Market snapshot: unsteady and undecided as war and bonds hurt equities

Markets remain unsteady and investors undecided, as rising Middle Eastern tensions and bond yields threaten to undermine any thoughts of an immediate rally.

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

The end of the week could prove to be similarly awkward, with many traders unwilling to take new positions ahead of a weekend when hostilities could yet worsen.

At the same time, investors were left somewhat bemused by comments from Federal Reserve Chair Powell, who seemed to oscillate between implying no further rate hikes in the immediate future, yet leaving the door open for future rises should circumstances dictate. Given the recent pressure on markets, investors had been hoping for final confirmation that the hiking cycle was over, and as such were disappointed by the comments.

Alongside the Fed comments was another spike in bond yields, with the US 10-year Treasury briefly nudging 5%, putting additional pressure on individuals and businesses who require borrowing. The rise also puts further pressure on equities, even if more positively – and as the Fed had noted – the rise does some of the Fed’s work in crimping demand and battling inflation.

Meanwhile, the earning season continued apace, with the majority of companies reporting so far having beaten expectations. A notable exception to this rule was Tesla Inc (NASDAQ:TSLA), where shares fell by over 9% following missed earnings and revenue estimates. Netflix Inc (NASDAQ:NFLX), on the other hand, saw its shares spike by 16% after an update which apparently put the company’s growth story firmly back on track.

The season gets into full flow next week, with updates expected from most of the “Magnificent Seven” which have driven much of this year’s gains, in the form of Alphabet Inc Class A (NASDAQ:GOOGL), Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc Class A (NASDAQ:META) and Amazon.com Inc (NASDAQ:AMZN).

• Guide to US earnings season - Q3 2023
• Ask ii: is this a smarter way to play the S&P 500?

It remains to be seen whether these will put pressure on what has been a successful year so far, with the S&P500 and Nasdaq up by 11.4% and 26% respectively.

Elsewhere, a host of reports will come from the likes of Chevron Corp (NYSE:CVX), Exxon Mobil Corp (NYSE:XOM), International Business Machines Corp (NYSE:IBM) and Ford Motor Co (NYSE:F). Ahead of such a busy week, while the main indices are holding on to gains for the year, the Dow Jones is more precariously placed, now ahead by just 0.8% in the year to date. 

Asian markets had a similarly shaky session, with consumer inflation coming in higher than expected in Japan over September and close to the 40-year peak of 4.3%, which it hit earlier in the year. In China, benchmark lending rates were held steady, suggesting some signs of stability in the economy. Even so, the challenges are well known, not least of which in the country’s embattled property sector where investors are still pinning hopes of general stimulus to ignite a sustained recovery.

Having been passed a bearish baton, UK markets were unsurprisingly weak in opening exchanges. While further spikes in oil and gold prices provided some support to the likes of BP (LSE:BP.), Shell (LSE:SHEL) and Fresnillo (LSE:FRES), it also pulled the rug from the likes of International Consolidated Airlines Group SA (LSE:IAG) and Rolls-Royce Holdings (LSE:RR.), while InterContinental Hotels Group (LSE:IHG) dipped after its third-quarter update.

The general feeling of malaise left the premier index on the back foot once more, with the FTSE100 now having given up most of its previous gains and standing up by a meagre 0.1% in the year to date.

• Portfolio diversification in action: see how it really works
• Have we hit peak China pessimism?
• Fund Spotlight: former star trust now looks very cheap

Meanwhile, retail sales fell by 0.9% in September as opposed to the 0.2% drop which had been expected. The release shows that the consumer may finally be retrenching given both cost of living pressures and what has been a fairly relentless interest rate hiking policy from the Bank of England.

Alongside the inflation report from earlier in the week showing the numbers to be high but stable, there is an increasing likelihood that the Bank can now hold rates at the next meeting. In the meantime, prospects for the UK economy are still shown starkly by the performance of the FTSE250, which has now fallen by 9.4% so far this year.