Interactive Investor

Reaction as US markets slump to multi-week lows

11th May 2021 16:07

Richard Hunter from interactive investor

A second day of selling has targeted US tech stocks. Here's what our head of markets thinks.

The FTSE 100 index has come under renewed pressure following a shaky start on the other side of the pond.

The spectre of inflation is the most central cause for concern at the moment, which in turn could lead to interest rate rises earlier than investors had been anticipating. Potential blockages in the supply chain and the release of pent-up consumer demand could both place further pressure on prices.

However, set against a year ago when global economies were in lockdown, the oil price was plunging and growth outside of big tech was rare, the comparative increase is unsurprising.

For its part, the Federal Reserve has repeatedly pointed out over recent weeks that the spike in inflation is transitory and that fears of it remaining permanently are overdone.

At the same time, the Dow Jones and the S&P 500 have continued to test record highs in recent sessions, such that letting some air out of the tyres was almost inevitable.

Other markets have taken the cue from this downturn in sentiment, although even among today’s fall the FTSE 100 remains ahead by 8% in the year to date.

The markdown in share prices has been indiscriminate, even bypassing those shares likely to benefit from a higher interest rate environment as and when it lands.

In the meantime, much as the lack of pure technology stocks within the premier index has been seen as a headwind over the last couple of years in a high growth world, the current irony is that in this scenario there is some insurance as any renewed rotation into value stocks would leave it well placed.

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