Despite some positive signs, investors are still reeling from recent volatility and remain alert to other possible banana skins. Our head of markets discusses what's moving stocks right now.
Investors remain on high alert after another blustery session which saw stocks oscillate between positive and negative.
Mixed corporate earnings are not helping to lift sentiment. Although the majority of companies who have reported so far have beaten expectations and may in aggregate post growth of over 20%, the outlook and guidance statements have been less inspiring. The impact of the Omicron variant, such as it is, will not wash through fully until the first quarter earnings of 2022 become available.
In the meantime, echoing a theme which has been prevalent in the season so far, Tesla (NASDAQ:TSLA) warned that supply issues remained a concern, and that shortages could last for the rest of this year, sending its shares lower by almost 12%. In stark contrast, a company which has clearly been able to navigate supply issues has been Apple (NASDAQ:AAPL), where record sales for the quarter were underpinned by strong iPhone sales in China, and the subsequent hike in its share price was reflective of investor appreciation.
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In terms of the economy as a whole, and prior to the full impact of the variant, US GDP grew at its fastest past since 1984. The economy grew by 5.7% in 2021 and at an annualised pace of 6.9% in the fourth quarter, far outstripping expectations. Even though the momentum is set to waver coming into this year, the strength of the economy may give the Federal Reserve some leeway as it begins the interest rate rising cycle. Higher rates are likely to crimp economic growth, and at this pace the economy could withstand the pressure as the Fed sets its mind squarely on inflation.
In the meantime, the main indices remain poor performers in the year to date, with the Dow Jones down by 6%, the S&P500 by 9.2% and the Nasdaq by 14.7%.
More broadly, geopolitical tensions remain on simmer, with some discussion between the US and Russia offering hope amid the build up of Russian troops along the Ukrainian border. Given the fragility of sentiment already in evidence in most global markets at present, any developments are likely to cause a sharp reaction across markets as investors digest the implications of the latest moves.
Despite the general investment gloom, the FTSE100 has continued to carry the torch for progress. The index has begun to emerge as something of a haven asset in the first few weeks of the year, after being shunned by international investors for some considerable time as greater growth prospects were seen elsewhere. The UK is not immune from the volatility being seen elsewhere and growth is currently pedestrian.
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However, amid the current turmoil the defensive characteristics of the index are coming to the fore as investors seek relative safety. Alongside an undemanding valuation and providing a generous dividend yield against what is still a historically low interest rate environment, the attractions of the FTSE100 have provided a stable start to 2022, with the index ahead by 2% in the year to date.
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