The summer torpor continued, with US markets largely flat on the day but down for the week.
In a potential sign of things to come, strength in the energy and defensive sectors in the S&P 500 offset further weakness in the mega-cap technology stocks. The so-called Magnificent Seven have seen some pressure recently as investors have sought to assess the likelihood of better returns elsewhere with continually rising bond market yields. With high-growth stocks seen as being punished by higher rates, the likes of Alphabet Inc Class A (NASDAQ:GOOGL) and Tesla Inc (NASDAQ:TSLA) dropped by almost 2% on Friday, with the Nasdaq giving up almost 3% for the week.
Even with the more recent weakness, however, the main indices remain firmly in positive territory. In the year to date, the Nasdaq has added 27% and the benchmark S&P 500 14%, with the Dow Jones also up by 4%. Some of the downward moves of late may comprise not only an element of profit taking, but also questions over whether valuations have become too rich in light of a harsher interest rate environment.
Indeed, the immediate outlook is fraught with uncertainty. Recent economic data underlining the resilience of the US economy is increasingly pointing to the fact that the “last mile” in the race against inflation may yet prove to be the toughest. There are still elements of core inflation which are refusing to budge sufficiently, which could not only lead to further interest rate hikes, but also the higher levels remaining in place for longer than had been anticipated.
In the meantime, the Jackson Hole symposium this week should provide an update from Federal Reserve chair Jerome Powell on the latest state of play, although with readings on retail sales, non-farm payrolls and inflation all to come before the next Fed meeting in September, any comments could well be short-lived.
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Asian markets also continued to fight their own battles, with China providing another disappointing update as the latest cut to lending rates was far less than the market had been expected. The apparent unwillingness of the authorities to inject some meaningful stimulus into an economy battling with a beleaguered property sector, rising unemployment and faltering demand has led to market weakness and investor apathy.
Investor indifference remains clearly visible in UK markets also, with the main indices unable to shake off the limitations of its own potential economic growth. The FTSE 100 has slowly become bereft of international interest, with any earlier gains totally erased and with the index standing down by 2.5% so far this year.
Meanwhile, a profit warning from housebuilder Crest Nicholson (LSE:CRST) prompted a further sell-off across the beleaguered sector, with the likes of Taylor Wimpey (LSE:TW.), Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) all in the firing line as the sellers took aim. It also serves as a reminder that higher mortgage and interest rates are beginning to gain some traction, which unfortunately comes at a time when the broader economy is posting little more than anaemic growth. The FTSE 250 has also turned negative on prospects and has now lost over 4% in the year to date.
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