Market snapshot: recession odds and FTSE 100’s big movers in Q1

US markets ended the quarter mixed to higher, but the brief respite was far from sufficient to arrest a quarterly slide. The new year optimism which saw markets testing new highs after an exceptional couple of years has long since evaporated.

Ahead of the imminent “Liberation Day” announcement tomorrow, details remain patchy on the level of tariffs which have led to calls of potential stagflation or, at worst, recession.

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Indeed, Goldman Sachs has raised its estimate of the likelihood of recession to 35% from a previous 20%, while alongside the uncertainty the mega-cap sector has also taken something of a beating. The previous AI market darling NVIDIA Corp (NASDAQ:NVDA), for example, has lost 22% this year and is almost 30% lower than its record high.

Quite apart from the tariff updates which, one way or the other, will lead to further volatility and potential turmoil, there is also the question of whether the economy is already showing signs of stress as businesses and individuals tap on the spending brakes until the picture clears.

The non-farm payrolls report at the end of the week is expected to show that 128,000 jobs were added in March, as compared to 151,000 in February, with the unemployment rate ticking higher to 4.2% from the 4.1% reported previously.

In the meantime, the first quarter of the calendar year was one to forget as investors sought refuge elsewhere, resulting in falls of 1.3%, 4.6% and 10.4% for the Dow Jones, S&P 500 and Nasdaq respectively.

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After a half-hearted attempt to recover some ground overnight in Asia, UK markets built on their lead with a brisk opening which reversed the previous day’s losses. Buying interest was broadly based, with investors seeking to make the most of opportunities of recent dips, which benefited the likes of Barclays (LSE:BARC), NatWest Group (LSE:NWG), International Consolidated Airlines Group SA (LSE:IAG) and easyJet (LSE:EZJ).

Meanwhile, the FTSE 250 also staged a mini recovery amid a week which domestically sees any given number of additional pressures coming to bear on households ranging from utility bills to insurance and stamp duty hikes, all of which will offset some of the relief that higher wage inflation has brought over the last few months. Despite the bounce, the index remains down by 5.2% in the year to date as economic outlook concerns persist.

FTSE 100 Q1 movers

Despite a last-minute wobble, the premier index finished with a gain of 5% for the first quarter, having hit several record highs during the period.

There will always be winners and losers arising from the volatility as seen on a global stage this year, and the main FTSE 100 movers are closely correlated to this theme.

The largest decline in the first quarter was for WPP (LSE:WPP), whose shares declined by 30%. Some two-thirds of this fall followed its full-year numbers, when it guided flat to lower revenue in the year to come, with weaker client discretionary spend playing into a weak final quarter of the reporting year. This plays into a sign of the times – when companies are dialling back on spending given an uncertain economic outlook, marketing spend is often the first sacrifice, followed by lower hiring and delayed investment decisions.

JD Sports Fashion (LSE:JD.) also faced a difficult quarter, dropping by some 29%, leaving its shares trading at a five-year low. Its exposure to the US and its tie-up with Nike in particular has weighed on the price, since Nike reported lower footwear revenue which inevitably read across to JD Sports. Although the company remains well-regarded, the dip contributes to a share price fall of 47% over the last year.

Diageo (LSE:DGE) has been under pressure for some time given difficulties in its Latin American and Caribbean operations, and the proposed US tariffs on Mexico and Canada have further turned the screw. A decline in the year so far of 21% leaves the shares down by 32% over the last year, trading at a level last seen in 2016. Tequila out of Mexico and Canadian whisky are the latest casualties to add to the company’s current woes.

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In contrast, this year’s rising political tensions have led to more inward-focused strategies for many countries across the globe, part of which has resulted in actual or proposed higher spending on defence capabilities. 

As such, the leaderboard for the first quarter is littered with companies which are likely to benefit, such as newly promoted Babcock International Group (LSE:BAB) whose shares are ahead by 43% so far this year. Similarly, there were gains of 35% and 26% for BAE Systems (LSE:BA.) and Rolls-Royce Holdings (LSE:RR.) respectively, the latter of which received this additional boost having implemented a turnaround plan which firmly placed it in investors’ good books. These shares have risen by 77% over the last year, with little sign of the positive momentum fading.

It remains to be seen whether the premier index can maintain its momentum as something of a defensive play in the quarter to come, or whether it will also succumb to the growing pressure elsewhere.