Markets remain positive despite slight stumble

Investors looking for negatives will sometimes find them and the current lack of conviction is weighing on markets generally.

Article updated: 9 July 2021 8:00am Author: Richard Hunter

A move towards haven assets such as bonds has further depressed yields, suggesting that some believe that lower economic growth is on the horizon. This is largely driven by the dual concerns of the impact of the Covid-19 variant in some populous areas of the globe, alongside the inevitable Federal Reserve tapering of bond buying.

The Fed has not given any firm indications of timings on such a withdrawal of stimulus, but the minutes of the most recent meeting suggest that the discussion is nearing the top of the central bank’s agenda.

This led to a choppy day across the board, with the imminent second quarter reporting season likely to provide further market noise. The season kicks off next week with the banks in what should be an early indication of economic health, and with loan demand and any further release of impairment provisions in the spotlight.

The general direction of travel remains positive despite the current stumble, however and in the year to date the Dow Jones remains ahead by 12.5%, the S&P500 by 15% and the Nasdaq 13%.

The small gain of 0.8% for UK GDP growth in May was lower than had been expected, but the economy nonetheless saw the benefit of further reopening in the month, with a fuller positive impact expected to follow through in June. While the economy remains 3.1% shy of pre-pandemic levels, there are some promising signs underneath the bonnet.

The services sector increased by 23.4% against the easy comparatives of last year, but is clearly one which may have further to go. Quite apart from the benefits of “freedom day”, the elevated level of savings in the UK means that consumers have the financial firepower to spend. In addition, and despite the easing of restrictions on overseas travel, many will already have staycations booked in the UK which should provide a further boost to the domestic economy.

The news has provided some relief to indices which had been under similar pressure to other major markets, and in the year to date the more domestically focused FTSE250 has now added 10.8%, and the premier FTSE100 index 9%. The search for the next positive catalyst is ongoing, which would enable markets to build on the steady gains already made as a result of the slow return to normality.

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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