Interactive Investor

Market snapshot: stocks tumble on Federal Reserve comment

19th August 2021 08:26

Richard Hunter from interactive investor

After setting record highs over the summer, latest chatter from the US central bank has got markets worried.

Markets took another glancing blow as the Federal Reserve minutes revealed that so-called tapering, or the winding down of its stimulus programme is edging ever nearer.

While no date has yet been confirmed, there is an increasing split within the US central bank's committee members, and it appears increasingly likely that the taper will begin before the end of the year. Alongside some mixed retailer results, the unrest in Afghanistan and an apparently weakening Chinese economy, this has been a week to test the mettle of investors.

US investors have an increasing list of concerns to contend with, as the Delta variant persists in parts of the country, unemployment still remains above pre-pandemic levels and the spectre of inflation looms.

More positively, these factors may convince the Fed to keep its accommodative policy in place until the economy is running warmer and, in the meantime, the existence of the stimulus alongside a generally bumper reporting season has enabled markets to maintain their progress.

Indeed, in the year to date, the Dow Jones is still ahead by 14.2%, the S&P500 by 17.1% and the Nasdaq by 12.7%.

In the UK, the market is not immune from the growing level of global considerations and has also been under some pressure amid lighter summer trading volumes, which tend to exacerbate share price movements. In addition, the FTSE100 is being hampered by the general weakness in commodity prices and a clutch of stocks being marked ex-dividend.

More positively, the economy remains on track for a tentative recovery, with recent data implying continued growth, a temporary respite of inflation and with investors buoyed by heightened levels of M&A and IPO activity, normally reflective of optimism in nearer term prospects.

Despite the wall of worry which investors are being forced to climb and another feeble round of opening trades, the main indices are still comfortably in positive territory for the year, with the FTSE100 remaining ahead by 9% and the FTSE250 by 15%.

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