US equities turn red ahead of inflation data and sell-off in defence stocks puts BAE Systems at bottom of FTSE 100 leaderboard

“A cautious start to the day for European equities set the tone for Wall Street with US shares in the red as trading began across the pond,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“With Nvidia down more than 3%, investors were in a bad mood and they may not get out of the funk until we’ve seen US inflation figures on Wednesday. Forecasts suggest we’ll see the annual rate of inflation creep up when the figures are released and that will certainly give the Fed food for thought.

“The central bank wants to see sustained evidence of inflation coming down and that doesn’t appear to be on the menu. The signs are clear for investors to see, but many have been choosing to ignore them.

“The Fed putting it into black and white could be a difficult pill for investors to swallow, so brace yourself for turbulence on the market this week.”

Defence stocks: Bae Systems, Rheinmetall, Thales and Leonardo

“Investors appear to have taken a ‘what goes up, must come down’ view of the defence sector, with a big sell-off among stocks including BAE Systems, Rheinmetall, Thales and Leonardo.

“These names have soared since Russia invaded Ukraine as governments around the world took the view that they needed to stock up on equipment and commit more money to protecting their own nation. News flow has been positive, earnings forecasts have been upgraded many times, and investors felt the geopolitical backdrop warranted owning these types of companies.

“Amid the prospect of interest rate cuts potentially being pushed back until later in the year, investors are no doubt taking a good hard look at their portfolios and seeing where they can lock in any profits for fear of a market pullback.

“It’s natural to top slice any winners, particularly a sector where the gains have been achieved fast and hard. We then see a snowball effect where others become aware of the sell-off and it gets worse. That could be in play with defence stocks.”

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