Interactive Investor

Market snapshot: how will stocks react to latest from Fed?

After a shaky start to the new calendar year, investors must now digest fresh economic data and look for clues about future interest rate moves in latest comment from the Federal Reserve. ii's head of markets explains.

3rd January 2024 08:15

Richard Hunter from interactive investor

Global markets faltered on the first day of trading in the new year, as investors took time for reflection after a breathless end to 2023.

US markets were pegged back by a rise in Treasury yields, suggesting that optimism over several interest rate cuts this year could be somewhat overdone. As such, growth stocks came under pressure, including technology stocks in particular, resulting in a dip of 0.6% for the S&P500 and a fall of 1.6% for the Nasdaq.

A broker downgrade also weighed on Apple Inc (NASDAQ:AAPL) shares, while some profit taking was evident in the likes of NVIDIA Corp (NASDAQ:NVDA) and Meta Platforms Inc Class A (NASDAQ:META)

The water was muddied further by a US construction spending report, which showed a lower-than-expected rise in November. However, data from the previous month was revised sharply higher, implying underlying strength in a sector which has generally been able to withstand the raft of interest rate rises introduced by the Federal Reserve. 

Attention turns today to manufacturing data, as well as the latest Fed minutes from the December meeting. As ever, the minutes will be closely scrutinised for any changes in Fed rhetoric, with particular regard to its current stance on the likelihood of rate cuts. Currently, the consensus is overwhelming that the Fed will keep rates unchanged this month, with the majority expecting the first cut to be announced in March.

The particular weakness in tech stocks spilled over to the Asian markets, although Japan remained closed for a further day’s holiday. Concerns around the health of the manufacturing and property sectors persisted in China, where the perceived lack of stimulus from the authorities has had a debilitating effect both on investor confidence and market performance in the region.

Having finished the first day of trading in negative territory after giving up initial gains, UK markets were light of direction in early trade Wednesday and hovered around the flatline accordingly.

There was muted cause for celebration as the FTSE100 marked its 40th anniversary, with broker downgrades to the likes of Burberry Group (LSE:BRBY) and Rentokil Initial (LSE:RTO) offsetting an upgrade to GSK (LSE:GSK).

Small gains for defensive shares reflected the sombre mood, although Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) advanced slightly ahead of their Christmas trading updates next week, following a report suggesting that the festive period may have been the busiest since before the pandemic.

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