Market snapshot: investors still on high alert

Share prices have recovered some of the previous session's losses, but there is still plenty going on to keep investors on their toes.

Investors remain on high alert as a whipsaw trading session in US markets saw the major indices recover most or all of their initially steep losses.

Having dropped by almost 700 points earlier in the day, the Dow Jones recovered to finish down by just 0.4%, bringing the cumulative total this year to a decline of 15%. Under similar pressure, the S&P500 and Nasdaq indices also staged a turnaround which left them trading in positive territory at the close, with the latter of particular interest to bargain hunters.

The high growth, technology-heavy Nasdaq index has borne the brunt of declines this year and still stands down by 28%. However, yesterday’s session saw some renewed interest on two fronts.

On the one hand, the oil price came under pressure given the possibility of lessening demand and, even though the price remains ahead by 34%, this is a far cry from the highs seen over recent months.

It is increasingly hoped that lower oil prices, which would benefit both businesses as well as consumers, could lead to an adjustment of investment and spending patterns which would underpin a faltering economy.

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Similarly, the thought of recession could result in lower interest rates if the monetary tightening is overdone. As such, high growth stocks would benefit from such easier conditions. In addition, there was some strength in consumer discretionary stocks in light of possible relief to the current pressure on consumer spending.

In the meantime, however, there remain a host of obstacles for markets to overcome. The US dollar is strengthening given its status as a haven currency, and at the expense of other major currencies. This comes amid recessionary fears, and stocks which are reliant on steady economic growth and which have shown defensive qualities of late have also come under some pressure.

Asian markets were jittery overnight on similar concerns, not helped by the continuation of a zero tolerance lockdown policy from the Chinese authorities. In addition, the potential for lower demand which weighed on the oil price is seen as largely emanating from the region, providing another warning light on economic prospects.

The UK’s premier index staged a rebound in early exchanges, with gains broadly based and with the more beaten down stocks enjoying some relief. This comes after a punishing session yesterday which wiped almost 3% from the index as energy stocks felt the full force of the selling pressure.

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This was enough to add to the damage which has been done over recent weeks, and the FTSE100 is now down by 3.5% in the year to date, despite the early bounce today.

UK markets will be in general focus today as the latest round of political drama unfolds, with sterling likely to feel most heat. The domestically focused FTSE250 also managed a small bounce, although remains significantly weaker in the year to date, having lost some 21%.

The imminent results reporting season both sides of the pond now takes on additional significance as investors attempt to gauge not only the current performance of corporates on the ground, but also outlook and guidance comments from companies given the murky waters of growth and economic prospects.