Market snapshot: still more questions than answers for investors

Wall Street fell overnight for a fourth straight session and markets in Asia and the UK have followed it lower. Our head of markets rounds up the action.

Markets remain unable to snap their recent losing streak, with investors still positioning for tougher times ahead.

Central to current concerns are recessionary fears in the US and a beleaguered China. With the world’s two largest economies – and growth engines – under pressure, the immediate outlook is poor, with markets yet to find an equilibrium, suggesting that further declines could follow in the absence of more positive developments.

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US markets ended the month on a sour note, with the weakest August performance for several years. Historians have also pointed to September being a typically challenging month and, in the meantime, the pace and severity of interest rate rises globally remains under debate.

The latest comments from a Federal Reserve member echoed the hawkish tone coming from the central bank, with the possibility of rates not only rising to over 4% but remaining there for some time, and that the possibility of recession was increasing.

In addition, the tech sector took another lurch downwards following cautionary comments from the likes of HP Inc (NYSE:HPQ) and Seagate Technology Holdings (NASDAQ:STX), with the chipmakers pointing to macroeconomic concerns which may result in lower inventory levels for both PC makers and cloud companies.

The Nasdaq index has now firmly re-entered bear market territory, down by 24.5% in the year to date, with the other main indices also lagging - the Dow Jones has fallen by 13% and the S&P500 by 17%.

Nor was the picture any more palatable across Asian markets, with weak data being released from the likes of China, Japan and South Korea. Each showed contracting economic activity against a similar backdrop of high inflation and generally rising rates, with another round of Covid-19 lockdowns and an embattled property sector adding to the woes in China. In addition, the overhang of a fractious relationship with the US is denting sentiment, while inflationary pressures are eroding consumer sentiment.

The possibility of sluggish demand spilled over into another volatile session for an oil price which remains ahead by 22% in the year to date, but which is well off the highs reached earlier in the year. Again, the possibility of slowing growth from the world’s two largest economies places a question mark over shorter term demand, with such concerns overshadowing the threat of a tightening global supply.

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With the possibility of a global slowdown alongside tense investor sentiment, the UK market unsurprisingly took both barrels in early exchanges. The weakness of sterling and a strong oil price have provided some support at different times over the course of this year, but the premier index is not immune from the current global outlook, with the FTSE100 now having shed 2% in the year to date.

Even so, this remains a relatively decent performance in comparison with many other developed markets and in terms of total return, the picture is marginally positive when factoring in the FTSE100’s current average dividend yield of 3.9%.

Nonetheless, the final month of the third quarter is likely to be riddled with more questions than answers as the impacts of a tightening environment begin to wash through.