Volatile week amid economic concerns. Worries over a weaker-than-expected US jobs report coupled with a sudden BOJ interest rate hike triggered an unwinding of the yen carry trade, sparking a massive sell-off on Monday. The CBOE Volatility Index (VIX), often referred to as the 'fear index,' briefly surged to 65.73, its third highest mark since records started in 1992. Furthermore, the sell-off was exacerbated after earnings releases from Disney and Airbnb that revealed signs of weakening consumer demand.

Despite the turbulence, markets were able to recover most of its losses for the week, following the release of better-than-expected US initial jobless claims data (233k vs consensus 240k). The S&P 500 was flat, while the NASDAQ and Dow Jones fell 0.2% and 0.6% respectively for the week. Investors will be paying close attention to Wednesday’s US CPI data and Thursday’s retail sales data to gauge the economy’s resilience.

Topic in focus: Steep sell-offs, stable outlook. Despite heightened market volatility, the sharp sell-off has little bearing on corporate fundamentals, given the resilient corporate earnings outlook and undemanding valuations. Based on consensus forecast, the S&P 500 is expected to register earnings growth of 10% this year. Despite the low base effect from the earnings recession in 2023, the outlook for 2025 is equally upbeat – US earnings growth is forecast at 13%, buoyed by inventory restocking, technology-related capex, and increased construction spending.

Amid softening economic conditions and impending rate cuts, it is crucial for investors to stay with long-term secular trends beyond policy shifts. We maintain our conviction on Big Tech companies with huge cash holdings and strong balance sheets as they are poised to continue benefitting from the adoption of artificial intelligence (AI) technologies across industries. Additionally, rising oil prices, as a result of geopolitical uncertainty, augur well for the outlook of upstream energy companies.