Market snapshot: record highs being tested again

Slightly lighter US trading in the lead up to a prolonged weekend saw the return of buying interest, as the major indices snapped their run of losses and the S&P500 closed at a new record high.

Lighter trade will often exacerbate market moves, which was part of the reason for the rally in the absence of any major economic or corporate news. At the same time, and buoyed by movements in bond yields, rate-sensitive sectors such as utilities and real estate topped the leader board. Industrials also forged ahead in a further sign that the rally could be broadening out as some investors seek value away from the increasingly rich valuations being attached to mega cap technology stocks. Indeed, the smaller cap Russell 2000 index also rose, taking the year’s gain to over 4%.

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Even though the markets will be closed, Friday’s inflation report will be the subject of close scrutiny. The performance of markets over a successful opening quarter to the year has shown that investors are increasingly accepting that three rate cuts are the most likely outcome, rather than the several which had previously been pencilled in.

Some of this changing sentiment has come from the realisation that the general strength of the economy has reduced pressure on the Federal Reserve to ease monetary policy and indeed moving too soon to cut rates could do more harm than good in the longer term if they are not currently necessary.

In the meantime, the record closing high for the benchmark index now leaves the S&P500 ahead by 10% so far this year, closely followed by a 9.3% pop in the Nasdaq, with the Dow Jones having also added a healthy 5.5%. 

Away from the lack of appeal of taking positions ahead of the inflation print, Asian markets were mixed as the twin concerns of currency weakness and a faltering Chinese recovery continued to dominate investor sentiment.

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The Japanese authorities reportedly held an emergency meeting yesterday to discuss the weakness of the yen, and while no action has yet been taken, the rhetoric suggests that they are poised to intervene in an effort to halt the slide. There were also moves by Chinese authorities to shore up the yuan, and renewed hopes that there are some further stimulus measures planned to revive the economy sent shares marginally higher.

Despite the drag of the usual raft of Thursday ex-dividend stocks, including but not limited to M&G Ordinary Shares (LSE:MNG), Melrose Industries (LSE:MRO) and Prudential (LSE:PRU), progress was also made on home shores, helped along by buying interest in the miners and oil majors.

The more recent advances for the FTSE100 have resulted in a somewhat unnoticed and certainly unloved rally which leaves the premier index up by 2.8% so far this year and indeed less than 1% away from the record high of just over 8,000, achieved in February last year.

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The more domestically focused FTSE250 has also turned positive of late and is now ahead by 0.7% in the year to date despite confirmation of a technical recession in the UK. The recession is, however, widely expected to be shallow and brief and the prospects of interest rate cuts towards the middle of the year have buoyed sentiment.

This also comes with the possibility that the UK market as a whole is being considered anew by international investors, who have eschewed investment but are now increasingly being tempted by the deeply discounted valuation levels compared to many global peers.