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American markets today, Monday, viewed several hours before the 9:30 a.m. Eastern time opening, look poised for a negative start with the S&P500, Dow and Nasdaq in the red, overhung by tensions between Russia and Ukraine and the possibility of a shooting war, inflation worries and continued apprehensions about the Federal Reserve’s plans for interest rate hikes.
Canadian markets are set for a mixed start with the TSX60 down while the TSX Composite is safely in green territory at time of writing. Some improvement is possible as the TSX60 is not too far into the red and could improve with the trading day.
European markets are open and the FTSE100, DAX and CAC40 are suffering.
Amongst currencies, the British pound sterling, Euro and Canadian dollar are down against the American greenback.
Amongst precious metals, the safe havens of gold and silver are up at time of writing.
We will be getting a fair number of clues this week, including the outlook for two important sectors.
Three companies’ results will provide some insight into the travel sector as it navigates the recovery. Marriott International Inc. reports fourth-quarter results on Tuesday, likely with higher numbers due to vaccination rates and eased restrictions allowing more travel during the Christmas season. Also on Tuesday, Airbnb posts its fourth quarter results, likely higher for the same reasons. On Wednesday, Hilton Worldwide Holdings posts its fourth quarter results, likely with improved revenue and for the same reasons. For each of these companies, investors will look for forecasts for the remainder of the year.
Nvidia Corp.’s fourth quarter results on Wednesday will provide an update on the metaverse, a concept that is increasingly mentioned and which has many puzzled. Most of us heard the word for the first time last Fall when Facebook president Mark Zuckerberg unveiled the company’s re-brand as Meta Platforms to demonstrate the company’s attempt to stake its claim to leadership in the metaverse.
Defining the concept at this early and unclear stage and putting one’s definition in print for all to see requires a certain amount of journalistic bravery but the concept can be understood as ‘everything out there’ and ’not here.’ It defines a universe encompassing digital reality, online gaming, artificial intelligence, augmented reality, virtual reality, cryptocurrency and accompanying audio elements. Very broadly there are three types of companies in the metaverse: the companies providing it, such as Facebook/Meta Platforms, companies providing processing units such as Nvidia and software companies.
Apart from what is going on ‘out there’ in the metaverse, here in the real-world investors continue worrying about volatility.
A Morningstar report argues that recent market volatility has not been too far outside of the usual range – an observation that will surprise many who listened to the daily news last week.
Morningstar says that since November 2021, there have been 34 trading days with negative returns, but only two of those days have closed with losses greater than 2%.
Not surprisingly, it observes that volatility probably seems higher partly because we have experienced some more dramatic intraday swings and because growth stocks have suffered much more frequent and severe losses. Part of the apprehension may be due to the fact that current market turmoil seems so intimidating because we have not seen much of it in recent years. The bear market of 2020, caused by the COVID virus was certainly swift, severe and brutal but also short-lived. Morningstar points out that after dropping about 34% from Feb. 19 through March 23, 2020, stocks surged ahead to make a full recovery by August, and that after the 2020 rebound 2021 was a temperate year for investors with below average market volatility.
Still, no one suggests that market turmoil will settle down in the short or medium terms. We are in a period of flux and change and that is not going to stop anytime soon. Within this flux and change, market leadership has changed from growth to value stocks, from tech to energy, commodities and other sectors, and from momentum names to tamer preferences such as value, yield and lower volatility.
These factors are definite and continuing and really cannot be stopped. What is at stake is how advisors and clients deal with them.
Related: Dealing With Kryptonite Isn’t Easy
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investments is scheduled for release in January 2023.