Finimize - ⚠️ A warning for stocks

What’s going on here?

The world’s biggest state-owned investment fund suggested that inflation could still issue a blow to the market.

What does this mean?

Norges Bank Investment Management owns 1.5% of the world’s listed companies, making it the biggest single owner of stocks out there. So with $1.5 trillion worth of assets under its belt and an in-depth understanding of market trends, the management team’s opinion is worth its weight in, well, stocks. And right now, the fund is sending out an ominous prediction that stubborn inflation could hold back market returns for years to come. That’s partly because workers are demanding higher wages in many countries, which would let them keep up with increasing prices and, in turn, encourage retailers to pull up prices further – a spiral that stokes inflation. Consider, too, that international trade is at a heightened risk of disruption now that war has broken out around the world, and there’s reason to believe that prices could stay in the danger zone for some time.

Why should I care?

For markets: Keep it interesting.

Central banks have been looking at increasingly manageable inflation as their ticket to lower interest rates – the move that would make it cheaper for shoppers to fill their carts and, as a result, energize economies. But if inflation stops slowly inching lower, central banks could be forced to hold rates where they are. Then because higher-for-longer rates tend to weigh on stocks’ valuations, the market’s returns would likely take a turn for the worse.

Zooming out: As good as it gets.

Goldman Sachs is cautious about the coming months, too. The big bank has suggested that investors’ sentiment and stock ownership is just about as high as it could be in today’s circumstances, leaving little room for the market to positively surprise anyone. Plus, most investors have been enticed by only a few stellar stocks, which amplifies the risk of disappointment.

What’s going on here?

Well-connected Northvolt raised $5 billion, enough for the Swedish battery maker to supercharge a factory or two.

What does this mean?

Batteries are big business, with major industrial economies looking to swap fossil fuels for a more sustainable energy source. So for Northvolt, raising $5 billion in debt is a pittance compared to the potential payout that the future could bring. The Swedish company plans to invest the cash into both its existing battery factory and a new recycling center right next door, a setup that could rival some of China’s winning battery makers’ plots. Now, this isn’t Northvolt’s first foray into finance: the firm is Europe’s most-funded startup and boasts the biggest green European loan to date. But with blueprints for more massive factories in the works, Northvolt is considering going public to raise even more cash. And while the startup racked up over $1 billion in losses last year, investors will likely line up to give their portfolios some battery charge.

Why should I care?

For markets: All for one, win for all.

Northvolt’s multi-billion-dollar loan makes it clear that there’s plenty of cash flowing into the clean energy circuit. See, governments have been investing in the battery sector to secure sustainable fuel for their money-making industries. Investors, too, have been pouring cash into the industry, keen to pocket a percentage when companies start plugging in batteries instead of burning the literal midnight oil.

Zooming out: The tower could topple.

Governments are particularly eager to build battery factories outside of China, in case geopolitical tensions compromise global trade. But that’s not the only risk for battery supply. Copper, for example, is a key ingredient in power grids, wind turbines, and makes up 12% of electric vehicle batteries. And with more countries stocking up, miners might struggle to keep up with demand. In fact, Chile – a major player in the copper sector – expects to see higher prices for the shiny stuff.