Market snapshot: no respite for stocks in a bruising week

Major indices continued their downward spiral as the UK awaits mini-budget announcements.

A week dominated by further aggressive monetary tightening around the world has left equity markets bruised on a deteriorating outlook.

Quite apart from the Federal Reserve’s expected 0.75% hike, there were also notable increases in interest rates in the likes of the UK and Switzerland, as the central bank merry-go-round continues to increase the likelihood of recession on a global scale.

• Find out about: Free regular investing | Interactive investor Offers | ii Super 60 Investments

For the US, growth stocks were again badly hit, especially big tech where future earnings are being jeopardised by higher rates. In addition, pessimistic outlooks from the likes of Ford Motor Co (NYSE:F) and FedEx Corp (NYSE:FDX) dampened sentiment further. With the third-quarter reporting season due to begin in the next few weeks, analysts are taking red pens to earnings estimates as the worsening monetary backdrop begins to truly bite. Earnings growth for the third quarter is already estimated to fall to 5%, and excluding the energy sector, could even drop into negative territory.

The Fed’s own forecast is for economic growth of just 0.2% this year and 1.2% for next, alongside which there is a growing realisation that not only do rates have further to rise, but also that they are likely to stay higher for longer until such time as there is significant progress in taming inflation.

In the meantime, the major indices continued their downward spiral. In the year to date, the Dow Jones is now behind by 17%, the S&P500 by 21% and the Nasdaq by 29%.

• How to invest during a recession: top tips and tactics
• Threat to America as top central banker promises to get the job done
• ii view: Ford shares skid downhill on costs shock

Japan’s intervention in the currency markets, in a move designed to prop up the yen, was one which nonetheless failed to lift the gloom in mixed Asian trading overnight. Quite apart from any number of concerns emanating from China, ranging from consumer confidence to an ailing property sector with restrictive lockdowns also in place, the reverberations of central bank actions continue to rattle investors on a global basis and the Asian region is no exception.

After another difficult session yesterday, the FTSE 100 opened in cautious fashion. The index remains a relatively strong performer in global terms, although the UK’s premier index is now down by 3% in the year to date. The defensive and energy-facing nature of the index has provided some support such as with the oil price, for example, which remains up by 16% in the year to date even after its recent slide.

Unfortunately, the same cannot be said of the more domestically focused FTSE 250, seen as a rather more accurate barometer for UK trading and prospects. The index has lost 22% so far this year, with the latest 0.5% rate hike from the Bank of England adding to tightening concerns at a time when growth is flat to non-existent. It is expected that the government will unveil a new “fiscal event” later in a mini-budget, which should involve tax cuts and increased spending in an attempt to stimulate growth. It remains to be seen how effective such moves might be, given the wider pressures affecting economies globally.