Glencore and Scottish Mortgage suffer heavy losses as sell-off continues

12th May 2022 15:24

Some of the most popular stocks both of 2022 and the past few years took another pasting today as recession fears cause investors to flee riskier assets like equities.

Glencore (LSE:GLEN) and Scottish Mortgage Ord (LSE:SMT) were among stocks in the firing line today as global recession fears hit commodity prices and triggered a flight from risk.

Yesterday’s hot inflation print of 8.3% in the US triggered the latest selling, as traders worry that the Federal Reserve will need an even more aggressive stance to bring prices back under control, potentially slamming the brakes on the US economy.

Matters were made worse by a disappointing update from the UK economy after Q1 growth of 0.8% was almost entirely due to expansion in January, with a 0.1% contraction in March.

Capital Economics warned: “It now seems likely that GDP will contract in Q2. And with the full hit of the cost-of-living crisis yet to be felt, the chances of a recession have just risen.”

With prices continuing to strengthen, the consultancy warns that the Bank of England may have no choice but to add to the woes of households by raising interest rates further.

The uncertain demand outlook created by higher interest rates and slowing economies was reflected in commodity markets today as the price of copper hit a seven-month low.

Since reaching a record $5 a tonne in early March, the price has fallen back more than 20% as Covid lockdowns also sap demand from China. The flight to the safe haven of the US dollar has contributed to the downturn because metal prices are more expensive for holders of other currencies.

Glencore, which last year generated more than a third of its earnings from copper, was one of the biggest fallers in the mining sector today as shares dropped 31.2p to 444.8p.

The stock remains more than 15% higher so far in 2022 after an earlier surge in commodity prices, particularly for coal in the wake of the Ukraine war.

Other blue-chip fallers today included Chilean copper miner Antofagasta (LSE:ANTO) and Rio Tinto (LSE:RIO) as the world’s largest iron ore producer continues to be unsettled by cost pressures and the uncertain outlook from Chinese steel-makers.

BP (LSE:BP.) also dipped 17p to below 400p as the FTSE 100 index stood 140 points lower at 7204 by the time of the opening bell in New York, wiping out a 100 point rise seen yesterday.

Pressure continued on Wall Street as the Nasdaq opened 2% lower in a continuation of recent trends, leaving the tech-laden index down almost 30% this year. Higher interest rates are a particular problem for high growth stocks valued on their future cash flows.

Tesla Inc (NASDAQ:TSLA), Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT) were all in negative territory today, while in London’s tech sector there were further big losses for warehouse robot technology business Ocado Group (LSE:OCDO).

Its shares topped 2,800p in February last year but are now back at 692p, having fallen 20% in the first eight sessions of this month to the lowest level since 2018.

Other pandemic-era winners under pressure include Tesla, Tencent Holdings Ltd (SEHK:700) and Amazon investor Scottish Mortgage, which is down 18% since 3 May and at its lowest level since summer 2020. It’s a similar story for car retail platform Auto Trader Group (LSE:AUTO), which is 14% lower this month.

Property portal Rightmove (LSE:RMV) dropped another 7p to 541p today, but analysts at Bank of America offered support with a “buy” recommendation and 715p price target.

Noting the company’s 20% underperformance versus the wider market this year, they said this had created a “once-in-a-cycle opportunity to buy a resilient/quality compounder”.

Despite today’s economic uncertainty, one of the few bright spots came from the retail sector after JD Sports Fashion (LSE:JD.) reminded investors that corporate earnings remain resilient.

It reported 5% growth in like-for-like sales for the 14 weeks to 7 May, which it said reflected the strength and breadth of its brand relationships and category offer.

JD said: “It has also been achieved against a backdrop of a global shortfall in the supply of certain key footwear styles which we expect to improve progressively through the year.”

Shares rose 6.25p to 125.15p as the trans-Atlantic retailer stuck to expectations for profits to at least match the level achieved in the year to January, when shares were above 200p.

Other retailers were buoyed by JD’s resilient update, with Next (LSE:NXT) up 40p to 6254p and Marks & Spencer Group (LSE:MKS) 1.5p higher at 138.2p in the FTSE 250 index.

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