Market snapshot: treading water for now

US markets trod water as a data vacuum left investors uninformed, resulting in a slight spike in the volatility index.

While government shutdowns, which are virtually an annual event, tend to have limited market impact, this one comes with an overhang of additional layoffs which could exacerbate an already ailing labour market. While the non-farm payrolls report was unable to add any further colour due to its suspension as a result of the shutdown, other employment numbers during last week implied a weakening which will almost certainly lead to a Federal Reserve interest rate cut this month, despite the spectre of heightened inflation still being in play.

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Elsewhere, the AI trade took a pause for breath and weakness in the likes of Nvidia and Palantir Technologies weighed on both the Nasdaq and benchmark S&P500 index. Alongside the spike in the volatility index, there is the possibility that some investors are beginning to hedge against a pullback as the two indices remain near record highs and are increasingly vulnerable given both concentration risk as well as questions on higher valuations.

This week will also herald the soft launch of the third-quarter reporting season, with Delta Air Lines Inc (NYSE:DAL) and PepsiCo Inc (NASDAQ:PEP) due to release numbers on Thursday. The season as a whole will reveal in more detail the effects that tariffs have had and whether higher prices are still being absorbed by companies or are slowly being passed on to the consumer. The reporting trickle will then turn more into a flood next week as the major banks wade into the fray with their own trading updates.

In the meantime, the main indices remain in rude health and finished the week higher, despite a lacklustre performance on Friday. In the year to date, the Dow Jones, S&P500 and Nasdaq have added 9.9%, 14.2% and 18% respectively.

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In Asia, the Nikkei 225 rose by almost 5% following news that the ruling party had chosen a new leader which will likely lead to her becoming the first woman prime minister. While the to-do list will be full, not least of which is an ageing and declining demographic as well as a large debt burden, the removal of some uncertainty cheered investors. The index was also helped along by unconfirmed reports that there could be some easing of US tariffs in the auto sector, pushing the likes of Toyota and Honda shares sharply higher.

There was a familiar feel to the market open in the UK, with strength in both gold and oil prices propelling the likes of Fresnillo (LSE:FRES), Endeavour Mining (LSE:EDV), BP (LSE:BP.) and Shell (LSE:SHEL) ahead, the latter of which is due to report Q3 numbers tomorrow where investors will be hoping for more of the same given a decent half-year update in July.

Retail sales numbers are also due tomorrow and come at a time when the resilience of the consumer is being increasingly tested. This will add to the pressure which some retailers have been under, although the beginning of the so-called “Golden Quarter” could lend some support.

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The murky economic outlook also weighed on some of the retailers, as well as the housebuilders and indeed the banks, which do not report their own Q3 updates until nearer the end of the month.

In the meantime the premier index wavered around the flatline, looking to add to its own record closing high, with the FTSE100 remaining ahead by 16.1% so far this year and still popular as an alternative investment destination. The FTSE250 has also managed a gain of 7.4%, despite the obvious clouds which continue to hang over the domestic economic outlook.