Market snapshot: FTSE 100 in focus as S&P winning streak ends

The clouds of uncertainty refuse to blow over, ending a nine-day relief rally for the benchmark S&P500 with the other main indices following suit.

There have been some gaps in the clouds which have allowed markets to improve, although not to the extent of erasing losses incurred so far this year. The delay of certain tariffs, some trade deals apparently nearing completion and faint hopes that the US and China will come to some agreement have lessened the blow of late.

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However, the uncertainty continues to play havoc with businesses, consumers and investors, even though there are few signs that cracks are beginning to appear in the US economy – yet. A stronger than expected non-farm payroll figure at the end of last week offset some of the disappointment of a negative GDP reading, but of the companies which have reported so far this quarter, the message has been loud and clear – it is not possible to give guidance or a meaningful outlook over the coming months.

What's more, recent research shows that half of the companies which have reported profit warnings attribute poor performance to the escalating trade war. Ford Motor Co (NYSE:F) was the latest to add to the chorus, estimating a $1.5 billion hit to operating profit from tariffs this year, sending its shares lower in trading after the closing bell.

The Federal Reserve is in a similar position, and it is accepted almost across the board that it will keep interest rates on hold later this week. Accompanying comments from the decision are likely to be more revealing, not only for the Fed’s take on slowing economic growth, but also for any hints of inflationary pressures emerging. 

In the meantime, any relief rally has failed to repair the tariff damage, and in the year to date the Dow Jones is down by 3.1%, the S&P500 by 3.9%, while a 7.6% decline for the Nasdaq has been the result of increasing pressure on the mega cap technology stocks, despite some promising updates last week from some members of the “Magnificent Seven”.

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Asian markets were mixed to higher overnight, although the trade war is weighing heavily. A survey showed that China’s future service sector activity fell to its lowest ever level bar the pandemic, with optimism draining from corporates and resulting in further job losses at a time when the authorities are trying to stem the wider economic slowdown. The region has seen some overseas investor interest as a result of some eschewing the US, but sentiment nonetheless remains jittery.

In the UK, another survey revealed that consumer confidence had plunged to levels not seen since high inflation and the cost-of-living crisis took hold, with most expected a further decline in fortunes to come.

The Bank of England is expected to inject some relief into the system later in the week with a further 0.25% rate cut to 4.25%, although such measures inevitably come with a significant time lag before having much effect. The FTSE250 has been at the centre of waning optimism around the domestic economy and, while not at its previous lows, remains down by 1.2% so far this year.

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The FTSE100 remains something of a beacon of light compared to many of its global peers, with its suite of relatively stable and defensive sectors playing into investors’ desire for alternative investment destinations.

Coupled with an undemanding valuation both historically and globally, alongside an average dividend yield of 3.5%, the blue-chip index has added 5.6% this year, and at the open further resilience was in evidence. A broad mark up incorporated both defensive and cyclical sectors, the latter of which resulted in some strength in the likes of the retailers and the housebuilders.