Interactive Investor

Market snapshot: no end in sight to volatility

25th September 2020 08:45

Richard Hunter from interactive investor

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The same problems remain, and further stimulus is needed to revive financial markets.

It has been a generally torrid week for markets, with Covid-19 regaining centre stage as the ongoing lack of a vaccine and further tightening rules threaten to derail what was becoming a slow recovery.

The volatility is likely to continue in the shorter term, as investor sentiment swings between hopes of a further fiscal stimulus in the US being offset by the lack of any meaningful progress.

Economic data remains mixed, with some positive signs in the housing market being undone with another round of higher-than-expected unemployment claims. It is increasingly apparent that the US requires further fiscal stimulus to maintain the economic momentum of the past few months but, despite the voices of support from the likes of the Federal Reserve and certain politicians, the page remains blank for the time being.

Each of the main indices in the US have lost ground in the week, with the Dow Jones Industrial Average now down 6% in the year to date and the S&P 500 index having almost given up its previous gains, now up just 0.5%. The technology-laden Nasdaq index has also been under pressure, but nonetheless remains the shining light in major markets, still ahead by 19% in 2020.

The upcoming third-quarter reporting season on both sides of the pond may well point to some more positive news, as the previous effects of lockdown easing should have fed through to both revenues and profits. In light of the latest developments, however, outlook comments from companies on the final quarter of the year are likely to be less optimistic.

In the UK, further relief measures announced by the Chancellor were a welcome development, but the moves were never going to be a panacea for the UK’s economic ills. Fiscal support looks likely to wane over the next few months with a further wave of unemployment looking inevitable, as the latest lockdown restrictions begin to bite on several affected sectors.

In another week dominated by difficulties in sectors such as hospitality and tourism, as well as some further pressure being piled on the banks as concerns of bad debts rise, obvious beneficiaries from the pandemic remain a relatively rare breed.

The news provided some stability for sterling, although over recent weeks the decline has been painful as economic prospects weaken following on from the pandemic, let alone the possibility of a failure to reach agreement with the EU. This has provided a small prop for the FTSE 100 index and its large exposure to overseas earnings, but has not been enough to stop a further overall drop as the index remains out of favour on the global economic stage.

The UK’s premier index is now down 23% in the year to date and seemingly continues to participate when bearish sentiment is in evidence, without seeing much sustainable benefit from any upturns in sentiment.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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