Fed update sees market fizzle out

An early rally in US markets fizzled out as investors withdrew ahead of today’s Federal Reserve comments.

Article updated: 22 September 2021 8:00am Author: Richard Hunter

The Fed is expected to reiterate its stance on a tapering of its bond buying programme, with the consensus still believing that December will most likely signal the firing of the starting gun.

However, with weaker employment numbers of late and the jobs market still almost six million shy of pre-pandemic levels, one of the Fed’s key requirements has not yet been met. At the same time, a combination of supply chain issues and spikes in the Delta variant have tapped the brakes on the economic recovery, prompting downgrades of the outlook for this year. The additional complication of elevated inflation adds to the mix and, in this brittle environment, the comments will receive extra scrutiny.

Default fears over the Chinese property developer Evergrande have added to the general list of concerns, although there was some relief following the company’s promise to pay its bond interest due on Thursday. Nonetheless, until the issue is clarified, fears of contagion will continue to unsettle investors.

The year to date figures for the main indices remain strongly ahead despite the current jitters, with the Dow Jones having added 10.8%, the S&P500 15.9% and the Nasdaq 14.4%.

The picture is slightly brighter for investors in the UK market at present, bolstered by some positive developments.

In another example of the UK’s attraction on valuation grounds, a $20 billion offer for Entain from US sports betting firm DraftKings ramped up M&A activity once more, with the additional possibility of a merger between National Express and Stagecoach adding further froth.

At the same time airline and related stocks are currently spending some time in the sun following the US decision to ease some travel restrictions. The news has also boosted the likes of cruise company Carnival and InterContinental Hotels as transatlantic travel becomes increasingly possible once more.

Broader concerns have also shaved some gains from the performance of the main indices, although the FTSE100 remains ahead by 9% in the year to date and the FTSE250 by 15.5%. As such, the UK’s popularity as an investment destination is holding firm in the eyes of international 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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