3E%0A%3Cp%3EBut%20Gmail%20was%20all%20too%20real%2C%20purportedly%20inspired%20by%20one%20%E2%80%93%20a%20single%20%E2%80%93%20Google%20user%20complaining%20about%20the%20%22poor%20quality%20of%20existing%20email%20services%22%20and%20born%20%22%3Ca%20href%3D%22https%3A%2F%2Fgooglepress.blogspot.com%2F2004%2F04%2Fgoogle-gets-message-launches-gmail.html%22%20target%3D%22_blank%22%3Emillions%20of%20M%26amp%3BMs%20later%3C%2Fa%3E%22.%3C%2Fp%3E%0A
Pearls on a Branch: Oral Tales
Najlaa Khoury, Archipelago Books
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
The specs
Engine: 77.4kW all-wheel-drive dual motor
Power: 320bhp
Torque: 605Nm
Transmission: Single-speed automatic
Price: From Dh219,000
On sale: Now
The specs
Engine: 2.0-litre 4-cylturbo
Transmission: seven-speed DSG automatic
Power: 242bhp
Torque: 370Nm
Price: Dh136,814
Kibsons%20Cares
%3Cp%3E%3Cstrong%3ERecycling%3Cbr%3E%3C%2Fstrong%3EAny%20time%20you%20receive%20a%20Kibsons%20order%2C%20you%20can%20return%20your%20cardboard%20box%20to%20the%20drivers.%20They%E2%80%99ll%20be%20happy%20to%20take%20it%20off%20your%20hands%20and%20ensure%20it%20gets%20reused%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EKind%20to%20health%20and%20planet%3C%2Fstrong%3E%3Cbr%3ESolar%20%E2%80%93%2025-50%25%20of%20electricity%20saved%3Cbr%3EWater%20%E2%80%93%2075%25%20of%20water%20reused%3Cbr%3EBiofuel%20%E2%80%93%20Kibsons%20fleet%20to%20get%2020%25%20more%20mileage%20per%20litre%20with%20biofuel%20additives%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ESustainable%20grocery%20shopping%3C%2Fstrong%3E%3Cbr%3ENo%20antibiotics%3Cbr%3ENo%20added%20hormones%3Cbr%3ENo%20GMO%3Cbr%3ENo%20preservatives%3Cbr%3EMSG%20free%3Cbr%3E100%25%20natural%3C%2Fp%3E%0A
Company%20profile
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
The Comeback: Elvis And The Story Of The 68 Special
Simon Goddard
Omnibus Press
COMPANY%20PROFILE%20
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Mica
Director: Ismael Ferroukhi
Stars: Zakaria Inan, Sabrina Ouazani
3 stars
SWEET%20TOOTH
%3Cp%3E%3Cstrong%3ECreated%20by%3A%3C%2Fstrong%3E%20Jim%20Mickle%2C%20Beth%20Schwartz%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStars%3A%3C%2Fstrong%3E%20Nonso%20Anozie%2C%20Christian%20Convery%2C%20Adeel%20Akhtar%2C%20Stefania%20LaVie%20Owen%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%203.5%2F5%3C%2Fp%3E%0A
Book%20Details
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Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
Ferrari
%3Cp%3E%3Cstrong%3EDirector%3A%3C%2Fstrong%3E%20Michael%20Mann%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStarring%3A%3C%2Fstrong%3E%20Adam%20Driver%2C%20Penelope%20Cruz%2C%20Shailene%20Woodley%2C%20Patrick%20Dempsey%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%203%2F5%3C%2Fp%3E%0A
Titanium Escrow profile
Started: December 2016
Founder: Ibrahim Kamalmaz
Based: UAE
Sector: Finance / legal
Size: 3 employees, pre-revenue
Stage: Early stage
Investors: Founder's friends and Family
Jewel of the Expo 2020
252 projectors installed on Al Wasl dome
13.6km of steel used in the structure that makes it equal in length to 16 Burj Khalifas
550 tonnes of moulded steel were raised last year to cap the dome
724,000 cubic metres is the space it encloses
Stands taller than the leaning tower of Pisa
Steel trellis dome is one of the largest single structures on site
The size of 16 tennis courts and weighs as much as 500 elephants
Al Wasl means connection in Arabic
World’s largest 360-degree projection surface
Fringe@Four Line-up
October 1 - Phil Nichol (stand-up comedy)
October 29 - Mandy Knight (stand-up comedy)
November 5 - Sinatra Raw (Fringe theatre)
November 8 - Imah Dumagay & Sundeep Fernandes (stand-up comedy)
November 13 - Gordon Southern (stand-up comedy)
November 22 - In Loyal Company (Fringe theatre)
November 29 - Peter Searles (comedy / theatre)
December 5 - Sinatra’s Christmas Under The Stars (music / dinner show)
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.