Market snapshot: buckle up for rollercoaster ride

Investors are braced for a critical week which could define medium-term sentiment, with a raft of company reports and economic announcements due on both sides of the pond.

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The end of last week exemplified the current level of investor confusion, as the recent rotation from the AI trade into more defensive names evaporated. The more traditional Dow Jones fell by more than 650 points, with utilities, healthcare and consumer staples all lower.

American Express Co (NYSE:AXP) fell by more than 3% over the week after announcing a 5% cut to its global workforce in preparation for the effects of AI, while industry staple Caterpillar Inc (NYSE:CAT) fell 2% ahead of its update this week. At the same time, investors dipped their toes back into the choppy waters of the AI trade, with some relief feeding through to the likes of Microsoft Corp (NASDAQ:MSFT), Micron Technology Inc (NASDAQ:MU) and Advanced Micro Devices Inc (NASDAQ:AMD), which added up to 3% between them.

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Treasury yields were stable with some haven buying in evidence, but the oil price spiked again on continued fears of a resumption of hostilities between the US and Iran after the imminent midterm elections.

However, some weakness ensued following reports that Qatari mediators were in Tehran on Sunday, while on the same day US Central Command claimed that American forces had helped Gulf countries export more than 1.5 billion barrels of oil through the Strait of Hormuz since the summer, with more than 95% of ships passing through safely. Even so, the prolonged nature of the conflict, which is already showing secondary effects through anything from gasoline to food and clothing, has left the price at around $115 per barrel, 31% higher than the beginning of the conflict and 90% ahead so far this year.

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With a quarter of S&P500 companies already having updated, some 83% have beaten expectations, but this week will provide an acid test as a slew of corporate updates sheds further light on the economic scene and, equally, the outlook from boardrooms on immediate prospects.

Quite apart from household names such as Boeing Co (NYSE:BA), Ford Motor Co (NYSE:F), Coca-Cola Co (NYSE:KO), Intel Corp (NASDAQ:INTC), Chevron Corp (NYSE:CVX) and ExxonMobil Holdings Corp (NYSE:XOM), the AI and Magnificent Seven trade will also be tested. Expectations are high for Google-owner Alphabet Inc Class A (NASDAQ:GOOGL), Microsoft Corp (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN) (and SK hynix Inc ADR (NASDAQ:SKHY) and Samsung Electronics in Asia) where funding concerns and the required return on capital have blighted the trade of late, and where reports of additional spending have tended to meet with a frosty reception of late.

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In addition, there is the release of the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, which is estimated to show a headline rate of 3.7% in September, still well in excess of the 2% target. Even so, the Fed is overwhelmingly expected to leave interest rates on hold this week, while there is an equal conviction that a hike in December will follow amid signs of resilient economic activity, albeit tempered slightly by some weaker consumer sentiment.

In the meantime, a mixed week has shaved some of the performance figures for the main indices, but after almost 10 months the progress has been resolutely positive. In the year to date, the Dow Jones is ahead by 8.6%, while gains of 11.4% for the S&P500 and 11.7% for the Nasdaq have reflected a mostly optimistic outlook for the prospects which the new technology could bring.

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The breathless pace is also in evidence in the UK this week, with any number of blue-chips updating on third-quarter progress. The three largest FTSE100 constituents, HSBC Holdings (LSE:HSBA), Shell (LSE:SHEL) and AstraZeneca (LSE:AZN), will each report, mirrored by sector counterparts in the form of Standard Chartered (LSE:STAN), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG), BP (LSE:BP.) and GSK (LSE:GSK). Sandwiched between results is the Budget, which is overhanging the more domestically focused banks where a resumption of the 8% bank surcharge is both feared and expected.

As investors strap in for a potential rollercoaster ride this week, the FTSE100 opened in defiant mood, propelled in part by a 6% gain for Computacenter, which raised its full-year outlook after breezing past third quarter expectations. Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV) found support from a stronger gold price, although some weakness across traditionally defensive names showed that the risk-on approach was not in full flow.

Even so, the gains lift the performance of the FTSE100 to 8% in the year to date which, coupled with an average dividend yield of 3.1% across the index lifts the total return to a level which reflects its strength and haven status.