Market mood changes amid heavily selling in US, while IAG and IHG still face a fragile comeback

“The market mood seems to have turned on a sixpence,” says AJ Bell Investment Director Russ Mould.

“Investors had initially taken Fed chair Jay Powell’s guidance that a 0.75 percentage point increase in rates was unlikely as a reason to be positive.

“However, Wall Street seemed to change its mind overnight having had time to chew it over, and there was notably heavy selling, particularly in the technology-biased Nasdaq index.

“Concern about inflation is the culprit, as ever, and the wild swings we’ve seen this week are a reminder that sentiment is about as fragile as a porcelain doll.

“The other fear is that the cure for inflation, higher rates, could be as bad as the disease if they choke off growth and even lead to recession.

“Not helping matters across the Atlantic was a series of very downbeat updates from e-commerce firms like Shopify, Etsy and eBay. Clearly online shopping got a very significant boost during the pandemic for obvious reasons and, while it’s not like all those gains have disappeared, it does appear expectations got ahead of themselves.

“WPP founder Martin Sorrell was in full on mea culpa mode for the markets as he apologised profusely for the delay to results from his new venture S4 Capital after they were finally unveiled. These were a mixed affair although investors seemed to have responded with relief that there were no big hidden nasties in there.

“Sorrell has also pledged to tighten up the company’s controls and structures in a bid to win back some credibility.

“Despite a 10th consecutive month of growth for house prices the mood music around this number is definitely subdued with growth at least starting to slow and warnings that rising rates and inflation will soon dent demand. The property market may finally be about to be reacquainted with gravity.”

International Consolidated Airlines / InterContinental Hotels

“After the chaos of the past two-and-a-bit years, most households would love to have a break from everyday life and enjoy a taste of paradise. Travel companies have been patiently waiting for the day when bookings went up and Covid-related restrictions faded away.

“We’re now edging towards this point in many parts of the world. Unfortunately, there’s a new stumbling block in the form of a potential recession.

“Travel companies had hoped people would use the cash they’d saved during various Covid lockdowns to fund a nice foreign holiday or domestic break. For many, that cash is now needed as a buffer to help pay ever-rising bills.

“International Consolidated Airlines might still be losing large amounts of money, but it expects to return to profit from the second quarter, which is a big turning point for the company.

“InterContinental Hotels is seeing the average rate per available room creep up versus a year ago and demand has been strong.

“Were it not for the pain of inflation, these travel companies would be singing from the rooftop. As it stands, both still face a fragile trading period ahead and it could be a while before they reach pre-Covid levels of business.”

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