Investors more risk averse

A number of persistent concerns weigh on sentiment.

Article updated: 19 July 2021 8:00am Author: Richard Hunter

In the US for example, the stubborn presence of the Delta variant has led to some switching from growth stocks, such as big tech into defensives, such as healthcare and utilities, as various levels of lockdown continue in many parts of Asia, threatening to defer the global economic recovery.

Meanwhile, consumer confidence fell in July on inflation concerns, while this week will provide the first part of an acid test on the domestic corporate story. With expectations extremely high and with some predicting the strongest growth rate since the tail end of the great financial crisis in 2009, there is perhaps more scope for disappointment rather than positive surprise.

The likes of Netflix, Twitter, Coca-Cola, Verizon, AT&T, American Express and Johnson & Johnson will each give indications of whether the high hopes were justified and whether the performance against an unchallenging quarter from the previous year will maintain the strong momentum seen in the first quarter.

Despite the pause for breath, the main indices remain strongly ahead in the year to date, with the Dow Jones having added 13.3%, the S&P500 15.2% and the Nasdaq 11.9%.

There has also been some weakness in the oil price as “OPEC+” announced that there will be a phasing out of significant production cuts by September 2022, with increases in supply due in August. However, this has not been enough to derail significant appreciation on the basis of an imminent and expected spike in demand, with the oil price remaining up by 41% so far this year.

The general breadth of economic concerns has inevitably spread to the UK market, with the likes of the oil and mining sectors under pressure within the premier index on fears of slowing growth. At the same time, stocks caught in the reopening trade such as the travel sector continue to be volatile even after the easing of some international restrictions, as time begins to run down on a potential 2021 return to widespread tourism.

The more domestically focused FTSE250 has held up reasonably well, helped along by a surprisingly resilient performance from the UK economy thus far, with the index having added 9% in the year to date. Meanwhile, the FTSE100 remains ahead by 7.3%, with the more recent stalling of progress likely to add to its attraction as an investment destination on valuation grounds, as compared to many of its global peers.

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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