Market snapshot: another brick in the wall of worry

It is said that bull markets need to climb a wall of worry, and for this one, fresh bricks are being added by the day.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Despite the debilitating effects of conflict, elevated oil prices, inflationary impacts, the possibility of monetary tightening, dubious consumer sentiment and concerns over technology valuations and AI spending in general, US markets continue to scale fresh highs.

It remains to be seen whether the reaction to NVIDIA Corp’s latest results is the canary in the coalmine. Shares fell by around 2% despite another stellar set of quarterly numbers, with revenues of $81.62 billion versus a consensus of $78.86 billion and with guidance for the current quarter of $91 billion. At the same time, the company raised its dividend from 1 cent to 25 cents and announced a whopping $80 billion share buyback programme. Expectations are growing exponentially and, as time goes on, the target will become more difficult to hit.

Walmart Inc also felt the weight of heightened hopes. The shares have been on a decent run as some consumers retrench to the retail bellwether, but despite an impressive quarter, the outlook was slightly weaker than expected and the shares were punished with a fall of more than 7%.

• Nvidia still ‘top pick’ after Q1 results beat
• Big discount triggers bullish signal for this stock
• Trading Strategies: is BAE Systems overvalued after 270% rally?

Even so, the quarterly reporting season in the US, which is all but complete, has been an extraordinary success and has provided a strong springboard for the rise in share prices. By the same token, there are any number of red flags emerging, with an oil price which remains over $100 per barrel, higher Treasury yields which are anticipating increased inflation and nudging up borrowing costs, and an elongated conflict where the US and Iran seem still to be far apart on a resolution, particularly on the issues of control in the Strait of Hormuz and nuclear enrichment.

US markets have breezed past the noise for the most part, with the Dow Jones hitting a record closing high that lifts the index to a positive return for the year to date of 4.6%, while the more technology focused S&P500 and Nasdaq have seen the benefit of renewed investor enthusiasm to stand ahead by 8.8% and 13.1% respectively.

• City reacts to BT’s new dividend policy
• How to make early retirement a possibility
• The risks and rewards of investing in ‘hot’ themes

Caution was more evident in UK markets at the open, although the main indices posted reasonable gains. The more domestically focused FTSE250 was ahead to bring its performance so far this year to a positive 2.8%, despite a retail sales figure which confirmed a creaking economy.

Consumers held back in the face of soaring petrol and diesel prices, with clothing demand in decline which caused a fall of 1.3%, the largest in almost a year. The news further complicates issues for the Bank of England, where inflationary concerns are holding the upper hand despite a flatlining economy, which has all but ruled out the likelihood of interest rate cuts this year.

• What’s the state of play for Nick Train?
• British Land’s ‘compelling fundamentals’ imply big upside
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

The FTSE100 is driven by more global concerns given the largely international focus of its constituents, although the index has attracted new interest over the course of this year given its perceived stability and defensive attributes.

In terms of total return, an average dividend yield of 3.4% is an additional attraction, and while the premier index has lagged behind the pace of recovery seen elsewhere, it nonetheless remains ahead by 5.5% in the year to date.