Interactive Investor

Market snapshot: US consumer offers little confidence

29th June 2022 08:06

Richard Hunter from interactive investor

The recent rally began to unwind in the US overnight following disappointing data. Our head of markets assesses the current situation and implications for investors.

Attempts at sustaining recent rallies were short-lived, with investors unable to avoid the pervasive fear of a global slowdown.

After a strong opening, the major indices were unable to hold on to the gains, with a disappointing consumer confidence reading taking the wind out of investors’ sails. The reading of 98.7 was below estimates of 100 and down from 103.2 in May, with the immediate outlook for the next six months also dipping. At the same time, inflation expectations remain elevated for the next year.

With the consumer being central to US economic growth, the recent raft of pessimistic readings has led to some concerns that sentiment could become self-fulfilling as consumers hunker down in the face of higher prices, especially fuel and food.

The Federal Reserve will of course be aware of the deteriorating sentiment, but for the moment is showing no signs of abandoning its primary objective of battling inflation head-on.

The debilitating effect of the consumer confidence reading resumed the main markets’ decline and, in the year to date, the Dow Jones remains down by 15% and the S&P500 by 20%. The Nasdaq is on course for its worst quarterly performance since 2008 and is currently down by 28%.

Despite a weaker performance, the oil price remains ahead by over 50% this year, with supply shortages underpinning the market as opposed to any indications of resurgent demand. A report which suggested that neither the United Arab Emirates nor Saudi Arabia will be able to boost production in the near future added to the supply shortage debate.

Asian markets also struggled to hold on to gains arising from the recent announcement of a relaxation of quarantine requirements for inbound passengers. Despite some stock specific bounces from those companies likely to benefit, the scepticism returned in that investors will need to see concrete proof of recovering earnings before committing to the market afresh.

Inevitably, UK markets were affected by the lack of optimism, with the premier index drifting in opening exchanges and now standing down by 1.4% in the year to date. Even so, the relative performance puts the FTSE100 towards the top of the leader board on a global basis, driven ironically by the twin negatives of rising commodity prices and a weaker sterling.

Nonetheless, a robust dividend yield and the availability of mature, defensive plays within the index provide additional attractions.

With a number of central bank leaders speaking later today at the ECB forum in Portugal, investors will be looking to read the room following updates from the Federal Reserve, the Bank of England and the ECB itself on their latest thoughts and proposed actions in tackling the inflationary problem.

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