Interactive Investor

Market snapshot: UK stocks react to losses on Wall Street

19th May 2021 08:24

Richard Hunter from interactive investor

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To prove it will remain a recurring theme, inflation concerns reared up again overnight.

Bumper results from Home Depot (NYSE:HD) and Walmart (NYSE:WMT) in the US were swept aside as investors continued to fret about the spectre of inflation.

Concerns were heightened as new US housing construction tumbled 9.5% in April, largely due to soaring raw material costs. Set against this number and keeping a lid on inflation concerns was a slight weakness in the oil price, where ongoing talks between the US and Iran could result in increased supply from the latter. Even so, the oil price remains 31% higher than at the start of 2021.

The shortages in the supply chain and increasing signs of labour market pressure are making it difficult for markets to sidestep the issue of inflation.

However, minutes due today from the Federal Reserve’s recent meeting are fully expected to reiterate recent guidance that the spike in inflation is transitory and that accommodative monetary policy therefore remains appropriate.

Despite the jitters, the major indices are comfortably ahead, although the pressure on growth stocks as typified by big tech in particular has put some pressure on the Nasdaq. In the year to date, the Dow Jones is up by 11.3%, the S&P 500 9.9% and the Nasdaq tech index 3.2%.

In the UK, inflation is also in focus having risen to 1.5% in April, as compared to 0.7% in March. Set against the falling prices of a year ago, the move is unsurprising, while the recent strength of sterling will provide some support in containing the number as it should lower import prices.

The figure remains within the Bank of England’s 2% target, but is expected to rise to perhaps 2.5% by the end of the year as comparisons harden, with a stronger oil price and the removal of some tax benefits adding to pricing pressure. When this has washed through, it is anticipated that inflation will settle again to the target level, which is of some solace to investors fearing overheating in developed economies.

Meanwhile, the inflation debate continues to underpin the FTSE 100, which remains ahead by almost 8% in the year to date, given the preponderance of cyclical stocks in the index and warming international sentiment on valuation grounds.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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