The FTSE 100 was higher today as investors got some relief from interest rate concerns that briefly left the Nasdaq in “correction” territory during Wall Street trading yesterday.
The 10% drop since the Nasdaq high in November came amid growing concerns at the start of 2022 about monetary policy tightening by the US Federal Reserve.
The resilient end of Wall Street trading last night and some positive updates from stocks including Electrocomponents, cybersecurity firm Darktrace and staffing firm Robert Walters led to a more positive session in London today.
FTSE 100 is higher, Darktrace is up 19% at FTSE 250
The FTSE 100 rose 0.6%, or 41.7 points, to 7,486.92, with Electrcomponents being the best performing fighting stock.
Shares in the UK-based distributor of more than 500,000 industrial and electronic products jumped 5%, or 63p, to 1238p after a better-than-expected performance in the third quarter drove it to increase full-year earnings guidance.
Electrocomponents was one of two companies that were upgraded to the FTSE 100 in December, and the other is also on the bullish plate today.
Vets business Dechra Pharmaceuticals raised 78 pence to 4,378 pixels as it announced it had bought the global rights to Verdinexor, a treatment for canine lymphoma.
Among the other stocks on the FTSE 100’s bullish panel is the Scottish Mortgage Investment Fund, which rebounded 27 pence to 1166p after yesterday’s heavy selling.
Factory leasing companies Flutter Entertainment, Next and Ashtead also rose more than 2%.
The FTSE 250 Index, up 0.8% or 188.64 points 23,190, was buoyed by a stunning comeback to form AI-focused cybersecurity firm Darktrace. The previous FTSE 100 Index rose 19%, or 69.4 points, to 464.2 points, with increased guidance for fiscal year 2022.
Why Matt Molding Is Wrong About Short Sellers
Town Comment: There is a long, vile, and very funny history of corporate bosses complaining about short selling.
In 2006, Enron Chairman Ken Lay blamed the collapse of the now infamous energy trader on those sinister investors who dared to bet his stock would go down.
In 2008, HBOS said the short sale was undermining the bank by claiming it was going bankrupt. was and did. The city watchdog, then the Free Syrian Army, abandoned a brief investigation into allegations that traders illegally profited from short selling, due to a lack of evidence.
Stock market optimism despite high rates
UBS Global Wealth Management expects three rate hikes from the US Federal Reserve this year, starting in March.
Additional increases in the next two years should take the rate down to between 1.75% and 2% by the end of 2024.
However, Mark Heffel, chief investment officer at UBS, believes there is no reason to believe the stock rally is about to end.
Today, he said, “Historically, stocks have performed well in the months leading up to the first rate hike of the cycle. Since 1983, the S&P 500 has risen an average of 5.3% in the three months leading up to the first Fed rate hike.
In addition, the normalization of Fed policy should not affect the outlook for corporate earnings growth, which is underpinned by above-trend growth underpinned by strong consumer spending and easy access to capital.
UBS expects only a gradual rise in interest rates and the 10-year US Treasury yield will rise from 1.75% currently to 2% by June.
Market stability before Powell’s testimony
Investors are hoping for a quieter session after yesterday’s heightened interest rate tensions sent the tech-heavy Nasdaq index down 3% in New York.
The sell-off came amid speculation that the US Federal Reserve may raise interest rates four times in 2022 starting in March, compared with previous hopes of two.
Interest rate expectations put pressure on the valuation of high-growth stocks as the Nasdaq briefly entered correction territory with a 10% drop from its November high.
Stocks later stabilized after the 10-year US Treasury yield fell slightly to end a series of seven consecutive increases, after having been above the 1.8% level for the first time since January 2020.
This means that the Nasdaq ended last night’s session marginally in positive territory while Wall Street futures trading is pointing to a more resilient start later.
The FTSE 100 is also expected to open 35 points higher at 7480.
Attention will now focus on testimony from Federal Reserve Chairman Jerome Powell at his re-nomination hearing with the Senate Banking Committee, Michael Hewson, an analyst at CMC Markets, said.
Hewson said: “There is a feeling that markets may drift a bit when it comes to how aggressive the Fed will be in the coming months.
“We can get a better idea of where we are later today when Powell testifies in front of US politicians, as he will likely face a lot of questions about the timeline and number of potential hikes, as the US economy continues the recovery process.”
The prospect of monetary tightening has taken its toll on the cryptocurrency market in recent days, with bitcoin trading at one point below $40,000 for the first time since September.