Market snapshot: has the heavy lifting already been done?

Global stock markets have hit a sticky patch but are on track for a great year. Our head of markets studies the events that could shape the final weeks of 2021 and the direction of travel in 2022.

Markets remain beset by uncertainty as the spread of the Omicron variant threatens to derail the general economic recovery.

In the US, this resulted in a switch to defensive stocks at the expense of the likes of the consumer discretionary and technology sectors, as investors sought refuge as the variant continued to spread.

Meanwhile, despite the non-farm payroll report significantly missing expectations at the headline level, wages and labour participation rose. The overall take was the conclusion that the report was strong enough on balance for the Federal Reserve to continue with its likely acceleration of its tapering programme.

With the US potentially much closer to full employment than had been expected, the scene is set for an earlier than expected series of interest rate hikes next year, with the general consensus falling between two and three rises in 2022. The first of these moves could come as early as March, leading to the possibility of slower economic growth (as well as the desired lessening of inflation) over time.

These factors were enough to send the main indices lower, while in the background the volatility index remains elevated, underling investor anxiety. Even so, the cumulative performances of the indices remains robust, with the Dow Jones ahead by 13% in the year to date, the S&P500 by 21% and the Nasdaq by 17%.

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Despite this weak showing and an equally uninspiring performance from Asian markets overnight, UK indices took solace in a longer-term view which focused on the potential of recovery stocks.

In particular, hotel and airline stocks found some support as investors continue to assess whether the recent markdowns have been overdone, especially when looking further out to what could be a promising summer season. Elsewhere, the vague and ongoing takeover speculation which continues to overhang the telecoms sector provided some further impetus.

However, the outlook remains immediately uncertain and the mixed economic messages, let alone the new variant, are muddying the waters. It is likely that the remaining few weeks of the year will be equally volatile as new information emerges on both. 

In the meantime, much of the heavy lifting for a positive annual performance seems already to have been done in terms of the major indices, with the FTSE100 currently ahead by 11% in the year to date, and the FTSE250 by 11.2%.

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