Market snapshot: economic optimism, banks and Suez

A late surge in US markets Friday saw value stocks attract buying interest.

Renewed optimism on economic recovery is lifting all boats as investors continue to gauge those sectors most likely to benefit.

The late surge in US markets on Friday was across the board at the end of last week, but value stocks in particular saw specific buying interest. There was also evidence of a boost to retail as consumers begin to spend their stimulus cheques and, as restrictions ease, the likelihood of the release of pent-up demand accelerates. Despite the fact that US consumer spending dropped last month, the arrival of those cheques, warmer weather and improving consumer sentiment is likely to reverse the decline this month.

Further positive news came from the banking sector, where the Federal Reserve  announced that income-based restrictions would largely be lifted in June, which should enable the reintroduction of dividends and share buybacks. As has already been seen in the UK, banks are more likely to stick to the slow lane initially with shareholder returns, but the announcement nonetheless underlines further progress towards some sort of normality.

Meanwhile, the reported liquidation of some block trades and a potential hedge fund default will be closely monitored by investors for any ripple effects over the coming days, although for the moment the moves appear to be confined to a handful of specific stocks. 

However, the combination of positive factors has resulted in market gains which have been skewed towards the more traditional indices, with the previously booming technology index some way behind. In the year to date, the Dow Jones is up by 8%, the S&P 500 5.8% and the Nasdaq 1.9%.

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The likely reopening of the Suez Canal shipping route should slowly allow the accumulated blockage to ease, while a meeting of OPEC later in the week will be watched for any decisions on supply. The oil price has of late been drifting on concerns that hopes for the resumption of demand has been overstated, although it remains strongly ahead by 22% so far this year.

Closer to home, the FTSE 100 index has maintained its sedate progress, and is poised but yet to benefit from the rotation towards value stocks which typify the index. 

Ahead by 4.5% in the year to date, the FTSE remains on the radar of value-seeking investors generally, with the move towards a general restoration of dividend payments providing an additional attraction.

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