Interactive Investor

Market snapshot: another crazy day for stocks?

25th January 2022 08:05

Richard Hunter from interactive investor

Wall Street swung from a huge loss in Monday's session to end the day in positive territory. Our head of markets explains why and looks ahead to this week's key event. 

Another hectic bout of trading kept investors on guard, as volatility was propelled by a multitude of concerns.

A tempestuous session in the US saw the Nasdaq plunge by 5% at one point and the S&P500 slip into correction territory, before a wave of bargain hunters piled in to leave each of the major indices finishing marginally ahead.

This volatility is likely to prevail for the moment, with tensions between Russia and Ukraine unsettling investor sentiment and with the imminent Federal Reserve meeting likely to have a major impact on the short term direction.

An increasingly hawkish Federal Reserve is expected to be confirmed on Wednesday with a wind down of easing and an indication of interest rate hikes largely expected. At the same time, the persistently high level of inflation at present has led some observers to wonder whether the Fed is actually behind the curve, and whether any monetary tightening could be even more harsh than anticipated.

More positively, the message may be delivered to reflect the likely improvement in economic fortunes as the variant subsides, allowing the recovery to resume and with the possibility of full employment, thus easing some of the inflationary concerns. Equally, the falls seen this year are enough to tempt in some buyers on the dips, on the basis of easing supply chain blockages and what is still hoped will be a strong earnings season.

In the meantime, the sharp rebound at the end of the session still left the major indices down in the year to date, with the Dow Jones now having lost 5.4%, the S&P500 7.5% and the Nasdaq 11.4%.

The general package of concerns also erased the FTSE100’s positive opening to 2022, leaving the index down by 1.2% after a bruising session. A broad mark down across the sectors ensured a weak response to escalating geopolitical tensions. There are also fears that even higher energy prices might ensue at a time when rising interest rates are potentially placing different pressures on a beleaguered consumer, who will also be dealing with a tax hike regime as the year progresses.

In opening trade, the FTSE100 recouped some of its previous losses and now stands down by just 0.5% for the year. Nonetheless, despite the defensive qualities which had so far protected the index from the falls seen across the pond this year, the prospect of deteriorating sentiment will be difficult to avoid.

By the same token, should investor appetite return in the form of a risk-on approach, the UK’s premier index is likely to be towards the top of any global investor’s shopping list, even if on valuation grounds alone.

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