US markets continued their onward march, with the S&P500 setting another record and closing above 5,000 for the first time.
A powerful combination of strong earnings, resilient economic growth, easing inflation data and the potential for monetary easing have all heightened investor expectations.
There may be some concern that the rally remains too narrow with the so-called “Magnificent Seven” continuing to have a disproportionate impact on the gains, while more questions may also be asked on the simple basis of valuations as markets edge higher.
The earnings season so far has set a solid foundation for the gains, with an estimated 80% of the two-thirds of the S&P500 who have reported having beaten expectations, a figure which is comfortably above the long-term average.
Alongside encouraging economic news, there are increasing hopes that a US recession may be avoided entirely, while also providing the Federal Reserve with additional firepower to relieve monetary policy as and when required. There are limited signs that the need for interest rate cuts is pressing at the moment.
Another week of releases should provide further colour. The Fed’s preferred gauge on inflation, the Consumer Price Index, is due tomorrow and follows a moderate downward revision to December’s figure at the end of last week. In addition, retail sales, PPI and housing starts will fill in some more gaps on the current economic outlook.
In the meantime, each of the main indices are in positive territory for the year, with the Dow Jones having added 2.6%, the S&P500 5.4% and the Nasdaq 6.5%.
- Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
- The real concern isn’t tech stock performance: it’s your psychology
- Investor poll: here’s where you’re investing your ISA allowance
Asian markets are set to have a lesser impact on global sentiment for the time being, with Japan closed today and China for the week due to public holidays. Japan, which has been testing highs not seen since 1990, will provide its latest update on economic growth for the final quarter of last year on Thursday.
There will be rather more to capture investors’ attention in the UK this week, as unemployment, inflation, retail sales and economic growth will all be updated, providing a reasonably comprehensive overview to the state of the economy at present.
The more domestically focused FTSE250 has struggled hitherto, down by 3.2% so far this year, while hopes for any interest rate cuts from the Bank of England now seem to have settled for August in terms of market consensus.
NatWest Group (LSE:NWG) will kick off the UK banks’ full-year reporting season on Friday. There is much going on at the group, with an ongoing search for a replacement CEO and the possibility of the sale of the remaining government stake to retail investors capturing the headlines.
In the meantime, the high street lender's results will be scrutinised for any signs of an increase in customer defaults should further credit impairments be implemented. The expected strength of the balance sheet could also result in another set of punchy shareholder returns, either through share buybacks or an increase to the dividend payment.
- Shares for the future: this top 10 company is undervalued
- Bellway and UK housebuilders – mergers meet macro
- How changes to ISAs could give AIM shares a welcome boost
Ahead of this busy week, the FTSE100 index hovered around flat in opening exchanges, helped along by a gain in Frasers Group (LSE:FRAS) after the group launched a share buyback programme and some bargain hunting in Burberry Group (LSE:BRBY) after a torrid period which has seen the share price decline by 42% in the last six months alone.
Index gains were capped by some weakness in NatWest ahead of their results, as well as two broker downgrades to AstraZeneca (LSE:AZN), leaving the FTSE100 to continue lagging peers and down by 2.1% in the year to date.
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.