A sombre end to the quarter

US indices recorded their worst monthly performance in September since the outbreak of the pandemic.

Article updated: 1 October 2021 7:00am Author: Richard Hunter

The litany of current woes which have beset investors continue to grow. Aside from the Federal Reserve tapering programme, further evidence of slowing growth in China and elevated inflation on both sides of the pond, additional concerns are appearing as the US considers its debt ceiling actions and whether to proceed with the President’s proposed (and significant) infrastructure spending plan.

At the same time, initial jobless claims surprisingly rose, despite the apparent wealth of available job positions currently on offer. The imminent third quarter reporting season will also add further colour to what has been happening on the ground at company level, given the various outbreaks of the Delta variant and supply chain issues, and a potential slowdown on consumer health spending. It will also inevitably suffer comparisons with what was a particularly strong set of second quarter earnings.

Despite the current concerns, the major indices remain in double-digit growth territory in the year to date, with the Dow Jones having added 10.6%, the S&P500 14.7%, and the Nasdaq 12.1%.

Deteriorating sentiment has unsurprisingly found its way to UK shores also, where the initial economic rebound from the pandemic lockdowns has somewhat run out of steam.

With elevated inflation and supply chain issues also in evidence, the implication from the Bank of England that interest rates may be under consideration for a rise sooner rather than later added to the mixed picture on the immediate economic direction.

Even so, on valuation grounds the UK’s premier index is still seen as attractive compared to many of its developed markets rivals. Buying on the dips in the UK market has been a theme during this year and the main indices remain in positive territory in 2021, with the FTSE100 ahead by 8.5% and the FTSE250 by 11.3%.

The remainder of the year is therefore likely to see the FTSE100 continue to be impacted by global economic factors, especially given its exposure to overseas earnings and thus the performance of other major economies. A general move to “risk on” mode in the final quarter would clearly draw the index along. At the present time, however, the outlook is unsettled going into the final quarter with more questions than answers available to skittish investors.

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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