Weekly market commentary

Market review

Although the experience for the S&P500 was slightly negative in terms of its’ topline performance this week, this belied the divergent performance across sectors. The much-loved information technology sector, which is home to some of the megacaps had a torrid time, where it underperformed value sectors such as energy by as much as 9.5% over the week. This was explained in part by profit taking by some players in the market, such as hedge funds rotating into other parts of the US index as well as a reaction to fears of further US government intervention to curb technological exports to China, with threats to global technology companies such as ASML, head quartered in Netherlands, and Tokyo Electron. This was further compounded by rhetoric from the Trump camp that they will continue their campaign to clamp down on China if they win the election. 

Sticking with the US, Fed chair Jerome Powell continued his messaging from last week, saying that recent data is adding confidence on the inflation path and other speakers, such as Mary Daly, were on the wires suggesting that recent cooler inflation readings warrant interest rate cuts. Currently, markets are pricing more than 2 cuts by December. Staying with central banks, the Bank of England faces more of a headwind; core UK inflation came in at 3.5% for the year to June, lagging the progress seen across the Atlantic. Stickier inflation was also seen in the Euro area which highlights potential cracks appearing across regions, with respect to cooling inflation.

Outlook

Central banks appear to be cautious to commit to imminent rate cuts, as the Fed acknowledge the need for further cooling in the labour market, and comments from the Bank of England highlighting concerns over the strength of inflation and wage growth. However, the message being telegraphed is when they will cut rather than if.

Tactical positioning*

Our equity position is currently +1.25%, made up of a diversified basket across the US, UK, Asia and GEM. This is funded from small European Credit and cash underweights, with an overweight to US Treasuries.

*Please note that the tactical asset allocation (TAA) commentary does not apply to the PruFund range of funds. The TAA mandate is run by the Macro Investment Business (MIB) within M&G.

Please note that the below is relevant for all Prudential multi-asset funds. The tactical asset allocation comments relate to the WS Prudential Risk Managed Active and Passive ranges.

Movers table