Heavily sold BT Group (LSE:BT.A), Ocado Group (LSE:OCDO) and Land Securities Group (LSE:LAND) hit the comeback trail today as a mix of corporate earnings and peak interest rate speculation helped to revive sentiment.
Following a dour October performance, the FTSE 100 index matched the improved showing of European and US markets by rising as much as 1.4%, or over 100 points, to 7,446. The FTSE 250 index jumped 3%.
More than 50 blue-chip stocks rose by 2% or more, with the strongest being those companies whose appeal has been squeezed by the run of global interest rate rises.
Their turnaround was triggered by the sit-and-wait decision of the Federal Reserve, when chair Jerome Powell reported signs that restrictive monetary policy in the range of 5.25-5.5% is finally putting downwards pressure on activity and inflation.
He also acknowledged that the risks of doing too much versus the risk of doing too little are getting closer to balance.
His comments contributed to the best day for US Treasuries since March, with the 10-year yield down almost 20 points by last night. Futures pricing now sees a 19% chance of a hike at December’s meeting, with the end of 2024 rate down to 4.49%.
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Deutsche Bank strategist Jim Reid said: “Our US economists continue to expect that the Fed is done raising rates, but with this requiring evidence of a moderation in growth and labour market data as well as financial conditions remaining tight or tightening further.”
Growth stocks are much less attractive to investors when rates are high due to the diminishing value of future cash flows, but in light of the Fed’s apparent dovishness the S&P 500 rose 1% for its strongest three-day rally since late March and the Nasdaq jumped 1.6%.
The positive mood spread to London, with grocery warehouse technology company Ocado the biggest beneficiary in the FTSE 100 index following a rise of 47.9p to 523.8p. However, that’s only back to the level of mid-October and compares with July’s 975p when Amazon takeover speculation fuelled buying.
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There was also strong interest in the property sector, even though the rate cuts that would rebuild the sector’s investment appeal remain a long way off. Piccadilly Lights owner Land Securities, whose shares started today’s session 12% lower than their level in mid-July, rallied 34p to 607p, and retail warehouse business Segro added 45.2p to 754.6p.
They were joined on the risers board by BT Group, which has £4.5 billion of debt to refinance in the next 24-36 months and will benefit from a dovish approach to UK interest rates.
However, the biggest factor in today’s acceleration of 9.35p to 120.45p was results showing better-than-expected half-year revenues and earnings. Bank of America believes shares can recover to 187p but also warns economic conditions could cap any upgrades beyond this year, particularly in its consumer-focused mobile division.
Smith & Nephew (LSE:SN.) also beat revenue expectations, with its third quarter update sending shares in the medical devices firm 5% or 46p higher at 969.4p.
Underlying revenue growth for the year should be towards the higher end of the 6%-7% guidance range but the trading profit margin will be no better than 17.5% after being held back by headwinds from China.
This compares with chief executive Deepak Nath’s hopes to deliver a margin above 20% by 2025 as part of his 12-point plan to make Smith & Nephew a “consistently higher growth company”.
On a shortened FTSE 100 fallers board, Haleon (LSE:HLN) shares dropped 10.15p to 320.95p after the consumer healthcare company’s organic sales growth of 5% came in slightly below the City consensus. Within this third-quarter performance, price growth of 6.6% offset a bigger-than-expected decline in volumes of 1.6%.
UBS trimmed its price target to 420p, but pointed out that the volume performance would have been flat without one-off and Covid-related factors.
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