Market snapshot: a rally with solid foundations or one built on sand?

There's been no extension of the rally on Friday that saw the FTSE 100 make a record high. Our head of markets explains what's moving share prices Monday morning.

Investors were rattled on Friday by a monstrous non-farm payroll number which prompted a rethink around the Federal Reserve’s next move.

Against expectations for 185,000 jobs to have been added in January, the figure of 517,000 caused initial consternation as it brought into question once more whether the aggressive hiking policy thus far has achieved its desired objective. Losses were stemmed by an element of good news, with wage increases seemingly under control. The rise of 0.3%, at least for the moment, has eased inflationary concerns.

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Adding to the confusion is a results reporting season which has been decidedly mixed. Some of the big tech shares caught up with disappointing numbers which had previously been released after the bell, with Amazon.com Inc (NASDAQ:AMZN) and Alphabet Inc Class A (NASDAQ:GOOGL) in particular being subjects of selling pressure. The fourth quarter reporting season is now half-way through, with earnings having generally declined as expected, and with an increasingly cautious tone on the outlook coming from boardrooms.

The Walt Disney Co (NYSE:DIS) is the biggest name reporting this week, although there will also be indicators from the consumer space, with updates from the likes of Under Armour Inc C (NYSE:UA), Ralph Lauren Corp Class A (NYSE:RL) and Chipotle Mexican Grill Inc (NYSE:CMG), with Royal Caribbean Group (NYSE:RCL) also giving a taste of the current travel market. 

Investors have generally resisted bad news so far this year, and it remains to be seen whether the market resurgence is one based on avoiding a hard recessionary landing, or whether the current recovery is built on sand. Despite the wobbles towards the end of last week, the Dow Jones remains ahead by 2.4% in the year to date, the S&P500 by 7.7% and the Nasdaq by 14.7%.

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With further interest rate rises becoming more likely after the non-farm payroll release, Asian markets were mostly lower overnight, with hopes of a local recovery taking something of a back seat for now. In addition, nerves frayed slightly after reports that a suspected Chinese spy balloon had been shot down by US authorities. The news of itself was not critical, but it resulted in comments from both sides which served as a reminder that the fractious relationship between the US and China remains in force.

After briefly touching an all-time high on Friday the FTSE100 also succumbed to some profit taking in line with other major global markets. In early exchanges, the risk-off button was pushed, leading to broad based declines.

Overnight weakness from the US technology and Chinese markets were reflected in drops for the likes of Scottish Mortgage Ord (LSE:SMT) and Prudential (LSE:PRU), while a smattering of broker downgrades elsewhere added to the initial pressure. Even so, the premier index remains ahead by 5.5% in the year to date, underpinned by a strong exposure to overseas earnings, some defensive plays which come with an element of inflation-proofing attached and a generous average dividend yield.

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The FTSE250 has been something of a surprise highlight this year, despite troubling UK economic data. There may be relief that some of this data is less sickly than feared, while the index also comes off the lows of a 20% decline last year. With a rise of 8.6% in the year to date, there is also the possibility that overseas investors are looking more closely across the board for potential acquisition opportunities.