Market snapshot: big events kicking off the new month

Our head of markets talks through the major issues impacting investors on the first day of February.

Markets ended the month with a whimper, as the pandemic continues to raise questions and as the ongoing retail feeding frenzy at the expense of some hedge funds in the US provides a further distraction.

The retail versus institutional battle has had some effect on what was already brittle sentiment, even though the action was largely confined to a handful of stocks.

The underlying concern is one of a delayed economic recovery, given new variants of the virus and additional lockdowns which have provided further restrictions on the hardest hit sectors. At the same time, some doubts have surfaced on whether President Biden’s new fiscal package has sufficient support to be passed in its current form.

Alongside these uncertainties, a generally positive earnings season is still in full swing, with big tech continuing to carry the torch for the bulls. Amazon.com Inc (NASDAQ:AMZN) and Google owner Alphabet (NASDAQ:GOOGL) will report this week, with expectations remaining high after blowout numbers from the likes of Netflix (NASDAQ:NFLX) and Apple (NASDAQ:AAPL).

These factors are reflected in the movement of the major indices in the month of January, with the Dow Jones having lost 2%, the S&P 500 1.1% and the Nasdaq posting a gain of 1.4%.

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The UK also has a busy corporate week ahead, with the likes of the oils and the telecoms reporting against a difficult backdrop.

Early year optimism, which saw a spike of 6% in the first week of January alone, has evaporated, with the FTSE 100 currently down by 0.4% in the year to date, even though the new month has started on a slightly stronger footing. Sterling’s stubborn strength has been another factor in holding back the index, while attention has switched to the timing of any economic recovery. 

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The initial euphoria had been based on a relatively rapid return to growth as pent-up demand was released into the economy, but such hopes have faded somewhat. While light unquestionably remains at the end of the tunnel, the reality of actually achieving a return to normality seems less obvious for the moment.