Market snapshot: the outlook as we start final quarter of 2021

After a tricky summer for the many indices, our head of markets runs through the issues faced as we journey toward year-end.

A sombre end to the third quarter of 2021 saw US indices recording their worst monthly performance in September since the outbreak of the pandemic.

The litany of current woes which have beset investors continue to grow. Aside from the Federal Reserve tapering programme, further evidence of slowing growth in China and elevated inflation on both sides of the pond, additional concerns are appearing as the US considers its debt ceiling actions and whether to proceed with the President’s proposed (and significant) infrastructure spending plan.

At the same time, initial jobless claims surprisingly rose, despite the apparent wealth of available job positions currently on offer.

The imminent third-quarter reporting season will also add further colour to what has been happening on the ground at company level, given the various outbreaks of the Delta variant and supply chain issues, and a potential slowdown on consumer health spending. It will also inevitably suffer comparisons with what was a particularly strong set of second quarter earnings.

Despite the current concerns, the major indices remain in double-digit growth territory in the year to date, with the Dow Jones having added 10.6%, the S&P500 14.7%, and the Nasdaq 12.1%. 

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Deteriorating sentiment has unsurprisingly found its way to UK shores also, where the initial economic rebound from the pandemic lockdowns has somewhat run out of steam.

With elevated inflation and supply chain issues also in evidence, the implication from the Bank of England that interest rates may be under consideration for a rise sooner rather than later added to the mixed picture on the immediate economic direction.

Even so, on valuation grounds the UK’s premier index is still seen as attractive compared to many of its developed markets rivals. Buying on the dips in the UK market has been a theme during this year and the main indices remain in positive territory in 2021, with the FTSE100 ahead by 8.5% and the FTSE250 by 11.3%.

The remainder of the year is therefore likely to see the FTSE100 continue to be impacted by global economic factors, especially given its exposure to overseas earnings and thus the performance of other major economies.

A general move to “risk on” mode in the final quarter would clearly draw the index along. At the present time, however, the outlook is unsettled going into the final quarter with more questions than answers available to skittish investors.

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