Market snapshot: central banks and a return to mega tech stocks

Central bank policy remains a key theme and rates look like they could keep rising, but investors still like the big American technology stocks. Our head of markets makes sense of it all.

Markets overnight were flat to positive, underpinned by a tentative return to high growth momentum stocks.

The main theme of the week has seen a guarded investor response to the latest central bank actions and outlook comments. In the US, Federal Reserve Chair Powell continues to confound the interest rate speculators who believe that the hiking cycle has ended, reiterating the likelihood of further rate rises to come, depending on the data as it emerges.

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The position remains finely balanced, with some chinks beginning to appear in what has been a strong labour market, and with some warning signals emanating from the likes of the manufacturing and banking sectors. At the same time, the consumer remains active even though there is an increasing belief that pandemic savings are starting to evaporate, all of which is leading to a consensus for another rate rise in July following the pause this month.

In the meantime, investors returned to the large tech stocks as harbingers of growth, with Amazon.com Inc (NASDAQ:AMZN) ahead strongly and with Apple Inc (NASDAQ:AAPL) shares hitting a new record high. Quite apart from the earnings resilience which the mega-cap tech stocks have displayed in recent months, excitement has been heightened by the possibility of high returns from a burgeoning Artificial Intelligence arena, where any number of firms large and small are jostling for position as the technology shows rapid signs of evolving.

Although the main indices remain on course for a negative week in reaction to Fed comments, the year to date performances remain robust, with the Dow Jones having added 2.4%, the S&P500 14.1% and the Nasdaq 30.2%.

Asian markets were under pressure, buffeted not only by stronger signs of inflation elsewhere around the globe but also by central banks’ determination to bring price rises under control. With China closed for a holiday trading was lighter than usual, although this did not detract from economists issuing further warnings on the faltering economic rebound and echoing the recent mantra that investor sentiment remains weak in the country. 

Meanwhile, in Japan the Nikkei paused its recent rally after a stronger than expected inflation reading, with some concerns that the Bank of Japan could be edging towards a policy shift of tighter monetary policy. As has been seen globally, once the inflationary genie is out of the bottle it becomes an increasingly difficult task to rein in prices without the possibility of damage to economic growth.

Indeed, the UK has become an unfortunate poster child of the current dilemma. A larger than expected 0.5% rise in interest rate split opinion once more between those who believe that the Bank of England had little choice but to enforce a hike immediately rather than in dribs and drabs, and those who are expecting recession as inevitable as rate rises choke what is already tepid growth.

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The FTSE250 opened weaker again after a difficult day yesterday, and any earlier year gains have been wiped out, with the index now down by 3.2% in the year to date.

The premier index mirrored investor concerns over the general state of inflationary and interest rate positions, drifting lower as investors chose to sit on the sidelines as events continue to unfold. The beleaguered housebuilding sector came under further pressure after a raft of broker downgrades weakened prices across the board, and most notably Berkeley Group Holdings (The) (LSE:BKG) and Persimmon (LSE:PSN).

The general apathy of investors has hovered over the index for some weeks now, with the progress of the FTSE100 in the year to date reduced to just 0.4%.