Market snapshot: share buying ahead of big US holiday

Stocks look strong ahead of Thursday's Thanksgiving holiday, but there's plenty for investors to digest before the break. Our head of markets runs through the big talking points.

The optimists were back in the driving seat amid light volumes in a shortened US trading week and ahead of the latest Federal Reserve minutes.

In a slight change to sentiment, there are hopes that the aggressive Fed rate hikes so far mean that the terminal rate - the level at which rates are expected to peak - will be hit sooner, which is currently estimated to be around 5% from the current 4%.

Alongside comments from some Fed members suggesting that reduced hikes may be possible if a recently promising inflation number is the beginning of a downward trend, investors sought solace in the fact that the end of the year could signal the start of a slowdown for both.

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Meanwhile, energy shares found some support after the oil price stabilised, having previously dipped on concerns around the lifting of production cuts. There was also some positive activity in the retail sector. Best Buy Co Inc (NYSE:BBY) beat expectations and upped its outlook, predicting that the impending holiday season would see consumers shake off the ravages of inflation and continue to look for value products. Shares rose by almost 13%, while earnings beats from Abercrombie & Fitch Co Class A (NYSE:ANF) and American Eagle Outfitters Inc (NYSE:AEO) led to price hikes of 21% and 18% respectively.

As the main indices moved higher, some of the year’s losses were shaved once more, although a negative 2022 for markets looks increasingly likely. In the year to date, the Dow Jones has now retreated by 6%, the benchmark S&P500 by 16%, with the Nasdaq still deep in bear market territory and down by 28%.

Developments in the Far East

Asian markets were also generally positive, despite some concerning Covid-19 developments in China. The authorities are tilting towards a reiteration of another tight lockdown policy after the first deaths in the mainland were reported at the weekend, and with case numbers still steadily rising.

Some of the more recent market optimism has therefore been unwound as the country remains unable to stage its much-awaited economic recovery, with closures of some export and manufacturing hubs adding to the unease.

Even so, the strength of Wall Street overnight and some bargain hunting in and around the commodity sector was enough to drive local indices marginally higher, although the strength of any renewed optimism will continue to be tested.

UK rally continues

In the UK, the FTSE100 continued its defiant grind higher. A marginally positive opening leaves the index ahead by 1.2% in the year to date, with its diverse constituents still ticking some boxes for investors with an international view.

Aside from an exposure to the commodity sector and oil in particular, the index has a number of defensive shares with pricing power, resulting in a partly inflation insensitive play. At the same time, there are also blue chips towards the top end of the consumer range, which could provide some defence in the event of recession. Capped with an average dividend yield of 3.7% for the index, there are rather more angles of attack for investors than in some other major markets.

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The same cannot be said for the FTSE250 index, however, whose fortunes are more closely linked to UK economic prospects. Quite apart from rampant inflation and a rising interest rate environment, it is becoming increasingly difficult to see where strong growth may come from as the country attempts to balance its books. The index has now lost 17% so far this year, with darkening economic clouds continuing to overshadow sentiment.