2 November 2021
Supply and growth
Ongoing strong results pushed global markets up further last week, however there was a sting in the tail; specifically, Apple and Amazon both warned that ongoing supply issues were slowing their growth on Thursday.
Apple, for example, reported a 29% year-on-year growth in revenue for the most recent quarter, boosted by the release of the iPhone 13. This was still below market expectations, however, which Apple blamed on the continuing chip shortage issues in Asia because of COVID-19 pandemic-related manufacturing problems.
Likewise, Amazon reported lower-than-expected revenue numbers – $110.8 billion compared to an expected $111.8 billion – which, although still representing double-digit growth, was still a slower growth rate compared to last year. The company warned of several drags on their near-term performance including ongoing labour supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs.
That the struggles of supply chain issues and labour shortages are being felt by two of the world’s largest companies help to highlight the fact that no one company is immune to global challenges – a reminder of the importance of diversifying and investing with a long-term outlook.
Paul Kim from TwentyFour Asset Management highlighted a severe disruption at key US ports in Los Angeles and Long Beach too, with some ships having to wait almost two weeks to unload their cargo.
“The knock-on impact of problems up and down the supply chain is also clear; port officials noted only 40% of vessels were arriving on time, blaming a lack of trucking and warehouse labour as well as a lack of transportation and logistics equipment. The scale of the gridlock has prompted President Biden to mandate emergency measures for the two ports, allowing them to operate around the clock.”
Despite these warnings and issues, US stocks still rose for most of the week. The S&P 500 moved further into record territory as the week progressed, and the Nasdaq Composite finally overtook its early September record high, finishing Thursday’s trading at a new record high.
The big news of the week from the UK was the Autumn Budget and Spending Review from Chancellor Rishi Sunak, delivered in the early afternoon of last Wednesday. It produced a muted reaction from the market; the FTSE 100 grew during the build-up to his speech, then generally fell from Wednesday afternoon to the end of the week. Despite this fall, the FTSE still finished the five-day trading period up, and near to its post-pandemic highs.
As another reminder of the importance of diversification in your portfolio, the reaction to the budget wasn’t even across all sectors. Several companies in the hospitality sector reacted well to the news of business rate reliefs and various alcohol reliefs, outperforming the wider market.
This week may prove crucial to both in the UK and the US, with both the Bank of England and the Federal Open Market Committee (FOMC) due to meet and widely expected to make changes to their respective COVID-19 economic measures. Both bodies continue to maintain that the current high rate of inflation will be transitory, these assertions have notably softened recently, and many are questioning just how long this ‘transitory’ period will be.
Many expect, therefore, that the FOMC will announce an easing to its asset-purchase programme and suspect the Bank of England to slowly increase interest rates. Several UK banks have already begun raising their mortgage rates in anticipation.
According to Adrian Frost from Artemis, this could present a challenging environment for investors used to the recent explosion in equity prices:
“In short, liquidity will grow at a much slower pace from its present, generous proportions. This could represent a challenge for markets that have grown addicted to it. Our managers are of one mind: ahead lies a period that is quite different to that of recent years – companies face higher costs, and the market faces an end to the ultra-low cost of money.”