Investors increasingly believe we are going to get a soft landing in the US and that might explain why the Nasdaq and S&P 500 had such a good start to the week, rising 2% and 1.2% respectively.
Russ Mould, investment director at AJ Bell, said “Risk appetite is returning, with Tesla jumping nearly 8% as investors took advantage of recent price weakness to buy ahead of its fourth-quarter results on Wednesday.
“Many people believe its recent decision to slash vehicle prices will drive up sales volumes and keep Tesla at the forefront of the electric vehicle space, whereas analysts worry that it will hurt profit margins and lead to a reduction in earnings forecasts.
“The change in the market mood might explain why the pound didn’t fall dramatically on a big overshoot in UK public sector borrowing, which hit £27.4 billion in December 2022 versus £10.7 billion in the same month a year earlier. The figure has jumped principally because of a large rise in energy support scheme spending and an increase in debt interest.
“The latest insight into the minds of purchasing managers will be watched later today when the S&P Global PMI figures are released for the US. The services sector is expected to show a small improvement, which could add to the positive sentiment in the market.
“However, the mood could easily change as the week progresses given how we’ve got many market giants updating on their quarterly earnings. Disappointment on profits, margins and outlook commentary could easily upset the market and cause equities to reverse.
“Microsoft and Johnson & Johnson will report later today and give insight into both business and consumer demand, followed by Visa and MasterCard on Thursday, and then important names including McDonald’s, Pfizer, UPS, Caterpillar, Meta, Apple and Amazon next week.
“The FTSE 100 slipped back 0.5% to 7,745, dragged down by weakness in miners, oil companies and pharmaceutical groups, all names that have done well at various points in the past year, suggesting that investors might be rejigging their portfolios.
“The top FTSE 100 risers included airlines and housebuilders, two sectors which had previously been beaten up. Investors with a higher appetite for risk might be looking at the shift in the market mood and are more willing to consider stocks with the potential to rebound.”