Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Our stories this week:

1. Tech Giants Wobble: Can smaller companies make a comeback?
2. China vs Japan. Timing the market is risky business.
3. A global soft landing in sight and a bit of relief for UK homeowners

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It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

1) Tech Giants Wobble: Can smaller companies make a comeback?

Two tech giants, Microsoft and Alphabet, recently reported pretty solid earnings, growing sales at the fastest annual pace since early 2022. Yet their stocks took a hit - Microsoft dipped almost 3% and Alphabet slid over 7%[1]. It looks to us like investors got a bit too hyped up about AI. And it's not just those two; the rest of the tech titans, including Tesla (which is down a whopping 30% or more from its 2023 peak), are also feeling the pinch.

Is it time for smaller companies to shine again? History's shown us that smaller companies can totally steal the spotlight from the giants. Though the big names have been hogging all the glory since around 2015, let's not forget smaller companies did better for a 15 year stretch before the rise of the Magnificent 7. Can history repeat itself? We’re keeping our eyes peeled on the market.

2) China vs Japan. Timing the market is risky business.

The stock market scene in China and Japan has been like night and day recently. Japan's getting a lot of love from investors, thanks to a weaker Yen and some solid moves towards better corporate governance. On the flip side, China's been feeling the heat with its real estate debt drama putting a damper on the mood.

Early 2024 saw some Asian hedge funds betting big on China stealing the spotlight from Japan, but instead, they ended up taking a major hit—so much so that some had to shut down [2]. But hold up, it's not all doom and gloom. There’s talks of a whopping $280 billion government rescue plan to get the Chinese stock market back on its feet[3]. It reminds us of a few years back, around 2014 and 2015, when the Chinese government encouraged folks to invest in domestic stocks, leading to a jaw-dropping surge of more than 150% in a year[4]. Maybe those hedge funds weren’t wrong, but just early. Time will tell.

3) A global soft landing in sight and a bit of relief for UK homeowners

Fuelled by the dynamism of the US economy, a stimulus boost in China, and the potential dip in interest rates, the International Monetary Fund (IMF) has upgraded its 2024 global economic growth forecast. They now expect the world's economy to expand by 3.1%, a slight uptick from the previously projected 2.9%. However, the IMF cautions about ongoing risks. The expectation is for a decrease in commodity and fuel prices over the next few years, but escalating tensions in the Middle East or further disruptions in the Red Sea could trigger a surge in commodity prices, potentially knocking global growth off course[5].

Meanwhile, expectations of falling interest rates are starting to make an impact closer to home here in the UK. For the first time in over two years, the average UK mortgage rates are on a downward trend and we’re seeing some early signs of a rebound in the UK housing market[6]. Mortgage approvals have risen for the third month in a row and, according to Nationwide, UK house prices saw a 0.7% month-on-month increase in January[7]. This is the quickest pace of growth since October last year. The evidence is slowly but surely hinting that the global economy might just be on track for an economic soft landing after all.

References

[1] https://www.barrons.com/livecoverage/stock-market-today-013124/card/the-nasdaq-is-falling-after-big-tech-earnings-Y7GpXUfDhnvE1ybh1yT3

[2] https://www.reuters.com/markets/asia/singapores-asia-genesis-closes-hedge-fund-after-losing-bets-china-japan-2024-01-23/

[3] https://www.bloomberg.com/news/articles/2024-01-30/here-s-what-china-is-doing-to-boost-economy-rescue-markets

[4] https://www.vox.com/2015/8/23/9195891/china-stock-market-crash

[5] https://www.reuters.com/world/imf-says-global-soft-landing-sight-raises-2024-economic-growth-outlook-2024-01-30/

[6] https://www.ft.com/content/c7abc82c-8d1e-4ec9-8630-971fd806cc54

[7] https://www.ft.com/content/73ccbf3a-e18b-43fa-9b65-f0e66d281656

Notices

As of writing, Microsoft, Alphabet and Tesla are holdings in Sidekick's Flagship strategy.

Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.