Nerves are setting in. After enjoying three years of strong growth, investors are on high alert for signs of trouble in the stock market – and they spotted some last week. Equities wobbled on Thursday and Friday, first in the US and then in Europe, and \u2018safe haven\u2019 assets climbed.<\/p>\n
It is tempting to point the finger at Big Tech, given all the speculation about an AI \u00a0\u00a0 bubble. On this occasion, however, blame lay far beyond Silicon Valley, in the rather \u00a0\u00a0 less glamorous world of subprime lending.<\/p>\n
In September, the US car finance firm Tricolor went bankrupt. Shortly afterwards, First \u00a0\u00a0 Brands – an American company that sells car parts like antifreeze and wiper blades – also collapsed. This sparked concern about America\u2019s regional banks. Have lenders been doing proper due diligence? And are there systemic issues in the private credit market?<\/p>\n
A couple more \u2018cockroaches\u2019 – as described by JP Morgan<\/a> chief Jamie Dimon – emerged last week, and this made investors jumpy. The VIX index<\/a>, which measures stock market volatility, is elevated after an uneventful summer.<\/p>\n Earnings season gathers momentum<\/p>\n This week is off to a calmer start, and attention is shifting towards company results. America\u2019s biggest investment banks kicked off reporting season with double-digit growth, and now it\u2019s time for everyone else.<\/p>\n The Magnificent 7 will enter the fray on Wednesday, with Tesla set to publish its third quarter figures after market close. Alphabet<\/a>, Amazon<\/a>, Apple<\/a>, Meta<\/a> and Microsoft<\/a> are all due to publish their numbers the following week.<\/p>\n There is plenty of optimism around. S&P 500<\/a> companies are expected to report earnings growth of 8.5% for the third quarter and – so far – most businesses have beaten consensus forecasts.<\/p>\n Incoming inflation update<\/p>\n Closer to home, UK inflation figures are out this Wednesday. Inflation is expected to have hit a \u2018temporary peak\u2019 of 4% in September, up from 3.8% in August. Assuming the forecasts are correct, this is an important moment for cash savers, as interest rates and inflation will be neck and neck for the first time in two years. This is bad news for real returns.<\/p>\n The US is also due to publish September inflation figures this week. However, the US federal government shutdown – which started on 1 October after the Republicans and Democrats failed to resolve a budget dispute – has seriously disrupted the country\u2019s economic releases. The data was originally due on 15 October but was postponed.<\/p>\n