Equity markets seek direction in eventful week
Equity markets remain well above their levels at the beginning of the year, but uncertainty has increased. The conflict with Iran is dragging on, while rising interest rates, inflation and growing government debt have led to significant falls in bond prices.
Equity markets remain well above their levels at the beginning of the year, but uncertainty has increased. The conflict with Iran is dragging on, while rising interest rates, inflation and growing government debt have led to significant falls in bond prices.
It has been an eventful week in the financial markets, with earnings reports from Microsoft and Alphabet, among others, as well as the recently concluded monetary policy meeting of the US central bank, the Federal Reserve, just days before the US midterm elections on 3 November.
This comes at a time when the markets have been looking for firmer ground. So far, around a quarter of companies have reported their results, but neither the preliminary figures nor the monetary policy meeting appear to have provided investors with the direction they were seeking.
“So far, the signals from the earnings reports have not been clear-cut, and the picture is more mixed than it was at the half-year point, when progress was more broad-based. At the same time, the central bank’s revised assessment of the US economy from ‘solid’ to ‘strong’ is maintaining pressure on the bond market, even though, as expected, it did not change interest rates this time,” says PFA’s Chief Strategist, Tine Choi Danielsen.
The yield on the 10-year US Treasury bond has fallen slightly since peaking at close to 5.35 per cent in early October, while the dollar has strengthened. The Chief Strategist interprets this as a sign that investors are seeking safe havens until the picture becomes clearer.
PFA takes a more cautious approach
The more uncertain outlook has also affected PFA, which has recently adjusted its course slightly and adopted a more cautious approach.
“With interest rates at their current level, fluctuating oil prices, the unresolved situation in Iran and a US midterm election, there are many unknowns at play. We have therefore reduced equity risk slightly, while increasing currency risk somewhat so that customers will benefit from a stronger dollar. Overall, we believe it is prudent to tighten our seat belts a little,” says Tine Choi Danielsen.
For now, a typical PFA customer with medium risk can take comfort from a return of around 10 per cent in 2026 and around 50 per cent over the past four years. Customers with lower risk have felt the headwinds in the bond markets more strongly, which has dampened their returns.