Markets enter this week with some renewed optimism, having ended the previous week’s tumultuous ride in positive fashion.
Although volatility is likely to persist given lighter summer volumes, the weakness which the markets endured for the majority of the previous trading sessions has tempted some investors to buy on the dips, with big tech in the US a notable investment destination.
Amid a quiet week for company and economic updates, the Jackson Hole symposium in the US will take on extra significance, with investors focusing sharply on any comments from the Federal Reserve on its current policy.
The more recent economic numbers emanating from the US have suggested that the Fed has some additional breathing space before tapering begins, given the mixed messages which the data has provided. Even so, any variance from the message will unsettle investors, whether that be in terms of the timeline for the withdrawal of tapering or a more hawkish view on inflationary trends.
Overall, the main indices remain in rude health despite the raft of current concerns, with the Dow Jones having added 14.7% in the year to date, the S&P500 18.3% and the Nasdaq 14.2%.
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Some respite for the recently beleaguered oil price has positively impacted the majors in the UK, with BP (LSE:BP.) and Shell (LSE:RDSB) edging higher. Shares in the miners are also enjoying some relief, as are other potential growth sectors such as the banks and the airlines. Takeover speculation prompted by the bidding war for Morrisons (LSE:MRW) has also read across to Sainsbury's (LSE:SBRY), with the shares sharply higher in early trade.
Nonetheless, commodities in general remain under some pressure as cold water has been poured over the strength of the global economic recovery, as the Delta variant abounds and as China continues its regulatory crackdown on technology stocks in particular.
As such, the rotation between cyclical and defensive stocks could well remain a factor in the nearer term, with traders keen to protect profits made in the year so far, while also maintaining an involvement in equity markets, still seen as the investment destination of choice given the tailwind of significant stimulus.
Meanwhile, the UK indices also remain comfortably ahead in 2021, with the FTSE100 having added 10.4% and the FTSE250 16.5%. Further dips could lure international investors back into the fold in the UK, where markets are still seen as being undervalued in comparison to some of their global peers.
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