There are lots of different issues playing on investors' minds right now, so stocks will likely remain volatile, with sentiment being driven by new information as it arises. Our head of markets explains.
Further developments on the Omicron variant and the interest rate outlook are putting a dampener on sentiment, as investors grapple with the economic impact of both.
Travel and tourism stocks in the US were the latest casualty of selling pressure as the first case of the new variant hit American shores. The news exacerbated what had been a cautious recovery from the initial waves of the pandemic, with concerns already in place that some were holding back from joining the workforce until social confidence returned. The latest news will likely harm the brittle confidence of the consumer and markdowns were in evidence across each of the major indices.
In addition, further explanatory comments from the Chairman of the Federal Reserve suggested that inflation may be more persistent than had previously been thought, with the possibility that it may not recede in the second half of next year. As such, speculation is now mounting that the middle of next year will see the first of a series of interest rate hikes, with the tapering removal having been completed ahead of schedule.
These harbingers of concern deflated sentiment and further reduced the progress made in the year to date, although the Dow Jones remains ahead by 11.2%, the S&P500 by 20.2% and the Nasdaq by 18.4%.
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Elsewhere, the oil price continued its recent volatile run as investors ran the slide rule over the possibility of dampened demand, especially with regards to travel. A small rebound has settled some nerves, and the movement for the year remains in strongly positive territory with the oil price still ahead by 35% in 2021.
A tentatively positive showing from Asian markets overnight has not fed through to the UK in opening trade, with the indices currently switching between risk on and risk off on a daily basis. Investors are caught between reflecting on what has been a positive response to the pandemic, which has fed through to strongly improved corporate earnings, set against the implications of the latest (and indeed future) variants on delaying a full return to economic normality.
At the same time the UK is also caught in interest rate rise uncertainty, with an initial December hike still seemingly possible in an attempt to head off some of the inflationary pressures being seen. However, the question remains whether the economy is sufficiently strong to withstand such a hike, even though the immediate rise could be minimal.
In early exchanges, GlaxoSmithKline (LSE:GSK) ticked slightly higher on the announcement showing that preclinical data is suggesting that its Sotrovimab antibody retains effectiveness against the key mutations of the Omicron variant, although further confirmation will be required.
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More broadly, and with the nearer term outlook so delicately poised, markets continue to fluctuate with sentiment being driven by new information as it arises. The main UK markets on the whole continue to ride the storm, with the FTSE100 still ahead by 10% in the year to date, and the FTSE250 by 11%.
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