Global equity markets wobbled in the last week of January as a squeeze in a number of heavily shorted stocks developed, leading rapidly to risk reduction by hedge funds and several days of heavy volume.
The squeeze commenced with GameStop Corp, a US Russell 2000 stock, but spread rapidly to more substantial companies such as Nokia. So the month of January produced negative returns, something that used to trouble observers ‘where goes January, so goes the year’. For our purposes, over the past four weeks, global equity markets have resumed the trend upwards from the March 2020 lows.
American and Japanese stocks have risen around 3%, European markets rather less, with London the laggard again as the FTSE 100 Index was dragged down by the oil majors, big pharma and the Far Eastern banks, between them accounting for around a quarter of the index. Despite all the noise around the short squeeze and the activities of Robinhood and Reddit, the real story of the period has been the bumper reporting season for the big technology companies, which led to a 7% jump in the NASDAQ over the period.
Microsoft reported that second quarter sales rose 17%, thanks in particular to the Company’s Azure cloud-computing division, though personal computer sales also surged and gaming revenue topped $5 billion, their stock rose 13% to new highs. Alphabet (Google) stock jumped 20% (extraordinary for a company of this scale) as their fourth quarter earnings and revenue far exceeded expectations as their core search advertising business re-bounded. Amazon.com also reported record revenue and net income, but the real story here was that Jeff Bezos is to stand aside as Chief Executive in favour of Andy Jassy, the architect of Amazon Web Services; Jeff Bezos is not leaving, he will assume the role of Executive Chairman.
The oil price recovered further, up around 7% over this period, but this did not save the Oil Production sector, which was weighed down by weak corporate figures. Poor results were expected, but the extent of it was a shock for some stocks, notably BP and Royal Dutch Shell, down 13% and 7% respectively. The exception was Exxon Mobil, which did report a fourth quarter loss (and first annual loss in around forty years), but also disclosed that they had held merger talks with Chevron during the year, and their stock rose 9%.
Car companies were a feature in the Consumer Discretionary area, Daimler, Ford Motor and Nissan Motor all rose by mid-teens percentages with Bridgestone in their wake. Consumer Staples were not so chirpy, led down by a 9% fall in Unilever, which had reported good sales growth but some questions over their margins, Colgate-Palmolive and Procter & Gamble both fell in sympathy. The Pharmaceuticals were quite mixed, Abbott Laboratories was the star, rising by more than 14% after the device and diagnostics maker sold 300 million COVID-19 tests in the fourth quarter, Johnson & Johnson rose after strong guidance and encouraging single-shot vaccine results. However, Bristol-Myers Squibb, GlaxoSmithkline, Merck and Pfizer all managed to disappoint and fell between 7% and 10%.
In a sharp reversal of the previous period, a number of the banks fell back again as did many of the other financials. Deutsche Bank fell 10%, while, also in Germany, Allianz slipped by 5% and MunichRe by a similar amount. HSBC fell 5% and Standard Chartered by twice that, while Prudential fell 13% after announcing that it was weighing an equity offering to raise up to $3 billion and spin-off its Jackson National arm in the US. Possibly, this is just what the Prudential needs and they could be looking rather interesting again.