Interactive Investor

Market snapshot: investors tentatively buy the dips

11th January 2022 08:13

Richard Hunter from interactive investor

It's early days, but 2022 has already been a rollercoaster, and our head of markets sees signs that some investors are picking up cheap stock.

Some tentative buying activity trimmed stock market losses as investors sought opportunities to benefit from the recent dips.

After a weak opening session across US markets which saw the Nasdaq down by a further 2.7% at one point, the markets later regained their poise, with the technology index finishing flat and the other main indices posting slight declines.

Treasury yields also retreated from previous highs, providing some support for stocks and limiting the rotation which had seen growth stocks such as big tech in particular, succumb to selling pressure as investors switched to value plays.

The backdrop remains unchanged, with the pace and amount of interest rate rises likely to become clearer over the next few sessions in the face of persistent inflation. Consumer inflation data tomorrow is expected to show that the headline CPI number has hit 7% which, allied to the growing sense that the US may be nearing, or even at, maximum employment, would open the door for the Federal Reserve to press on with its tightening cycle.

The slight rally in stocks was not enough to bring the indices back into positive territory for 2022, however, and in the year to date the Dow Jones has lost 0.7%, the S&P500 2% and the Nasdaq 4.5%.

Another factor overhanging markets globally is the impact of the zero tolerance approach of China to the current Covid variant. With the Winter Olympics just weeks away, the country has introduced strict restriction measures. This in turn has a broad effect on the global economy, both in terms of perceived demand for goods as well as its resulting in further supply chain pressures and the possibility of prices remaining elevated.

A glimmer of hope has been seen in the UK premier index, which has managed to eke out a small gain in the first few trading sessions of the year. The FTSE100 was somewhat held back in recent times by its perceived exposure to mature, cyclical stocks, as opposed to growth stocks such as technology. This has resulted in some form of defence in the early part of this year, mirroring global rotation trends and also being helped along by a rising oil price, which has given a tailwind to the majors.

There has also been something of a revival in fortunes for bank stocks, based on both a more supportive rising interest rate environment as well as a reset of share prices following a prolonged period of undervaluation.

Barclays (LSE:BARC)s is ahead by 11% this year and Lloyds Banking Group (LSE:LLOY) has added 10.5%, while both NatWest Group (LSE:NWG) and HSBC Holdings (LSE:HSBA) have seen a spike in excess of 9%.

The FTSE100 as a whole currently stands ahead by 1.3% for the year, although the more domestically focused FTSE250 has yet to get into gear, having shed 1.4% in the first few days of trading.

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