Tech and growth stocks under pressure as inflation fears spook investors.
Technology and growth stocks are today back in the firing line after a 40-year high for US inflation fuelled Wall Street fears of steeper-than-expected rises in interest rates.
A bigger-than-expected annual rate of 7.5% for January means the US Federal Reserve appears increasingly behind the inflation curve, prompting markets to factor in a possible half point rates rise when policymakers meet next month.
These expectations sent the US 10-year bond yield above 2% for the first time since August 2019, while Nasdaq futures immediately went into reverse as investors dumped tech stocks in a return to the volatile trading patterns seen in January.
Among the casualties in London, FTSE 250-listed Baillie Gifford US Growth (LSE:USA) trust reversed the 3% rise seen before the inflation data to briefly trade in negative territory. The fund, which has stakes in Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and e-commerce platform Shopify (NYSE:SHOP), later recovered some of the lost ground but has still surrendered a third of its value over the past year.
Allianz Technology Trust (LSE:ATT) also saw a similar reversal in fortunes today, while the FTSE 250 fallers board featured Trustpilot (LSE:TRST) and Auction Technology Group (LSE:ATG) after 4% declines.
Baillie Gifford's Scottish Mortgage (LSE:SMT) Investment Trust fell 2% in the FTSE 100 but London's top flight remained at a two-year high in a continuation of its recent resilient performance.
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The FTSE 100 has benefited from its exposure to the energy, commodities and financial sectors where stocks have more pricing power to withstand inflation. Today's surge in the US dollar against the pound also proved helpful for stocks with overseas earnings.
The cost-of-living figures dash hopes among some analysts that US inflation had already peaked, with January's month-on-month rise of 0.6% suggesting there's more pressure still to come. The annual rate of 7.5% was also higher than the 7.3% forecast.
Victoria Scholar, interactive investor's head of investment, said: “It looks as though the Fed could be in for around six rate hikes this year, with lift-off in March.
“Given the tightness of the labour market and strength of the underlying economy, the Fed is already behind the curve on inflation.
“However the big question is to what to extent the Fed’s limited demand-side focused tools will be able to target the supply side pressures from energy and labour.”
This afternoon's tech pressure overshadowed some decent performances earlier in the session, with business intelligence group Informa (LSE:INF) the pick of the blue-chip bunch.
Its shares jumped 7% or 39.8p to 613p, their highest level since February 2020, after agreeing to sell Pharma Intelligence to private equity firm Warburg Pincus for £1.9 billion.
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The business being sold is a leading provider of specialist intelligence and data for clinical trials, drug development and regulatory compliance. Informa said it will use some of the proceeds to start a share buyback programme.
Watches of Switzerland (LSE:WOSG) rose 14p to 1298p as the FTSE 250-listed retailer said it expects full-year results towards the top end of guidance given in November.
The latest upgrade to its forecasts comes after a 28% jump in third-quarter revenues to £348.1 million. The company has 171 UK and US stores under brands including Goldsmiths, Mappin & Webb and Mayors but is also looking to growth opportunities in Europe.
The stock has de-rated by 11% in the year-to-date and now trades on 23 times forecast 2023 earnings. However, Bank of America regards Watches of Switzerland as one of its top buy-rated stocks in the luxury sector, based on a price target of 2,000p.
It said: “We believe the group is still at the beginning of its growth story, which is supported by strong relationships with suppliers, a dynamic UK market and consolidation opportunities in the US and now also Europe.”
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