It's another big week for investors as the US central bank delivers its plan on rates and a wave of companies issue quarterly results. Our head of markets discusses what to expect.
Corporate and geopolitical developments continue to pile on the pressure, as most major markets buckle under a weight of worries.
In the US, the S&P500 and the Nasdaq had a poor performing week not seen since the tribulations of 2020, with the latter falling further into correction territory. The previous weakness seen in Netflix (NASDAQ:NFLX) spilled over into other streaming-related stocks such as Disney (NYSE:DIS) as sentiment suffered another blow.
The Federal Reserve meeting later this week is expected to confirm the fears which investors have been harbouring so far this year, namely that apart from an acceleration of tapering, interest rate rises are also likely to pepper the remainder of 2022.
The current consensus is for an initial hike in March, followed by a further two or three rises which could take the rate to 1% by year end. While the moves are increasingly necessary given relatively rampant inflation, they also bring the likelihood of dampening earnings prospects.
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The earnings season so far has been a patchy affair, marked by missed earnings reports so far set against high expectations. The likes of Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) have the opportunity later in the week to lift spirits, while a first reading of US GDP for the December quarter could show that prior to the Omicron variant the economy was showing real signs of recovery.
In the meantime, January has been a difficult month for investors, and in the year to date the Dow Jones has lost 5.7%, the S&P500 7.7% and the Nasdaq 12%, with few signs of immediate respite on the table.
More broadly, the apparently worsening of relations between Russia and Ukraine has put investors on alert, as any possible attacks by Russia will have wider implications which other major powers will be unable to ignore. Whether this results in military action or strict sanctions remains to be seen, but in any event the developments are adding to general investor unease.
This cocktail of concerns also swept through Asian markets and landed at the door of UK markets in early exchanges. In particular, a number of broker downgrades weighed on the housebuilders, with growth prospect concerns weighing on the miners and more US earnings focused stocks also under pressure.
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However, there is some limited solace to be taken from the performance of the FTSE100 in the year to date, which has actually risen by 1.3%. The constituents’ exposure to energy prices and cyclical factors is complemented by a number of stocks and sectors which display defensive qualities that are now being put to the test.
With the blue-chip index still on a relatively undemanding valuation compared to most global peers, investors are also to some extent being paid to wait, with an average dividend yield across the index of 3.3%.
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