Market snapshot: trading screens turn red
There were further losses on stock markets Friday, with miners among the big losers. ii's head of markets explains what's happening.
19th July 2024 08:38
by Richard Hunter from interactive investor
The rotation away from the tech sector fanned out to the wider market, with investors locking in some of the gains which the last week has brought.
With an interest rate cut in September now fully priced in by traders, the next catalyst for market progression is unclear. It is likely that company earnings will have a say in terms of immediate direction, but further out, political uncertainty both domestically and overseas will also be factored in.
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The broad range of selling yesterday extended to smaller-cap stocks, which have had a strong run of late as they are seen as beneficiaries of lower interest rates given their need to borrow to grow their businesses. Despite the drop, the Russell 2000 index has risen by 3.5% over the last five trading sessions, even though some have chosen to take short-term profits.
There was little else to whet the appetite of investors, as jobless claims rose but not to the extent to confirm a serious softening of the labour market. The water was also muddied by a stronger-than-expected manufacturing number, while Netflix Inc (NASDAQ:NFLX) fell by 2% following the bell after missing revenue estimates for the previous quarter.
Next week, the reporting season continues apace, with updates from the likes of Coca-Cola Co (NYSE:KO), General Motors Co (NYSE:GM), Ford Motor Co (NYSE:F), Visa Inc Class A (NYSE:V), International Business Machines Corp (NYSE:IBM) as well as what could be interesting figures from Tesla Inc (NASDAQ:TSLA) and Alphabet Inc Class A (NASDAQ:GOOGL), the latter of which in particular has been subject to some recent share price pressure.
Although there have been some signs of faltering investor sentiment, the main indices remain in rude health in terms of performance so far this year. The Dow Jones is ahead by 7.9%, the S&P 500 by 16.2% and the Nasdaq by 19%.
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The increased turbulence fed through to Asian markets, which have suffered this week due to the weakness of technology stocks and the reported likelihood of escalating tensions between the US and China.
The outcome of the four-day meeting of Chinese leaders did little to assuage investors, with some high-level objectives being seen as short on implementation detail. While there was acknowledgment that domestic demand and real estate remain specific areas of concern, there were few specific responses to reversing the situation, such as stimulus measures.
UK markets were not immune from the broader markdowns, with the main indices slipping at the open. For the premier index, the disappointment of the Chinese update weighed heavily on the mining sector as well as the likes of Burberry Group (LSE:BRBY) and Prudential (LSE:PRU), with Fresnillo (LSE:FRES) taking an extra hit on the back of a weaker gold price.
The downward dip reduced gains in the year to date, with the FTSE 100 now ahead by 5.3%. Next week, the company earnings season kicks off in earnest, with updates from Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG) likely to give colour to the current state of the nation, especially with regards to any potential escalation of debt defaults. Elsewhere, a raft of releases from the likes of BT Group (LSE:BT.A), Vodafone Group (LSE:VOD), Unilever (LSE:ULVR), AstraZeneca (LSE:AZN) and ITV (LSE:ITV) will all attract investor attention.
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Meanwhile, UK retail sales fell by 1.2% in June, following an increase of 2.9% the previous month and against expectations of a 0.5% decline, in a swing which was attributed to a combination of poor weather and pre-election uncertainty.
The reaction to the news was equally sombre, with the FTSE 250 sliding to reduce its gain so far this year to 7.1%. Even so, the index has been bolstered with the possibility of interest rate cuts, a warming of sentiment towards the UK and a hitherto resilient economy all providing tailwinds.
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