Market snapshot: a temporary reprieve or genuine recovery?

While much of the tariff damage has been repaired, the reprieve could prove temporary, with investors under no illusions that the end game is yet in sight.

Even after the short-term tariff truce between the US and China, stock market levels are higher than prior to the election and it is unclear whether the announced measures are filtering through to the real economies just yet. Recession fears have receded for the time being, but rising production costs and supply chain blockages will have an impact, while the vitally important US consumer is also showing some signs of strain.

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Retail sales increased by just 0.1% last month, with Walmart Inc (NYSE:WMT) being the latest to add to the recent chorus of needing to raise its prices imminently, while also backing away from profit guidance for the upcoming quarter. There was slightly better news from an unexpected decline in wholesale prices last month, where a dip of 0.5% compared to estimates of a 0.3% increase, implying that the inflation genie remains in the bottle for now.

Indeed, investors have been quick to ride the temporary rise in sentiment, and the mega cap technology stocks have staged a rebound as the hunt for growth stocks resumes. A strong week for the likes of NVIDIA Corp (NASDAQ:NVDA) and Tesla Inc (NASDAQ:TSLA), both of which have risen by around 15%, reduces their year to date losses to 2% and 9% respectively. There has also been some notable bargain hunting among the rest of the “Magnificent Seven”, with both Meta Platforms Inc Class A (NASDAQ:META) and Microsoft Corp (NASDAQ:MSFT) easing into positive territory. 

Potential technology deals with Saudi Arabia have also boosted sentiment, and after some sharp earlier declines, the Nasdaq is now down by just 1% so far this year, the Dow Jones by 0.5%, while the benchmark S&P500 is marginally ahead with a 0.6% increase reflecting the improved mood.

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Asian markets were mixed overnight, and investors remain skittish given the potential for a breakdown in tariff talk negotiations. Closer to home, the Nikkei drifted lower as the Japanese economy contracted at a faster rate than expected in the first quarter, driven by flat consumer spending and a fall in exports. In Hong Kong, meanwhile, the main index was weighed down by an update from Alibaba Group Holding Ltd ADR (NYSE:BABA) which missed estimates, sending its shares some 5% lower.

The stronger-than-expected growth in the most recent UK GDP figures were something of a relief yesterday, although there is a strong likelihood that the figure was front-loaded with the pain yet to be fully felt. The rises in employment taxes only came into effect in April, while the effects of the tariffs are likely to have global implications which will put pressure on trade.

Even so, the economy has shown resilience which has surprised most economists and the domestically focused FTSE250 has erased earlier losses to currently stand up by 1.1% in the year to date.

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Despite having to deal with some recent pressure on the pharmaceutical sector given the President’s latest comments on lowering drug prices, and an oil price which has fallen by 13.5% so far this year inevitably impacting the majors, the premier index has continued to defy gravity amid the global turmoil.

Another defiant opening was propelled by some buying of the pharmas, while there was also a smattering of interest among the defensive stocks as investors hedged their bets. The FTSE100 has now added 6.1% in the year so far, with an average dividend yield of 3.5% adding to the ongoing attraction of the index as an investment destination on a total return basis.