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Markets undergoing a volatile phase

The standoff between inflation concerns and growth optimism continues.

Article updated: 19 March 2021 11:00am Author: Richard Hunter

Rising treasury yields in the US, now at a 14-month high, hit interest rate sensitive stocks and the ongoing rotation from high growth into cyclical stocks was best reflected by the Nasdaq, which saw a decline of 3%. Although the index remains ahead by 1.8% in the year to date, the buffeting of previously outperforming big tech stocks is a factor which refuses to subside at the moment.

Despite the Federal Reserve’s insistence that the current inflation worries are temporary and that it will retain its accommodative stance for as long as necessary, the $1.9 trillion American Rescue Plan is still stoking concerns of leading the US economy towards overheating. Even so, the current consensus that interest rates are likely to remain at current levels until 2023 should assuage some concerns.

The Dow Jones continues to be the main beneficiary of the “reopening” trade and now stands ahead by 7.4% in the year to date, while the S&P500 is also consolidating and is up by 4.2%.

Meanwhile the oil price came under severe pressure overnight on fears that the anticipated level of returning demand later in the year may have been overdone. The price remains up by 21% in 2021, as compared to having been ahead by over 30% earlier this week.

The UK has inevitably felt the chill from Wall Street and Asia overnight, although in general terms the premier FTSE100 index has been showing some unusual resilience to the current volatility.

Ahead by around 4% in the year to date, the mature, cyclical and global-facing businesses which tend to typify the index are well positioned in the event of a pronounced economic rebound. In the meantime, any further institutional international interest would also underpin the gains seen so far.

Typically trenchant comments from JD Wetherspoon accompanied its full year results and ranged from the general treatment of the hospitality industry to the handling of lockdowns by the government. The numbers provided further proof if it were needed of the scale of the pandemic effect, with revenues down by 54% and a pre-tax loss of £46 million comparing with a previous half-year profit of £58 million. More positively, net debt was relatively stable but a dividend payment remains out of reach at present. Understandably, the ability to provide a meaningful outlook is also absent ahead of the uncertainty of the coming months.

Despite the travails, the shares have added 136% over the last year, although remain down by 22% since the relatively recent high reached in December 2019. Indeed, the market consensus of the shares as a strong hold may reflect gradually improving prospects.

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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