Our head of markets sets the scene at the start of a week where US politics and jobs take centre stage.
The UK market has started the week on a positive footing given generally strong performances from global indices elsewhere. Even so, volatility remains a key factor as markets edge towards the end of the third quarter after a generally bruising few weeks.
US indices enjoyed something of a relief rally on Friday, with the outperforming Nasdaq index again picking up the baton. A return of the rotation to “work from home” and ‘cloud’ stocks was echoed, with the majors showing some buying interest, as the likes of Amazon and Apple had a strong day. The 2.3% rise on Friday for the Nasdaq leaves the index ahead by almost 22% so far in 2020.
The other indices also moved higher, although this did not offset losses seen earlier in the week. For 2020, the Dow Jones is down 4.8%, while the S&P 500 index has nudged back into positive territory, now showing a year-to-date gain of 2%.
However, one swallow does not a summer make, and there remain any number of factors which could put further pressure on investor sentiment.
This week, the first Presidential debate will take place as the election race gathers real pace, while a broad selection of economic data will provide further clues. The data will culminate with the non-farm payroll figures on Friday, where unemployment numbers have taken on extra significance given the current political backdrop.
Meanwhile, the effects of the pandemic continue to rattle investors in various ways. The ongoing lack of further fiscal stimulus in the US remains a disappointment for investors keen to see a continuation of economic recovery, while in Europe further lockdown measures threaten to choke what has been a tentative recovery so far.
Governments seem extremely reluctant to return to the full lockdown measures seen earlier in the year, and are targeting localised restrictions where possible. However, there is nonetheless an effect which compounds the economic damage which many companies have suffered over the course of this year.
This vicious economic circle, still likely to be confirmed by a spike in unemployment later in the year, could then affect both consumer spending and sentiment. This will put further pressure on sectors such as tourism, travel and hospitality, which are already in dire straits given this year’s events.
The initial spike for the FTSE 100 index cannot mask the fact that the index remains down 21.5% in the year to date. While any rally will be welcomed by beleaguered UK investors, there remain a raft of issues to be resolved before it can become an investment destination of choice for institutional and international investors alike.
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