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Written by: Susannah Streeter | Hargreaves Lansdown
The prospects for the US economy have darkened again, with a recession looming even larger. Growth in output slowed by more than expected in the first few months of the year, decelerated to 1.1% on an annual basis, with retail sales far less upbeat than first thought. It was the weakest pace of expansion since the second quarter of last year. But more ominous news about the economy is being read as good news on financial markets because investors see this as evidence that the painful hike in rates may be about to end.
The S&P 500 lifted on the numbers, helped by a big dollop of confidence about Meta’s return to growth, spurred by its investments in AI. The hope that the hiking cycle has spun a full wheel and there is enough momentum to pull down prices without another poke from the Fed. The rising tide of hope that the pause button will be pressed in May buoyed big tech and lifted other sectors including real estate. Even First Republic Bank recovered slightly amid hopes it may be able to crawl back from the precipice with the hope that white knight lenders might stump up more funding. An unexpected trend downwards in unemployment claims has not blown more upbeat sentiment off course either, with overall the expectation that the jobs market is weakening.
A stronger open on Wall Street failed to lift spirits in London, with worries about the impact of a slowing global economy amid high inflation, casting a shadow over stocks. Despite buoyant start to the year, ad giant WPP was among the biggest fallers amid some concerns that its ability to keep doing deals to help companies maintain brand power could be knocked as a downturn accelerates. Barclays strong performance, buoyed by higher net interest income in the UK has helped wash away some worries about the banking sector.
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