On Monday morning (April 14), stock markets around the world opened higher. The constant selling pressure from early last week seems to have evaporated, even though it’s unclear if the world’s out of the woods yet regarding US tariffs.
When trying to weigh up where the FTSE 100 goes from here, I’m focused on three points.
The US dollar
The index that tracks the US dollar is currently at its lowest level since early 2022, and is still falling. This is very telling, as the value of the currency provides an alternative way for investors to express how confident they feel about the economy at a given point in time. The fact that the dollar’s still weakening isn’t a great sign for other financial markets.
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It could indicate that people are worried the situation around US tariffs still isn’t adequately resolved and could have further twists to come. Until the dollar stabilises in value, I’m cautious about investing too much in stock markets.
Gold prices
Gold’s seen as one of the best safe-haven assets to own. Given recent events, it’s no surprise that gold has been rocketing to all-time highs. The precious metal is up 21% already this year!
I’d like to see gold prices fall as a sign that investors feel more confident about the stock market. This would likely show that people are happy to reallocate money away from gold and into riskier assets such as stocks. This should cause stocks to rise and gold to fall. Yet until gold stops rallying, it’s a very telling sign about how people feel.
Growth shares
Typically, growth names are the hardest-hit stocks during a market rout. This is because they’re often the most sensitive to a slowdown in economic activity. The potential hit to future earnings also causes investors to rethink the valuation that the company deserves right now. So when FTSE 100 growth shares start to rally, it’s a good sign that sentiment’s improving for the market overall.
For example, I’m watching Rolls-Royce (LSE:RR). The stock’s still up 70% over the past year but has fallen by 7% in the last month. I think most of the recent fall is based on souring sentiment in general rather than anything too company-specific.
After all, the firm has a diversified global footprint, with significant operations in Europe and Asia to offset exposure to the US. From the data I saw online, only about 8% of widebody aircraft engine deliveries go to the US, so the tariff impact’s limited. It has manufacturing facilities in the US, so it could increase production here for any domestic needs.
The share price has already started to recover in recent days, albeit modestly relative to the recent fall. If this continues over the next week, it would be a good sign to me that we’re over the worst. If that proves to be the case, I’ll consider buying Rolls-Royce shares along with other growth ideas.
