Market snapshot: caution is name of the game

With the number of moving parts on the increase, investors are tending to err on the side of caution.

The possibility of escalating violence in the Middle East and the potential for the conflict to fan out to the wider region has seen a shift in favour of haven assets, with the US dollar, Treasury bonds and gold all spiking. At the same time the oil price has moved higher once more on potential supply disruptions, while in the US a consumer sentiment survey suggested some deterioration.

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

The US consumer is pivotal to growth, and has been one of the reasons for the resilience of the economy against a backdrop of rising interest rates. The data from the survey suggested that sentiment had fallen, with inflation expectations heightened.

The next test of investors’ mettle will follow this week with the release of retail sales figures, where a small uptick is expected. The data could prove to be in a no-win scenario, where a strong number could reignite concerns that the Federal Reserve may need to keep tightening, while a weak number could raise questions as to the severity of a potential recession.

Strikes across the US and the possibility of a government shutdown are providing additional hurdles, but there are also some grounds for optimism. Comments from a Fed member on Friday reiterated that rates may have peaked, even though the length of time they will remain elevated is still open to debate, while the initial salvos on the latest reporting season were generally positive.

The likes of JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) finished higher on better-than-expected profits over the summer quarter, with customers continuing to borrow despite higher rates. Any levels of consumer default will be further tested this week as the likes of Bank of America Corp (NYSE:BAC) report, while The Goldman Sachs Group Inc (NYSE:GS) will be closely watched on the back of its investment banking business.

In the meantime, UnitedHealth Group Inc (NYSE:UNH) added to a generally strong opening to the season, although BlackRock Inc (NYSE:BLK) offered some notes of caution as it experience some of its longer-term investors moving to cash in view of the availability of higher yields.

• Guide to US earnings season - Q3 2023
• Ask ii: is this a smarter way to play the S&P 500?
• Stockwatch: the implications for investors of new Middle East conflict

The ongoing barrage of data for investors to assess has taken some of the shine from earlier year gains, although each of the main US indices remains in positive territory for the year to date. The Dow Jones is ahead by 1.6%, the S&P500 by 13% and the Nasdaq by 28%, with the latter coming under some pressure over the last week in view of inflation uncertainty.

Despite a mixed Wall Street session and a weak overnight showing from Asia, the UK market rose briskly at the open, even though this was based more on fundamentals as opposed to a swing to positive sentiment.

Miners and the oil majors received some support on the previous spike in oil and gold prices, while Severn Trent (LSE:SVT) broker upgrades to Severn Trent and United Utilities Group Class A (LSE:UU.) provided specific bounces. The move left the FTSE100 ahead by 2.4% in the year to date.

• Q3 results preview: profit expectations and an upgrade for UK stocks
• The Week Ahead: Rio Tinto, Relx, Whitbread, Dunelm, Deliveroo
• Is the UK stock market still worth investing in?

On a domestic basis, this week will provide some further colour to a beleaguered UK economy in the form of unemployment numbers, inflation and retail sales.

Ahead of what could prove to be a testing week, the FTSE250 has added to previous losses of late and is currently down by 7% so far this year.