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Investors are struggling for inspiration

The imminent reporting season is likely to determine the near term direction of the market.

Article updated: 7 July 2021 8:00am Author: Richard Hunter

A weak showing for financials pegged back gains, although the Nasdaq marginally crept ahead to register a new record closing high.

The second quarter reporting season, which kick off in earnest next week, has extra significance this time around. The equivalent quarter in 2020 was a period when the market was taking the brunt of the pandemic pain, with lockdown in full effect. With the major indices at or around record highs buoyed by government and Federal Reserve stimulus, companies will be pushed to meet high expectations. This in turn will determine whether investors consider that this escalating growth can be maintained, or whether share prices are now actually up with events.

In the year to date, performance remains strong, with the Dow Jones having added 13%, the S&P500 15.6% and the Nasdaq 13.8%.

In the UK, progress is currently constrained by the dual factors of “freedom day” providing an extra boost to the likes of the beleaguered hospitality and leisure sectors being offset by concerns for the economic recovery given the gradual withdrawal of government assistance.

M&A speculation, boosted by the Morrisons takeover, is still on the agenda, with the UK remaining attractive on valuation grounds compared to many of its peers.

The FTSE100 still sits comfortably in positive territory, having added 10.5% in the year to date, with the preferred barometer of the UK economy, the FTSE250, up by 12.1%.

JD Wetherspoon released a trading update, confirming that a full-year loss remains inevitable given the recent various lockdowns.

Wetherspoon’s tentative sales recovery has been slightly derailed by its decision to maintain its historic stance on, for the most part, refusing to televise football matches. This has led to some investors questioning the wisdom of its position, as the travel of direction had been improving. In numbers comparing with two years ago, sales were down 49% after the initial lockdown easing in April, 15% after pubs were fully open between May and July, and just 8.1% between May and the start of the Euro 2020 tournament. However, in the weeks which the Euros have been live, sales have dipped again, down 20.8%.

More positively, the company has been helped by local authorities and landlords, who have been flexible in allowing extra outside seating, while Wetherspoon’s financial position provides breathing space as the slow return to normality approaches.

The shares have managed a strong run in the circumstances, having added 22% over the last year, as compared to a gain of 32% for the wider FTSE250. As an obvious recovery play on the “reopening trade”, the market consensus has recently strengthened on Wetherspoon’s prospects, and now comes in at a buy.”

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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