Interactive Investor

Market snapshot: growth fears as investors lean towards a defensive mindset

5th April 2022 08:56

Richard Hunter from interactive investor

Sentiment remains fragile as the war in Ukraine endures, while in the US, Tesla CEO Elon Musk buys a 9% stake in Twitter.

Investors remain cautious on growth prospects, as the West considers tightening its stranglehold on the Russian economy.

The latest bout of public outrage has strengthened the resolve of Western leaders to take further action. Even Germany, which has a high reliance on the import of Russian gas, is looking to refrain from further imports. Meanwhile, as countries consider actions to offset the loss of energy supplies, prices remain well supported, such as an oil price which has popped again and has now risen by 41% so far this year.

The vestiges of the conflict remain unknown, even after the aggression has subsided. In the meantime, the war has already shown signs of threatening economic growth, while from an investor perspective sentiment remains fragile given the volume of news emanating from the region. Alongside the pre-existing issues of inflation and rising interest rates, some repositioning is increasing the attraction of defensive stocks.

Meanwhile, a beleaguered Nasdaq, which has declined by 7% this year, was the subject of some froth. According to a regulatory filing, Tesla (NASDAQ:TSLA) boss Elon Musk now holds over 9% of Twitter (NYSE:TWTR), sending shares of the social media site up by over 25% and begging the inevitable question of how far the stake building – and involvement – will reach. Meanwhile, his own company’s shares jumped by over 6% after reporting higher-than-expected delivery numbers in the first quarter.

The imminent reporting season on both sides of the pond will have a firmer focus on outlook comments than usual, as investors try to gauge the corporate sentiment in boardrooms. In the meantime, and in need of a shorter-term stimulus, the Dow Jones remains down by 3.9% and the benchmark S&P 500 by 3.8% in the year to date.

The repositioning towards a defensive mindset and the fact that energy prices are underpinned for the time being continue to play into the hands of the UK’s premier index.

The FTSE 100, which has risen by 2.4% so far this year, continues to outpace its developed nation rivals as the UK receives fresh attention as an investment destination after some years in the wilderness. There is likely to be further M&A activity across all UK indices with several “for sale” boards appearing, while the impending reporting season could also bring news of further shareholder returns, and perhaps share buyback programmes in particular.

Each of these would be supportive both for sentiment and prices which, in the current global environment, is a difficult mix to find.

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