Market snapshot: sharp losses across the board

Markets are currently under the cosh, with simmering Middle East tensions adding to a tepid opening to the earnings season and further economic data showing little evidence that the need for interest rate cuts is approaching.

Indeed, having neared the 40,000 level and hitting record highs less than a month ago, the Dow Jones Industrial Average has now all but erased its gains for the year and at 37,735 stands ahead by just 0.1%.

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Apart from the overarching tensions which are dominating investor sentiment, there have been some individually notable declines, such as Boeing Co (NYSE:BA), which has fallen by more than 35% this year on safety concerns. The other main indices remain comfortably ahead in the year to date although also some way off their recent records, with the S&P 500 having added 6.1% and the Nasdaq 5.8%.

The consumer is central to economic growth in the US and the latest retail sales release showed growth of 0.7% in March, as compared to estimates of 0.3%. In addition, the figures for February were revised higher, from a previous 0.6% to 0.9% indicating that, despite the pressures of higher interest rates, improving wage growth has kept consumer spending healthy. In turn, this show of economic strength further lessens pressure on the Federal Reserve to reduce interest rates, especially in light of inflation numbers which are proving resistant to dropping to the Fed’s 2% target.

Investors are also keeping a close eye on the developing situation in the Middle East and assessing the likelihood of retaliatory action from Israel following the weekend’s Iran attack. One such side effect has been an oil price which remains up by 17% this year, despite flattening out after its recent hike, but which nonetheless remains an inflationary factor which complicates the desired direction of travel for global central banks.

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This dour backdrop gave few causes for cheer in a volatile market session where earlier gains were wiped out, although there were some pleasing numbers from The Goldman Sachs Group Inc (NYSE:GS) whose shares were up by around 3% after the bank beat expectations.

However, the general pressure was downwards, with real estate stocks under pressure and technology stocks suffering another challenging day on the interest rate outlook. Salesforce Inc (NYSE:CRM) shares shed over 7% on reports it was considering a takeover of data management company Informatica Inc (NYSE:INFA), while the Volatility Index rose to highs not seen since October.

Asian markets were similarly subdued, despite data showing annualised economic growth of 5.3% in China, which was well ahead of estimates. However, retail sales, industrial output and consumer demand generally remain in need of repair, let alone a property sector which continues to falter. Housing sales and construction are major contributors to the general woes within real estate and investors will take some convincing that any sort of inflection point has been reached in the Chinese economy.

UK markets opened amid another set of bruising and widespread losses. Gainers were few and far between with mining and bank stocks in the eye of the storm, with Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG) each shedding around 2%. And sentiment was typified by B&M European Value Retail SA (LSE:BME), whose shares declined by around 4% despite an outlook which expects adjusted earnings to come in at the higher end of its guidance range following a 10% increase in revenues this year.

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Sentiment was immune from a potential slither of good news on the economic front which showed that unemployment ticked higher to 4.2% from 3.9% and that pay growth was easing. In normal circumstances, this would increase the possibility of a rate cut from the Bank of England, but the focus on inflation could well delay such a decision for the time being.

In the meantime, the sharp drops on the open now leaves the FTSE 250 in negative territory once more and down by 1.4% in the year to date, while the FTSE 100 has seen its gain pared back to just 1.7% after what had been a promising few weeks.