Markets drift lower as we await tech earnings

Joshua Mahony MSTA Scope Markets

Markets are on the back foot ahead of fresh tech earnings out of the US. Meanwhile, improved retail sales and a successful vaccination programme are helping to drive sterling’s outperformace.

Markets turn lower as we await tech earnings
Growth stocks stunted by elevated expectations
GBP strengthening as UK retail sales improve

European markets have struggled to maintain recent gains today, with the US open driving weakness on both sides of the Atlantic. The recent shift in emphasis for traders has seen vaccination and reopening concerns replaced with a raft of earnings announcements that should help shape expectations for wider sector performance over Q1. Yesterday’s Tesla earnings brought a more tech-led focus, but that will only ramp-up further when we see earnings data from the likes of Alphabet and Microsoft. The wide divergence in market performance between tech and pro-cyclical stocks has led to a similar disparity in market expectations, where tech names face a relatively high marker compared with their hard-hit peers. With that in mind, the fact that we are seeing outperformance for US banks and restaurants over tech does highlight the questions over quite whether these momentum stocks will be able to justify their lofty valuations.

The pound is enjoying a day of relative strength, with EURGBP weakening and GBPUSD on the rise. Recent moves to reopen the economy appear to have had a welcome benefit for retailers, with the CBI seeing their monthly retail sales gauge jump to the highest level since September 2018. Borne out of the latest reopening of non-essential stores, the fact that Covid cases remains low will likely ensure further economic expansion in the months ahead. Interestingly, much of the growth in retail sales remains geared towards DIY and home improvement. However, the latest Kantar data has shown a notable return to supermarkets in response to the successful vaccination drive here in the UK. Despite older shoppers having learnt how to shop online, this recent return to physical stores from that generation does highlight that much of the shift to digital will ultimately reverse as things normalise.

Author

Joshua Mahony MSTA

Scope Markets

Joshua Mahony is Chief Markets Analyst at Scope Markets. Joshua has a particular focus on macro-economics and technical analysis, built up over his 11 years of experience as a market analyst across three brokers.

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