Interactive Investor

Market snapshot: good news for Wall Street and Square Mile

7th February 2022 08:09

Richard Hunter from interactive investor

These are volatile times, but markets are at least heading higher on Monday. Our head of markets explains the key talking points today. 

A far better than expected jobs report underlined the strength of the US recovery, while Amazon (NASDAQ:AMZN) shares lifted sentiment towards the beleaguered tech sector.

Friday's non-farm payrolls number of 467,000 jobs added compared to a consensus of just 150,000. In addition, the previous month’s weak December print was revised up to 510,000 from the initially reported 199,000. Alongside a continued rise in average hourly earnings, these numbers will reinforce the Federal Reserve’s contention that the US is at or around around full employment, further justifying its stance to concentrate on the thorny issue of inflation.

It also implies that the US economy is weathering the effects of the latest variant and that it is strong enough to withstand the likely interest rate rises to come without derailing the recovery. The pace of monetary tightening nonetheless remains an unknown which investors are continuing to debate. With an inflation report due later in the week which could show an acceleration of core inflation by 5.9%, there are increasing suggestions that the first hike, widely expected in March, could be by as much as 0.5% with a year-end target of 1.5%.

 

Meanwhile, Amazon unwound some of the psychological damage wrought by poor numbers from Facebook owner Meta Platforms the previous day. Amazon unveiled plans to spin off its advertising business, hike Prime subscription prices and provided an upbeat outlook, all of which lifted its shares by almost 14%.

Again, however, there were areas of disappointment generally, with Ford Motor Co (NYSE:F) shares down nearly 10% after an underwhelming set of numbers and a disappointing outlook.

Indeed, the earnings season has not been the panacea for which investors had hoped. Despite the overall numbers to date generally exceeding expectations, a number of high profile companies have upset the apple cart either in terms of the numbers reported or by a more downbeat earnings outlook for the first quarter of this year.

Outlooks have in part suggested further supply chain issues and wage inflation to come, thereby putting further pressure on margins. Indices therefore remain in negative territory in the year to date, with the Dow Jones having shed 3.4%, the S&P500 5.6% and the Nasdaq 9.9%.

In the UK, the FTSE100 is maintaining its contrarian stance in terms of performance, as it continues to benefit inter alia from the strength of an oil price which has now risen by 20% in the year to date. In addition, the mature, cyclical and to some extent defensive nature of its components have also attracted renewed interest from investors given the turmoil being seen elsewhere.

Whereas high growth stocks have felt the full force of investor rotation in anticipation of higher rates within an inflationary environment, these very factors have highlighted the attraction of certain stocks which display protection against inflation through strong pricing power.

While volatility is most likely to continue at least until the Federal Reserve announcement in March, investors will continue to search for alternative investment destinations until some of the global economic tightening concerns settle. With its own rise in the year to date of 2.3%, the FTSE100 could continue to be on the radar for such investors.

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