Market snapshot: Wall Street on the defensive

US markets ended the week on the back foot, with haven assets being the beneficiaries of a rotation out of more economically sensitive sectors.

While current investor concerns are not new, they are showing some signs of intensifying after a raft of economic data which prompted more questions than answers.

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Following some ongoing weakness after the release of Walmart Inc (NYSE:WMT) results, the vital cog in the US economy which is the consumer added to fears of a slowing propensity to spend, just at a time when there could be upward pressure on inflation.

A consumer sentiment survey revealed a decline of almost 10% from the previous month, with respondents quoting inflation following the likely tariff backdrop as being high on their agenda, with the possibility of higher import prices in the face of a potential trade war. Indeed, the outlook for the next year was for an increase of 4.3% over the next year and, even on a five-year view, for a 3.5% increase in prices.

At the same time, existing home sales fell more than expected in January, while the purchasing managers’ index moved into contraction territory. With the potential for a slowdown of business activity slowing amid the uncertainty, the volatility indices are ticking higher and are likely to stay on high alert for the time being.

The tech based Nasdaq index was lower by more than 2%, with the likes of NVIDIA Corp (NASDAQ:NVDA) falling by more than 4%, as investors sought the haven of bonds as well as rotating into traditionally defensive sectors, such as utilities, healthcare and consumer staples.

Further tests will follow this week on both the economic and corporate agenda, with the release of GDP and the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, accompanying numbers from the likes of Hewlett Packard Enterprise Co (NYSE:HPE) and, in particular, Nvidia whose shares are down by almost 3% over the last couple of months.

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In the meantime, the main indices have made progress in the year to date with the benchmark S&P500 ahead by 2.2% despite Friday’s weakness and having hit record highs earlier in the week, with the Dow Jones and Nasdaq up by 2.1% and 1.1% respectively.

Asian markets were mixed to lower overnight, with some lighter levels of trading given a public holiday in Japan. Hong Kong was unable to repeat its gains from the previous day, which were bolstered by a surge in e-commerce favourite Alibaba Group Holding Ltd ADR (NYSE:BABA) following strong profits and an optimistic outlook on AI developments, although the region as a whole remains particularly susceptible to Trump tariff trauma.

Moves in UK markets were more measured, but echoed a similar theme to across the pond as investors sought refuge in defensives, with the likes of Centrica (LSE:CNA), BAE Systems (LSE:BA.), GSK (LSE:GSK) and British American Tobacco (LSE:BATS) being the main gainers in opening exchanges.

The Chinese uncertainty was also in evidence as the miners fell, accompanied by HSBC Holdings (LSE:HSBA) and Standard Chartered (LSE:STAN), although these declines could not prevent a generally positive open as the primary index flexed its defensive muscles once more. The FTSE100 is now ahead by 6% in the year to date and continues to be something of a refuge, given investor jitters in other developed markets.

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Meanwhile, the FTSE250 is now virtually unchanged this year as contradicting economic data continues to cloud the outlook. As wage growth continues apace, let alone the impact of any potential tariff hits, inflation remains a concern. Retail sales showed some resilience last week but the more immediate road ahead is rocky as the Budget measures begin to take hold.

As such, the debate remains as to whether the Bank of England can continue its interest rate reduction policy at a time when it will be extremely reluctant to ignore the potential of more inflation on the horizon.