Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Last week’s stock market wobble was over almost before it began, but it did provide a useful reminder that volatility is part and parcel of an investor’s journey. The summer lull often serves up a few air pockets like the one we experienced last Monday.

Hopefully, things will be a bit quieter this week. Here’s what to expect:

Stock markets

Last Monday was the worst day of the year for some markets, our own FTSE 100 included. Shares in the UK and across Europe were down by 2.5% at their worst. Fortunately, it didn’t last long. Wall Street led the recovery during the rest of the week and hit a new all-time high on Friday above 4,400.

It’s still a narrow market, though. Only around 50% of companies are above their 50-day moving average. That’s low for a market hitting new records. Big growth shares are dragging the market higher but smaller, more cyclical companies are below their recent peaks.

None

Bonds

Fixed income investors also had an interesting ride last week. The 10-year Treasury yield fell as low as 1.13% early in the week although it too rose as sentiment improved during the week to around 1.3%. The current level of yield is consistent with recession fears, which is not the central view as most people expect the US economy to grow by 6-7% this year, with other developed economies following suit.

So, the direction of travel for bond yields is still upwards, with most analysts looking for 1.8% by the end of the year. Buying into the bond rally is quite high risk at today’s valuations.

Commodities

Oil also got a pummelling at the start of last week, down 7% on Monday. Growth fears were compounded by the announcement by OPEC and its main ally Russia that they were ready to raise output to put a cap on the cost of crude. It, too, bounced back during the week, however. At $73, oil is still benefiting from the reflation trade as people get in their cars again and start thinking about flying once more.

Industrial metals remain well below the peak levels reached during ‘peak reflation’ in the spring. Other commodities are being influenced by less predictable things like the weather. The cost of coffee has soared after frosts in Brazil.

Central bank policy

It’s a big week for Fed watchers as the US central bank meets for the first time since investors were blind-sided by a change in the so-called dot plots in June pointed to a couple of rate hikes in 2023 when previously the markets had expected none. Chair Jay Powell has spent the last month trying to reassure us that the Fed remains in support mode. Wednesday’s comments will be closely watched.

Earnings season

Things are really heating up on the corporate front this week. Financials remain in focus, as attention shifts from Wall Street to Europe with the spotlight on Barclays and Deutsche on the investment banking front and Lloyds, NatWest and Santander when it comes to mortgages and loans.

The big story this week, though, will be tech with an expected $72bn jump in revenues year on year for the FAANGs. We’ve got numbers this week from Apple, Microsoft, Amazon, Alphabet and Facebook. That would be a 30% rise in sales, a remarkable confirmation that the pandemic has accelerated an existing shift online.

Overall, the rate of earnings growth for the April to June quarter has now risen to 78%, and 40% for 2021 as a whole. Nearly 90% of the 120 or so S&P 500 companies that have reported so far have beaten expectations, by an average of 20%.

That’s continuing to underpin markets.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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