Market snapshot: new quarter, fresh hope

It's been a poor quarter for stock market investors, although the FTSE 100 was one of only three major indices to post gains. Our head of markets rounds up all the action and looks at today's big event.

Markets ended the quarter on the back foot, with any number of challenges still lingering.

The threat of over-tightening by the Federal Reserve has caused diametrically opposed views between bond and equity investors. For the former, the risks are higher as evidenced by a yield curve which continues to flirt with inverting and which has often historically been a harbinger of recession. Equity investors, on the other hand, are expecting the Fed to engineer a soft landing, with the economy showing real signs of strength and with the more recent market dips providing some buying opportunities on valuation grounds.

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The latest update on the US economy will come later with the release of the non-farm payrolls report, which is expected to show that around 470,000 jobs were added in March, as compared to 678,000 in February. Of equal significance will be the unemployment rate, which has latterly implied tightness in a labour market approaching full employment. While this effectively frees up the Fed to concentrate on inflation, the tightness could also lead to wage rises which would be further inflationary factors of their own.

The consumer is a vital cog in the US economy, and the choices over the following months are ones which are being echoed globally. It remains to be seen whether accumulated savings during the pandemic will be sufficient to offset the impending cost crunch created by higher energy and food prices, and how sentiment will continue to be affected by the ongoing conflict between Russia and Ukraine.

This conflict led to the record release of oil reserves by the US in an effort to mitigate supply shortages. Oil prices stabilised after an initial plunge and remain ahead by 33% in the year to date, suggesting that this action in isolation is far from the whole solution. Indeed, hopes remain that OPEC will also step up to the plate to ease the demand supply imbalance.

Apart from holders of shares in the likes of oil and mining stocks, the first quarter was largely one to forget. In the US, the Dow Jones ended the quarter down by 4.6%, the benchmark S&P500 lost 5% and the tech-heavy Nasdaq shed 9.1%. In contrast, the FTSE100 finished the quarter ahead by 1.8%, clinging onto to some hard-won gains partly made possible by the constituents’ particular exposure to the energy sectors.

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The UK has also been in the firing line of acquisition interest in the quarter, with the generally agreed undervaluation of UK stocks being of particular appeal to overseas buyers. In addition, the premier index has shown its own resilience, not only by many of its mature, cash generative companies which have exposure to global as well as local growth, but also due to its attractive dividend yield, which is currently averaging in excess of 3%.

In the short term, there are many more questions than answers for traders. Longer term, however, there are still glints of light at the end of a difficult tunnel, and the imminent first quarter reporting season on both sides of the pond will add further colour not only to how companies are holding up, but also whether their immediate outlook can provide some relief to embattled investors in the form of fresh hope.

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