January stocks hit the skids

This is an audio transcript of the FT News Briefing podcast episode: January stocks hit the skids

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, February 1st. And this is your FT News Briefing.

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It was a dry January, indeed. US stocks had their worst start of the year since the depths of the financial crisis in 2009. Italian lawmakers decided they want more of the same with their leadership, and the country’s bond markets were thrilled. Plus, western countries are trying to deter Russia from attacking Ukraine with the toughest sanctions ever.

James Politi
It’s really a package on a scale like we’ve never seen.

Marc Filippino
Our Washington bureau chief James Politi will have more. I’m Marc Filippino, and here’s the news you need to start your day.

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January was a landmark kind of rotten for US stocks. The S&P 500 is down over 5 per cent compared to a month ago, and the Nasdaq is down 9 per cent. This all adds up to the worst trading month since the financial crisis. The FT’s US capital markets correspondent Nicholas Megaw says there are a few reasons for this no good, very bad month.

Nicholas Megaw
The biggest one was the outlook for interest rates and inflation. We’ve been moving in this direction for a while, but the Federal Reserve really kind of stepped up its signalling this month. They would start lifting interest rates to fight price rises, which is bad for stocks for various reasons. In simple terms, it’s because it increases the income that an investor can get now from bonds, and that therefore reduces the relative value that they put on future income that stocks promise. This is a bird in the hand versus two in the bush situation.

Marc Filippino
Is part of this just that Wall Street is coming down from the crazy pandemic highs that we saw?

Nicholas Megaw
Last year, when things were first reopening, everything looks amazing in comparison with lockdown. Now we’re kind of, we’ve gone through a whole year since the reopening, and so that kind of easy comparison has gone. So now it’s sort of more just, you know, if you’re a company, the economy is still in decent shape. So you’re probably, you know, your revenues are probably still going up by a kind of normal amount, but they’re not up 300 per cent year on year, whereas they were last year because 2020 was so terrible.

Marc Filippino
So unpack this a little bit more for me, Nick. Who’s really affected by this?

Nicholas Megaw
So if there are any investors who had gone all in on that kind of the really speculative end of the tech boom, then they might be struggling right now. So people like Cathie Wood’s Ark ETF has taken a really big hit because a lot of the companies in that other sorts of not yet profitable, promising lots of long-term growth. If you actually ask Cathie Wood, which some people have, she’s personally saying that she’s feeling totally fine about this. She says that it just it’s good news. It’s a chance to buy the dip. But she would say that so . . . 

Marc Filippino
Fair point (laughter). So given how bad January was, Nick, how are investors feeling about the next few months?

Nicholas Megaw
It’s important to give a bit of perspective. It was a bad month, but it looks worse because we’ve got used to things being really calm when usually calm for the last 18 months or so. Even after this last month, the S&P is still up nearly 20 per cent over the last 12 months. So as we’re going into February, the underlying economic outlook is still not that bad. Most investors are still thinking that overall through the year, shares should start kind of trending upwards. But if they do that, and even without any escalation of the situation in Ukraine, we’re not going to go back to what the last 18 months had been like. It’s volatile months like this of more like the norm, not what we’ve just had. And so going forward, it’s going to be kind of watching out for maybe more of the same.

Marc Filippino
Nicholas Megaw is the FT’s US capital markets correspondent.

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Western powers are preparing what’s being called the most aggressive sanctions against Vladimir Putin, ever. The Russian president hasn’t backed down from his threat to invade Ukraine. And these sanctions from the US and European countries would hit everything from Russia’s banks to high ranking oligarchs. The Washington bureau chief James Politi has more.

James Politi
This is about preventing transactions with banks. It’s about cutting Russia off international payment systems. It’s about depriving Russia of key technologies as well when it comes to quantum computing and artificial intelligence and semiconductors. And so it’s really a package on a scale like we’ve never seen. I mean, of course, in 2014, after the annexation of Crimea by Russia, the west moved to impose some sanctions on the Russian economy. But this is on a whole other on a whole other level, really.

Marc Filippino
Now, James, we should mention that we don’t have the full details of the package, but we do know that it would hit Russian oligarchs pretty hard. What’s the thinking behind that?

James Politi
The logic of squeezing the oligarchs is to basically, you know, cut Russia off of the international financial system, make it so painful for Putin that, you know, he’ll be deterred from taking any military action in Ukraine. Or if he does, you know, that he will face such a backlash to the sanctions that he’ll eventually sort of pull out to sort of diffuse the crisis.

Marc Filippino
Now, James, these sanctions would only go into effect if Russia invades Ukraine, right?

James Politi
Yes. And there’s a discussion about what the exact triggers would be and what happens if Russia decides to launch an attack, which sort of falls short of an all out military boots-on-the-ground invasion. Some, you know, officials have suggested that there could be a sort of sliding scale of sanctions, but I think the overarching objective is to punish Putin as much as possible, both as a as a deterrent initially and then eventually as a measure to make an invasion as painful as possible.

Marc Filippino
Is there any sense that these sanctions will dissuade Russia from invading Ukraine?

James Politi
Well, so far, I mean, it’s very hard to tell. It doesn’t look like it. The sort of military planning on the Russian side seems to be moving forward. There were more troops sent to Belarus, which also has a border with Ukraine. So it looks like it hasn’t deterred them so far. But maybe that’s why the warnings of harsh sanctions keep coming is because they want to get the message through to Putin. And I think the latest messages sort of coming from US administration officials and the UK as well about targeting oligarchs I think are designed to show that the west is actually really serious about hurting sort of Putin’s friends.

Marc Filippino
James Politi is the FT’s Washington bureau chief.

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The best medicine for Italy’s economy, maybe a dose of status quo. Italian lawmakers re-elected Sergio Mattarella as president over the weekend. It’s not that lawmakers are head over heels for Mattarella, it’s just that they really want the popular Mario Draghi to stay in his job as prime minister. Here’s our Rome correspondent Amy Kazmin.

Amy Kazmin
Politicians were really afraid that if they elevated Draghi to the presidency, that then they’d have to agree on a new prime minister, and that would be really tricky. And they couldn’t agree another consensus presidential candidate so in the end they forced the incumbent to stay on even though he’d clearly expressed a strong desire to stand down and retire.

Marc Filippino
The business community is happy and so are markets. Italian government bonds rallied on the news that Draghi would stay at the helm of the coalition government.

Amy Kazmin
There is a lot of serious economic reforms that need to be pushed through the system over the next year, and they’re really hoping that he will be able to get a lot of stuff done before the next election. Italy’s economy has been chronically underperforming, and these reforms are intended to try to nudge Italy on to a higher growth trajectory for the long term so the really important for Italy is long-term future. But they’re also very challenging, and there’s a feeling that Mario Draghi is one of the few people that actually has a chance of getting some of this stuff done with this broad-based coalition, which was in danger of breaking over this presidential election.

Marc Filippino
That’s our Rome correspondent Amy Kazmin.

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And before we go, two big gaming deals dominated the news yesterday. Sony shelled out $3.6bn for the video game developer behind the Halo franchise. And then the New York Times announced it would pay some M-O-N-E-Y, five letters, for the viral smash hit Wordle. A Brooklyn software engineer created Wordle as a gift to his girlfriend. The New York Times says he’ll get somewhere in the low seven figures for the game.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.