Market snapshot: stocks drift lower amid fragile ceasefire

Stocks drifted lower as the trading session progressed, falling foul once more of conflicting reports around the peace process.

Equity markets have proven resilient and erased losses since the outbreak, with each of the main indices brushing or hitting record highs over recent days. Even so, this has left investors wistfully wondering how much stronger the rally could have been – given the resilience of the US economy and a generally strong quarterly earnings season so far – in the absence of the conflict.

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Meanwhile, the current deadlock in the Strait of Hormuz is reflective of a fragile ceasefire which seems set to reverse at any moment. It appears that Iran are rejecting further talks for the time being, while also having seized commercial ships in the Strait this week and with its state television broadcasting a video of a speedboat storming a container ship yesterday. For its part, the US has pledged to “shoot and kill any boat” laying mines in the channel.

More positively, perhaps, the US President reported after the bell that Israel and Lebanon had extended their ceasefire by three weeks, adding to the indefinite extension he pledged earlier in the week. As a result, Dow futures are looking to open moderately higher, although any such gains will be cautious and fragile.

In the regular session, the stocks which had seen a resurgence of investor interest were most badly hit, with an expanded tech-software sector ETF dropping by around 6%, while Palantir Technologies Inc Ordinary Shares - Class A (NASDAQ:PLTR) and Oracle Corp (NYSE:ORCL) suffered a similar decline. Microsoft Corp (NASDAQ:MSFT) dropped by some 4% ahead of next week where most of the Magnificent Seven will be reporting quarterly numbers against this fractious backdrop, and with concerns over the huge levels of capital expenditure on AI never far from the surface. It will be hoped that Intel Corp (NASDAQ:INTC) is a precursor for these results, with the stock rising by 19% after hours as the chipmaker beat expectations and provided an upbeat outlook.

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In the year to date, US markets are clinging on to gains, albeit a fraction lower than the highs which were tested earlier this week, with spikes of 2.6%, 3.8% and 5.1% for the Dow Jones, S&P 500 and Nasdaq respectively.

A rise of 0.7% for UK retail sales in March was higher than the 0.1% forecast, and contained a small element of reaction to the conflict on consumer spending. However, with the spectres of higher inflation and lower growth looming, there are more serious challenges to come. A survey yesterday revealed that consumer morale slid to its lowest since October 2023, while British manufacturers are at their most pessimistic since the outbreak of the pandemic. Such news has weighed more obviously on the FTSE 250 index, which has had a chequered few months and is up by just 0.9% in the year so far.

In the premier index, packaging firm Mondi (LSE:MNDI) led the fallers after a 27% dip in first-quarter earnings, due to lower prices and mounting input costs, while the mining sector also tracked lower. There was more positive news for British American Tobacco (LSE:BATS) and Sainsbury (J) (LSE:SBRY) after broker upgrades, with the latter reversing some of the losses following its full-year numbers yesterday. The oil majors also tracked the underlying commodity price higher, but on balance the weaker open reflects the current impasse in the Middle East, although the FTSE 100 remains up by 4.9% in the year to date.