Investors have been warned not to be too optimistic after last week’s stock market resurgence, with another weekend of uncertainty in the Middle East prompting further havoc.
London’s FTSE 100 and the US S&P 500, among others, both saw strong ends to the week as sentiment turned positive over hopes that the Strait of Hormuz would be reopened.
But that situation was quickly reversed, with Iran saying it was closed once again and refusing further talks. The US, meanwhile, say they have seized an Iranian ship that attempted to evade the blockade.
Stock markets have taken a hit at the start of this week, with experts warning investors will need “deep reserves of patience” before the entire situation comes to a close.
The FTSE 100 was down more than 0.5 per cent by 10am BST on Monday, with European stocks suffering more. Each of France’s CAC 40, Germany’s DAX and Spain’s IBEX 35 were down more than 1 per cent, with the Euro Stoxx 50 down 1.3 per cent.
In the US, futures show indices are expected to drop when markets open later, with the Dow Jones, the Nasdaq and the S&P 500 all set to fall by more than 0.5 per cent.
Richard Hunter, head of markets at Interactive Investor, said it continued to mean an up-and-down time for investments, with many markets at the other end of the see-saw to oil prices, which rose once more on Monday.
“An all too familiar theme has emerged, with markets taking two steps forwards and then one step back, and almost entirely driven by news flow from the Middle East,” he said.
“On Friday, Iran reportedly declared that the Strait of Hormuz was ‘completely open’, lighting a fire under stocks and in particular those affected by the conflict so far, such as the airlines and cruise ship operators, while oil prices plummeted on the prospect of some kind of return to normality.”
However, for those investing for the long term, avoiding the temptation to sell out of recent underperformers remains the focus, with London’s main index up more than 7 per cent for the year despite the issues which saw stocks drop.
“While short-term traders are attempting to navigate a parlous course which involves violent swings and uncertainty, longer term investors are tending to look through the noise and concentrate on a return to normality with a relatively benign economic backdrop currently in place. The FTSE100 has been something of a poster child for this investment mentality, and despite a weaker open after the weekend’s developments, the index remains firmly ahead by 7 per cent in the year to date,” he added.
Derren Nathan, head of equity research at Hargreaves Lansdown, said that further talks between nations would dictate the next movements by markets.
“The rhetoric has once again intensified as attention moves towards a second round of negotiations between Tehran and Washington in Pakistan, but it’s not at all clear whether these discussions will take place. Whether this impasse proves to be merely a detour on the path to a resolution remains to be seen, but more volatility would seem the most likely outcome,” he said.
A swift resolution was initially hoped for but has since proven impossible, with Susannah Streeter, chief investment strategist at Wealth Club, reminding investors that overlooking noise is a key trait in such times.
“Deep reserves of patience are needed, but with some industries such as airlines staring at jet fuel shortages, these are tense times, and valuations reflect this,” she said. “Although indices in Asia remained steady, with investors still focused on expectations for negotiations to resume, stocks on Wall Street look set for a stumble, with S&P 500 futures indicating a small retreat from record highs.”
“It appears last week’s market enthusiasm over the Strait of Hormuz reopening may have been premature,” added AJ Bell investment director Russ Mould.