interactive investor's head of markets explains what's moving stock prices.
Jitters have heightened on the strengthening of the Delta variant of Covid-19, which continues to spread largely among the unvaccinated.
With thoughts now turning to the availability of the vaccine, particularly in less developed but more populous areas, echoes of the initial pandemic have been seen in investor behaviour. This is resulting in risk aversion, as evidenced by the switch out of equities into the relative haven of the bond market, and has hit interest rate sensitive stocks such as the banks as bond yields decline.
At the same time, the new variant casts a shadow over what had been a slowly recovering international travel business, with concerns over further lockdowns in the next few months dashing the hopes of the tourism sector for the summer period.
There has also been a return to some specific “work from home” stocks, as the possibility of further enforced shutdowns threatens to mirror some of the restrictions from last year.
A weak showing in markets globally may provide some buying opportunities on the dip, but for the moment, and despite a strong start to the earnings season, sentiment rather than performance is the overriding factor. For the US, while markets have taken a hit, the year to date numbers leave plenty of gas in the tank, with the Dow Jones still ahead by 11%, the S&P500 13.4% and the Nasdaq 10.8%.
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The constituents of the FTSE100 have again proved its undoing, with the index now ahead by just 5.9% in the year to date. Quite apart from the banking sector, the proliferation of oil and mining stocks has also added to the downward pressure, while on the margins the airlines and airline-related stocks such as Rolls-Royce (LSE:RR.) were also caught in the broad market sell-off. The more domestically focused FTSE250 also came under general pressure and now stands up by 7.1% so far this year.
The opening of trade in the UK reflects something of a relief rally, with the possibility that investors are seeking buying opportunities, given what may have been a slight overshoot of negative sentiment. Even so, it will be some weeks for the effects of the full easing of restrictions in the UK to become apparent.
As such, this may be a time to tread carefully until such time as the variant can be stopped in its tracks, thus allowing the full return to some kind of normality – and economic recovery - to resume.
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