Market snapshot: UK stocks can narrow gap to US peers

After lagging rival overseas markets, there are signs of greater interest in domestic stocks. 

As US markets took a pause for breath, the UK may be showing some signs of regaining its momentum from earlier in the year.

While investors await news of President Biden’s proposed $1.9 trillion relief plan, the main US indices struggled for direction, with a small rotation out of big tech stocks into real estate and industrials in evidence. This could indicate that further consideration is being given to sectors which would benefit from a recovering economy.

In the meantime, Twitter’s (NYSE:TWTR) shares rose after the bell after beating estimates, with quarterly users up by 27% and an earnings spike of 87%. The results add to a successful reporting season for big tech, resulting in the ongoing strength of the Nasdaq, which has already risen by 8.7% in the year to date.

There was less positive news for lipstick maker Coty (NYSE:COTY), whose shares declined 15% after reporting weak demand for its products, as the enforced lockdowns left its customers at home with no place to go. Even so, the reporting season thus far has been better than expected and, underpinned by stimulus hopes, the Dow Jones remains ahead by 2.5% in the year to date and the S&P 500 by 4.1%.

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Oil maintained its level of around $61 per barrel on hopes of recovering demand and managed supply, while Asian shares also nudged record highs ahead of the week-long lunar new year holiday.

With sterling holding firm as the US dollar continues to weaken on increased risk sentiment, gains for the FTSE 100 have been capped, although the premier index has added 1.5% so far this year.

Attention is now slowly turning towards beaten down stocks and sectors which could stage something of a recovery in the post-pandemic world. Particular focus will remain on the likes of the oil and banking sectors, tourism and travel including airlines and hotels, as well as leisure sectors such as pubs and restaurants.

Alongside the UK’s accelerated vaccine rollout, recent IPO successes and the potential for acquisition activity could herald a new dawn. The market remains undemanding in terms of valuation and has been largely overlooked by international investors in recent years. However, any return of the animal spirits in the beleaguered UK market may tempt those investors to reappraise.

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