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WeekWatch -‘Apple and Amazon both warned that supply constraints were slowing their growth on Thursday’ Nov 2021

WeekWatch -‘Apple and Amazon both warned that supply constraints were slowing their growth on Thursday’ Nov 2021

Global markets were pushed up further last week by ongoing strong results, although there was a sting at the end of the tail.

Specifically, Apple and Amazon both warned that supply constraints were slowing their growth on Thursday. In the case of Apple, the iPhone maker reported a 29% year-on-year growth in revenue for the most recent quarter – helped by the release of the new iPhone 13; however, this was still below market expectations, something Apple blamed on the ongoing chip shortages issues in Asia from COVID-19 pandemic-related manufacturing issues in Asia.

Amazon also missed revenue expectations ($110.8 billion compared to an expected $111.8 billion). While this represented double-digit growth, the growth rate was slower than last year, and the company warned that ongoing labour supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs would act as drags on the company’s near-term performance.

Two of the world’s largest companies struggling with supply chain issues and labour shortages help highlight that no one company is impervious to global challenges, and acts as a reminder of the importance of diversifying and investing with a long-term outlook.

Paul Kim from TwentyFour Asset Management noted severe disruption also at key US ports in Los Angeles and Long Beach, 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 the warnings from Apple and Amazon and ongoing supply chain issues, US stocks continued to rise for much of the week. The S&P 500 moved further into record territory as the week progressed, while the Nasdaq Composite finally overtook its previous record high from early September, to finish Thursday’s trading at a new record high.

In the UK, the big news of the week was the Autumn Budget and Spending Review from Chancellor Rishi Sunak, which was delivered early afternoon on Wednesday. St. James’s Place has a detailed breakdown of the key takeaways for investors here. Market reaction was generally muted, with the FTSE 100 growing during the build-up to his speech, and then generally falling from Wednesday afternoon until the end of the week. Despite this weak second half of the week, the FTSE still managed to finish the five-day period up, trading near post-pandemic highs.

It should be noted that the reaction to the Budget wasn’t even across all sectors. A number of companies in the hospitality sector reacted well to news of business rate reliefs and various alcohol reliefs, for example, outperforming the wider market. This should again serve to remind investors of the importance of diversification.

For investors in the UK and the US, next week might prove crucial with both the Bank of England and the Federal Open Market Committee (FOMC) due to meet, and both widely expected to make changes to their respective COVID-19 economic measures. While both bodies maintain that the current high rate of inflation will prove transitory, the assertions around this has notably softened of late, with many now questioning how long this ‘transitory’ period will last.

As a result, many expect the FOMC to announce it will start to ease its asset-purchase programme, while it is suspected the Bank of England may begin to slowly increase interest rates. A number of UK banks have already begun raising their mortgage rates in anticipation of this.

Adrian Frost from Artemis noted this could present a more 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.”

Artemis and TwentyFour are fund managers for St. James’s Place.

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