Interactive Investor

Market snapshot: here's what's preventing share price gains

18th September 2020 08:35

Richard Hunter from interactive investor

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There are good reasons why stock markets, even in the US, have hit the reverse button.

Disappointment from the US Federal Reserve’s inertia earlier in the week continues to overhang.

With those claiming unemployment benefits in the US now at 30 million, and with the recovery still looking uneven, hopes of further stimulus were dashed as the Fed reiterated its current stance. While the continuation of ultra-loose monetary policy should prove beneficial in the medium term, Main Street currently needs help, and so hope will switch, once again, towards further fiscal stimulus, which is currently being stymied by political wrangling.

Meanwhile, technology stocks, the key driver of recent market success, have lost some momentum with some extremely punchy valuations giving rise to profit taking over the last few trading sessions. As the end of September approaches, investors will be keen to receive corporate updates as the third-quarter reporting season begins in early October.

The tepid performance over the last few days has resulted in the Dow Jones index now standing down 2.2% in the year to date, although more positively the S&P 500 remains up 3.9% and the Nasdaq 21.5%.

For the UK, comments from the Monetary Policy Committee implied that further stimulus may follow in the coming months. A potentially toxic combination of higher unemployment following the end of the furlough scheme, localised shutdowns aimed at preventing a second wave, and stuttering negotiations between the UK and the EU would individually or collectively put pressure on an already beleaguered UK economy. 

UK retail sales figures today continued to advance, which may well be echoed in Kingfisher’s (LSE:KGF) half-year numbers next week. The growth in online shopping and the rise of DIY and home improvement sales could both play into the hands of a stock which has generally bucked the trend in recent months. The shares are have risen 28% in the year to date and won promotion to the FTSE 100 index in June.

Despite some support over the last week from generally weaker sterling, the FTSE 100 has been unable to make any meaningful progress and remains down 20% in the year to date, as investors look elsewhere to areas more obviously positioned for stronger growth.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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