Market snapshot: UK stocks react to Apple alert 

US results reporting season is in full swing, but it was news from a tech behemoth that undid the good work in a session that had started positively. Our head of markets explains.

The positive start to the week turned out to be nothing more than another bear market rally, as some cautious company outlook comments took the wind out of investors’ sails.

One feature of bear markets is the inability to sustain positive momentum, and the Dow Jones provided such an example with a swing of over 570 points after a positive start to end the day down 0.7%.

The initial corporate news had been positive as the market moves towards peak earnings, with The Goldman Sachs Group Inc (NYSE:GS) comfortably beating earnings and profit expectations, with a strong contribution from its fixed income unit, offsetting a drop in investment banking revenue. This was followed by further earnings beats from Bank of America Corp (NYSE:BAC), and then after the close from technology bellwether International Business Machines Corp (NYSE:IBM).

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However, Apple Inc (NASDAQ:AAPL) put the cat among the pigeons following a media report that it plans to pull back hiring and growth spending next year in anticipation of the possible economic downturn. Quite apart from the company’s influence given its size – its market value is currently over $2.4 trillion – it is also seen as a strong indicator of consumer spending intentions.

The news sent Apple shares down by over 2%, but equally importantly provided another stark reminder of the fact that corporates could be feeling the squeeze against a backdrop of high inflation and tightening margins.

Even so, hopes remain that the reporting season as a whole could still prove to be a positive experience, with full-year expectations still pinned on growth of almost 10% for profits across the range of S&P500. In the meantime, the latest negative turnaround leaves the Dow Jones down by 14.5%, the S&P500 by 20% and the Nasdaq by 27%.

The Apple alert filtered through to a generally downbeat session in Asian markets, where tech stocks such as Samsung Electronics Co Ltd GDR (LSE:SMSN) and Alibaba Group Holding Ltd ADR (NYSE:BABA) felt the sting from its reported outlook.

Larger Chinese blue chips also declined as further coronavirus cases were announced. With the number of cities facing further lockdown restrictions likely to increase, the economic decline seen in the first half of the year could yet be sustained into the second half, with the world’s second largest economy struggling to shake off the Covid-19 shackles.

Investor lethargy from overseas defined a weak opening for UK markets, with the FTSE100 dipping in opening exchanges Tuesday. The early features included further pressure on mining stocks given the possibility of slowing global demand, while leisure and travel stocks also gave up some ground ahead of a challenging few months ahead.

Even so, the index remains an outperformer in relative terms to other leading global indices, with the 2.5% decline in the year to date still underpinned by a generous dividend yield and a high availability of defensive plays.

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Meanwhile, further economic data painted a muddied picture, with a rise in employment and a fall in unemployment being offset by a decline in real wage growth. This adds pressure to the deteriorating outlook for the UK consumer, with inflation remaining the major pinch point.

The uncertain outlook for UK prospects continues to be particularly felt by the FTSE250 index, which has declined by 19% in the year to date.