Despite extreme market volatility last week, including some of the largest gains or losses in years for various global benchmarks, the global stock market ended the week essentially unchanged. One market that experienced significant volatility was Japan's, where the largest single-day loss since 1987 occurred. These losses were sparked by concerns over the "yen carry trade," a sophisticated investment strategy where investors borrow low-interest-rate Japanese yen to invest in higher-yielding assets in other currencies, profiting from the interest rate differential. Recently, interest rates in Japan have been rising relative to other countries.
Another factor contributing to early-week losses was the notable news that Warren Buffett significantly reduced his stake in Apple by over 50% while substantially increasing his cash reserves. Additionally, concerns over economic weakness carried over from the previous week.
However, these concerns dissipated somewhat as the week progressed, thanks to more encouraging economic data, including higher-than-expected non-manufacturing activity and lower-than-expected initial unemployment claims.
Notable economic reports this week include the Consumer Price Index (CPI) and Retail Sales. Expectations for CPI are for 3.0% year-over-year growth, with core (excluding food and energy) CPI at 3.2%. Economic growth projections also increased last week, with the Atlanta Fed's GDPNow forecasting second-quarter growth at 2.9%.
Key earnings releases this week include Walmart, Home Depot, and Alibaba. For the quarter, growth is expected to be nearly 11% year-over-year, which would be the best earnings growth since the first quarter of 2022. It's also worth noting that earnings calls this quarter have featured the fewest mentions of economic weakness since 2021.
Overall, the recent volatility has undoubtedly been unnerving for many investors. In times like these, it's important to remember a few key points. First, it's somewhat normal for the market to exhibit above-average volatility at this time of year. It's also typical for the market to consolidate and retrace earlier gains during this period.
Regardless of seasonal tendencies, market pullbacks and corrections are normal. In fact, since 1930, pullbacks of 5% or more occur more than three times a year on average; pullbacks of 10% or more occur once a year on average; corrections of 15% or more occur every other year on average; and pullbacks of 20% or more occur every 3-4 years on average. The price investors pay to participate in the market's growth is volatility. As the great investment manager Peter Lynch once said, "If you are not ready for the stock market to go down, you should not invest in the stock market."
In summary:
Stay invested. Stay diversified. Stay disciplined.
If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust. See you next week!