Market snapshot: nerves ahead of data but positive signs too

A sense that inflation will continue to decline has been great for growth stocks so far this year, but it's not all one-way traffic. Our head of markets explains what's moving stock prices right now.

A mild bout of profit taking after recent gains emerged as investors braced for the latest inflation print in the US, due on Thursday.

The benchmark S&P500 and the Dow Jones Industrial Average both finished marginally lower Monday after a relatively choppy session. More positively, there could be an early year theme forming as the Nasdaq ended the day in positive territory. The read through from this move could be that investors are fully expecting inflation to now ease, which in turn would increase the attraction of growth stocks, which have been under pressure over the last year as investors sought refuge in value plays.

• Learn with ii: ISA Allowance | ISA Investment Ideas | Transfer a Stocks & Shares ISA

In any event, hawkish comments from a couple of Federal Reserve officials overnight took some of the sheen from Asian trade, as the members suggested that a terminal rate of over 5% was extremely possible, and with that rate staying in place for some time. The consensus remains that a hike of 0.25% is most likely at the February meeting, and the imminent inflation print will most likely have a bearing.

Although driving in the rear view mirror has limited appeal, the onset of the reporting season in the US this week will add further colour to the performance of the economy on the ground. With the banks kicking off the season in earnest, there will inevitably be focus on any worsening of demand, particularly in the housing sector, alongside any increase in bad debts as the consumer comes under additional economic pressure. At the same time, the increasing interest rate environment should have proved broadly positive for the banking sector and, as ever, outlook comments and guidance will be scrutinised for current clues on borrowing trends.

• See our US results season calendar here

The hawkish comments from various Fed members was enough to arrest the more recent strength within Asian markets, where mixed to negative moves prevailed in the face of a possible economic downturn globally.

The price of oil and most base metals also saw some profit taking after recent strength, based on the possibility of weaker consumption as the Chinese economy attempts to find its feet once more. In the meantime, the more positive developments which have driven gains in the region, namely the throwing open of the tourism doors, continues to underpin a generally improving sentiment among investors.

Given the global developments elsewhere, the FTSE100 index found itself with nowhere to hide in opening trade. For the first time this year, the index eased from a generally positive direction of travel, although remaining ahead by 3% so far in 2023.

Declines were largely driven by weakness in the mining sector, alongside downgrades to the likes of Entain (LSE:ENT) and Next (LSE:NXT) which dampened sentiment.

• Visit our YouTube channel to view our experts’ tips for 2023
• Share Sleuth: sticking to my knitting after worst yearly performance
• Stockwatch: why 2023 could be the year for this FTSE 100 stock

The FTSE250 index remains at the eye of the economic storm in the UK, alongside sterling which has also seen some more recent pressure. The latest economic data has pointed towards rising rents and mortgage payments, although there were some limited chinks of optimism within the latest retail sales release, which showed that the Christmas period was generally better than expected.

The likes of Marks & Spencer Group (LSE:MKS), as well as blue chip supermarkets Sainsbury (J) (LSE:SBRY) and Tesco (LSE:TSCO), will update investors this week on each of their own festive experiences.