Market view and Insights
Fears of loan defaults in the banking sector due to turmoil surrounding the troubled Silicon Valley Bank caused a slide in share prices on Wall Street and the worst weekly performance since June 2022. In addition, interest rate concerns weighed on share prices after significantly more jobs were created in the US in February than expected. Although the increase in employment was clearly below the strong level of the previous month, the labour market remains extremely robust and the latest job market data point to a continued restrictive pace of the Federal Reserve.
The Dow Jones Industrial fell before the weekend by 1.07% to 31,909.64 points and thus recorded a loss of more than 4% over the week. The broad S&P 500 fell on Friday by 1.45% to 3,861.59 points and on the Nasdaq, the indices gave up 1.4%. In addition to the US jobs report, Silicon Valley Bank was in focus. On Friday, the financial institution, which specializes in financing small and medium-sized tech and biotech companies, was temporarily closed, and placed under government control. This put massive pressure on the entire banking sector.
Meanwhile, the latest data confirmed a still robust labour market in the US. At 311,000 newly created jobs, the increase was significantly lower than the massive job growth at the beginning of the year, with 504,000 "non-farm payrolls", but analysts had provided a significantly lower consensus forecast of 225,000 jobs in February. The unemployment rate, as reported in a separate survey, was slightly higher last month than in January at 3.6%, but the 3.4% reported at the beginning of the year was also the lowest level since May 1969. From this data set, investors must assume that the Fed will continue to raise interest rates - as reiterated last week by Fed Chairman Powell. Some relief was provided at least by the average hourly wages reported for February. These rose by 0.2% month-on-month and by 4.6% year-on-year, slightly less than expected. However, the labour shortage lamented by many companies is likely to keep up the pressure on wages. Nevertheless, investors seem to expect interest rates to continue to be raised more cautiously for the time being. This found expression in a weaker US dollar and falling yields on the bond market. For example, the benchmark yield on ten-year US government bonds declined to 3.69%.
Markets in the Asia-Pacific region were mixed to start the week after US regulators announced plans to shore up both depositors and financial institutions linked to Silicon Valley Bank to avoid further systemic risk. Hong Kong's Hang Seng Index gained 2.1% led by technology stocks. The Hang Seng Tech Index gained more than 3%. In mainland China, the Shenzhen Component climbed 0.4% % and the Shanghai Composite rose 0.8%. in Tokyo, the Nikkei 225 slipped about 1%.
Corporate news today in focus: Porsche AG with annual figures.
Economic data today in focus: No important economic data is due for publication.
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi,
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Reference regarding valuation rates
Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
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Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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