By Samuel Indyk
Investing.com – The FTSE 100 has made a disappointing start to the quarter, briefly dropping below 7,000 as financials, homebuilders, and pharmaceuticals declined amid a broad-based sell-off.
Smith & Nephew PLC (LON:SN) and Hikma Pharmaceuticals (LON:HIK) were two of the worst performing stocks in the index while energy giants Royal Dutch Shell (LON:RDSa) and BP (LON:BP) both declined as oil prices fell.
AO World (LON:AO) was one of the worst performing stocks in London, dropping over 20%, as the company said sales in the first half rose only 6% on the same period last year. The company cited “challenging market dynamics” for the lower volumes than expected.
The online electrical retailer had been a pandemic winner during 2020 but the disappointing trading update has seen the company give up around half of its Covid-induced gains.
“It’s astonishing how fortunes can change in the matter of a year,” said AJ Bell Investment Director Russ Mould.
“AO’s UK revenue growth has fallen short of analyst expectations. Its German operations have fared even worse, with the company fighting for space in a highly competitive online market.
“Having cracked the UK, winning overseas is a crucial part of AO’s strategy and it cannot afford to have any setbacks on this front.”
Dixons Carphone (LON:CURY), another electrical goods retailer, saw its shares shed over 8.5% in sympathy.
Other retailers who have performed well during the pandemic, such as Dunelm (LON:DNLM) and B&M (LON:BMEB), were also trading lower.
FTSE outlook
The UK market is being impacted by global and domestic factors. The Fed looks set to begin winding down its QE programme, China appears to be slowing, and inflation worries are concerning the Bank of England and other major central banks. Meanwhile, domestically, supply chain issues are causing empty shelves and queues at the petrol pumps, and European wholesale energy prices continue to hit new records.
All this paints an uncertain picture heading into the fourth quarter and Richard Hunter, Head of Markets at interactive investor, expects the FTSE to continue to be impacted by global factors, “especially given its exposure to overseas earnings and thus the performance of other major economies”.
“A general move to ‘risk on’ mode in the final quarter would clearly draw the index along,” Hunter writes in an emailed note. “At the present time, however, the outlook is unsettled going into the final quarter with more questions than answers available to skittish investors.”