Market snapshot: keep your eye on company earnings

A raft of big US companies report results in the days ahead, making this another important week for equities. Our head of markets discusses the latest thinking on share price direction both here and overseas. 

A volatile trading session in the US yesterday largely came to nothing, with the main indices ending fractionally lower on the back of the usual suspects.

With the first-quarter earnings season now accelerating, investors are still keenly watching for the impact on global growth of the Omicron variant, the conflict between Russia and Ukraine and spiralling inflation. It will also become increasingly clear as to whether inflamed price pressures are being borne by companies as far as possible, or whether these are being passed on to customers, adding to the personal inflationary squeeze.

With a cut to global growth expectations from the World Bank running alongside some disappointment that China’s reaction to its slowing economy could be insufficient, stocks were generally under negative pressure.

The scrutiny will remain intense over the coming days as a raft of US companies provide further colour to the state of the nation, with updates from corporates ranging from Netflix Inc (NASDAQ:NFLX) to Tesla Inc (NASDAQ:TSLA), and from Johnson & Johnson (NYSE:JNJ) to Procter & Gamble Co (NYSE:PG).

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The limited number of releases so far has yet to establish a meaningful trend, with the banks reporting slightly disappointing earnings and a cautiously negative outlook. On the other hand, the airlines have so far beaten expectations with stronger forward guidance indicating that travel demand is well on the way to recovery for the imminent summer season.

The net result of the lingering concerns leaves the main indexes still lagging, with the Dow Jones having lost 5.3% in the year to date, the S&P500 7.8% and the Nasdaq 14.8%.

Asian markets also wobbled on growth concerns as China reported a slowdown in GDP to 4.8%, albeit above expectations. The recent round of lockdowns has yet fully to feed through to growth numbers, weakness in consumption, exports and demand in general, and the release of some liquidity to the market from the People’s Bank of China was not enough to assuage skittish investors.

Given this global backdrop, the FTSE100 remains relatively in vogue as investors search for some pockets of prospective growth. Stocks providing some sort of inflation hedge as well as defensive sectors have seen some buying interest and, in terms of the availability of such requirements, the UK’s premier index has much to offer.

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Even so, the index is not immune to the pervading sentiment and has made a lacklustre start in early trade, despite the best efforts of the miners and the oils on elevated commodity prices.

The FTSE100 nonetheless remains ahead by 3% in the year to date, which in relative terms is a strong outperformance compared to many other leading global indexes.