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The 5 markets charts that matter for investors

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Here is a selection of five charts that FT Markets believes are worth watching. A fresh chart will be added on a regular basis.

1. Wall Street hit by biggest slide since November

US stocks suffered their worst trading day in eight months on Wednesday after political turmoil in Washington shook investors, with some fearing President Donald Trump’s ability to push through his pro-growth policies has been sidelined by the deepening political controversy.

Reports that Mr Trump sought to interfere in an FBI investigation sent key market benchmarks back down to levels last seen before the election.

The concern is that controversies surrounding the US president will affect efforts to push ahead with plans for tax cuts, infrastructure spending and deregulation, all of which were seen as boosting economic growth and corporate earnings.

Wednesday’s selling takes indices down from record highs, but even before it kicked in, a sector rotation has been under way that reflected doubts about the Trump agenda. Investors had been moving away from financials and energy stocks, which were seen as likely beneficiaries of the administration’s deregulation agenda or fiscal policies that might stoke inflation and push interest rates up.

2. Labour shortages in Japan

The Japanese economy has experienced more than a year of what is, for a country with a shrinking population of working age adults, a strong economic recovery. For the first time in 11 years the county has expanded for five quarters in a row, according to Goldman Sachs. The unemployment rate dropped to 2.8 per cent in March.

A consequence is that small businesses are telling journalists they have difficulty filling jobs, or are contemplating how investment in robots might be needed to make do in the absence of willing staff. Economists at Bank of America Merrill Lynch highlight a spike in the number of newspaper articles using the words “labour shortage” in the past three months among the signs and, according to Izumi Devalier, an analyst at the bank: “all told, almost every single jobs indicator is pointing to the tightest labor market conditions since the 1980s bubble burst”.

Unlike much of the developed world, where inflation pressures are building, fears of rising prices in Japan remain minimal. Economists at Sumitomo Mitsui Trust Group “don’t see strong inflation on the horizon as consumption should remain muted”.

Instead labour shortages could be a constraint on economic growth. For the last five years around 1m women, mostly married, have entered the labour force each year, offsetting a similar number of workers reaching retirement. But BAML estimates this reserve of potential workers could be down to the last million, meaning to keep the expansion going Japanese businesses will have to get more productive with the employees they already have.

3. Amazon’s 20 years as ‘pre-eminent disrupter of retail’

Companies hoping to go public are often accused of over-promising would-be investors — especially those that listed in and around the dotcom bubble — but the pledge of one that listed 20 years ago this week seems even understated. “Amazon.com intends to use technology to deliver an outstanding service offering and to achieve the significant economies inherent in the online store model,” the company said in its IPO paperwork.

Amazon shares, listed at $18 at the time, have produced a compound annual return of nearly 40 per cent since the initial public offering. That means, for example, $100 invested in Amazon stock at the IPO would be nearly $64,000 today (the stock split three times, so one share at the IPO equals 12 shares now). Up 63,990 per cent since its IPO, Amazon ranks as the best-performing US-listed IPO since 1995, according to Dealogic.

For context, Netflix is fourth and Yahoo is seventh and the total return on the S&P 500 in the same period is about 300 per cent. It was not always smooth sailing, though. Its shares sold off after the initial euphoria around the listing. Then, during the dotcom bust, adjusted for the stock splits, Amazon fell from a high of $113 in December of 1999 to a low of $5.51 in October 2001.

4: UK sterling-earning stocks remain underwater after Brexit vote

Sterling’s rise back toward the $1.30 level has not deterred the FTSE 100 from setting new records, with its dominant oil majors and exporters continuing to benefit from a relatively weak pound. But new benchmarks designed by KPMG reveal the extent to which companies more dependent on earning revenue in sterling are beginning to catch up, but not to such an extent that the major accountancy company’s UK 50 index has passed back above levels reached before the Brexit referendum in June. The KPMG UK 50 is made up entirely of companies that earn more than 70 per cent of their revenue at home.

The non-UK 50 features companies that earn only 30 per cent, or below, of their revenue in foreign currency. The indices offer a clearer distinction than the FTSE 100 and FTSE 250 between which stocks benefit from a weaker pound and which do not. That’s because the traditional London benchmarks are based on a company’s market value, and pay no heed to the currency in which revenues are generated.

The ability of sterling stocks to break back above their pre-referendum levels will also be closely watched.

5. The Buffett indicator flashing a warning for US equities

The S&P 500 has risen beyond 2,400, extending its record run. By a number of valuation metrics, the US market looks expensive. One ratio that Warren Buffett has said he watches is the ratio of market capitalisation — via the Wilshire 5000 — versus the US economy or nominal gross domestic product. This measure is approaching 130 per cent, and has only been higher once before, at 137 per cent in 2000 just before the dotcom bubble popped. In a nutshell, the comparison tells us how much investors are discounting future revenues and earnings from companies compared with the size of the economy.

Other notable investors are also looking at such comparisons. This week, Jeffrey Gundlach, the head of DoubleLine Capital, opined that US equities look expensive and focused on the market value of the S&P 500, as compared with US GDP. It comes after Goldman Sachs also noted recently that US stock valuations have become “very stretched relative to history across most valuation measures”.

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