Market snapshot: conflicting signals for investors

Markets have moved into a holding pattern as the conflicting signals from higher inflation and strong company earnings continue to do battle.

The US inflation shock from earlier in the week has subsided somewhat, although slightly disappointing earnings from Disney (NYSE:DIS) dampened the mood.

Even so, the third-quarter reporting season has, on the whole, been a roaring success which has confounded the bears. It appears that the effects of supply chain bottlenecks, rising raw material prices and a tightening labour market have done little to derail the recovery of companies on the ground, although those concerns are likely to persist over the coming months.

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Indeed, inflation remains the major concern after the surprisingly high number earlier in the week, and this in turn has put further pressure on the Federal Reserve to reconsider its stance on the need for interest rate hikes. Currently, two hikes are being priced into markets for next year, with the worst scenario being that the Fed alters its outlook and raises rates faster and further than is currently anticipated.

In the meantime, there is some evidence of consumers bringing forward festive purchases in order to sidestep any potential supply problems, and next week’s retail sales number may give some early indications on consumer spending leading into the Christmas season.

In the year to date, the positive progress of the major indices remains intact, with the Dow Jones ahead by 17.4%, the S&P500 by 23.8% and the Nasdaq by 24.4%.

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Investors are rather more circumspect on this  side of the pond, although some positive news emanating from China on the Evergrande saga, as the company avoided default once more, has been generally positive for sentiment. In addition, higher commodity prices have fed through to something of a resurgence of interest in mining shares, although some of the gains have been clipped in early exchanges.

The appeal of the UK as an investment destination, as evidenced by a spate of M&A activity over recent months, has also resulted in a perfectly respectable performance from the main indices in the year to date, with the FTSE100 up by 14% and the FTSE250 by 15%.