Market snapshot: a rotation in the US, while the UK is risk-on - for now

US markets drifted on Friday, rounding off a nonetheless positive week which included a record closing high for the benchmark S&P 500 as it crossed 7,800 for the first time.

While technology has had its say in driving the outperformance, there has been a rotation which has lessened the reliance on the “Magnificent Seven”. Indeed, the S&P 500 Equal Weight Index – which allocates 0.2% of the overall weighting to each stock, as opposed to the market cap driven benchmark – has risen by 15% in the year to date. With more than 90% of companies now having delivered quarterly results – and with earnings growth for the period approaching 50% - the optimism has been broad based. Reddit Inc Class A Shares (NYSE:RDDT) shares rose by almost 13% after it was announced that the company would be joining the index tomorrow, thus attracting buyers who require the stock in their trackers.

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Elsewhere, the economy seems to be finely balanced, although in need of constant monitoring. After a weak non-farm payrolls report the previous week, disappointing GDP data and subdued consumer and producer inflation numbers on Wednesday and Thursday, the retail sales reading showed an unexpected decline in July. While some of this was attributed to a pause for breath after tax refunds, the World Cup and an earlier than usual Amazon Prime Day event in previous months, investors will be keeping a close eye on any emerging consumer weakness.

At the same time, a consumer sentiment index revealed that confidence had fallen in August as opposed to gains in June and July, while reports due this week from Walmart Inc (NASDAQ:WMT) and The Home Depot Inc (NYSE:HD) should provide further clues. Although the data will not confirm a definite trend, there will be some concerns that stagflation could be on the horizon, whereby slowing economic growth collides with higher inflation.

In any event, the softer economic data has shifted expectations on the Federal Reserve’s next course of action, with an increasing feeling that in light of these developments there may be no need for a hike not only next month, but for the remainder of the year. That being said, the caveat is that before the September meeting there will be another two key inflation readings as well as a further non-farm payrolls report which could have a material impact on Fed thinking.

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The main indices have nonetheless remained in rude health generally, although there is some possibility of drift over the next few weeks as the height of the summer season continues. In the year to date, the Dow Jones is ahead by 11.8%, while the S&P 500 and Nasdaq have added 13.7% and 15% respectively despite any wider economic or geopolitical concerns.

A risk-on approach returned to London, where the FTSE 100 jumped at the open driven largely by the mining sector. Another bounce in the gold price also helped propel the usual suspects, Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV), higher while more broadly miners were in demand with a further rise in the copper price of particular benefit to Antofagasta (LSE:ANTO). AstraZeneca (LSE:AZN) shares were higher despite a disappointing outcome from their latest lung cancer drug trials, with the group highlighting that its generally pioneering oncology pipeline remains the source of meaningful optimism.

The FTSE 100 is now ahead by 8.5% so far this year, just over 1% away from the February record closing high which it has been unable to breach over recent trading sessions but nonetheless remains a mainstay for investors seeking shelter from volatility elsewhere. The additional attraction of an average 3% dividend yield across its constituents is a further attraction for those investors seeking a more stable source of total returns.