The wild ride on Wall Street continued this week.
After a tentative rally at the start of the week, the benchmark S&P500 dived 4 per cent on Wednesday, its biggest one-day fall since June 2020.
After four consecutive sessions of higher closes, the ASX200 stalled at the key 7200 resistance level mid-week, before getting caught in the downdraught from Wall Street and in the caution reigning ahead of this weekend’s federal election.
Here are the top five things that happened in markets this week.
1. Q1 2022 US earnings season – A sting in the tail
Shares of US retail giant Target plunged 25 per cent, its largest drop since the 1987 market crash, after missing on earnings and echoing a warning from Walmart that rising cost pressures are eroding profit margins.
2. Australian real wages in reverse
Q1 2022 wages data showed that Australia’s annual pace of wage growth nudged up to 2.4 per cent.
Well above the 1.4 per cent low of 2020, but significantly below the inflation rate of 5.1 per cent.
Real wages, which are wages adjusted by headline inflation, have fallen 2.7 per cent over the past year as cost-of-living pressures pile up.
3. Bearish sentiment at extremes as investors pile into cash
The Bank of America Fund Managers Survey, which measures investor sentiment, showed investors had increased their cash levels to the highest in 20 years.
Considering that interest rates are still very low and inflation in the US is above 8 per cent, investing in cash reflects a high level of caution.
4. The Australian unemployment rate falls to its lowest level since 1978
With all the bearish news in recent months, it’s easy to lose sight of the positives that emerged post the pandemic.
Labour force data for April released this week showed the unemployment rate in Australia fell to 3.9 per cent, its lowest level since 1978.
5. Federal election race narrows as Coalition gains ground
After starting the week as outsiders and priced at over $4.00, betting markets show that the race has narrowed considerably, with the LNP now paying $2.65.
Recession fears may be helping the Coalition’s chances, but regardless the market has not been overly concerned about an ALP victory, and the main risk remains a hung parliament.
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