Market snapshot: December starts with a swing

Investor sentiment continues to oscillate, and in a trading session which saw markets swing from positive to negative and back, the net result was that risk sentiment prevailed on the day.

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The Wall Street technology sector was inevitably part of the reason for the advance and many of the mega cap names recouped most of their losses from the beginning of the week. By the same token, the concerns which dominated the sector in November and led to weakness remain close to the surface in this skittish environment. Set against the fears of over-investment in AI and the elevated valuation levels which have ensued, next year could be a period where company's need to report some return on capital.

Although certainly never guaranteed, a year-end rally often takes place as investors position for the months ahead. As such, the search for positive catalysts to take markets to the next level goes on.

The most imminent factor could come in the form of the Federal Reserve’s interest rate decision next week, although with markets pricing in a near 90% possibility of a cut, such optimism is already baked in. Indeed, some thoughts are beginning to turn towards next year, with between three and four cuts of a similar level expected, and where a new Fed Chair will get the opportunity to make an immediate impact.

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Despite a persistent level of inflation which remains stubbornly above the Fed’s target, the recent weakness in the labour market may have forced its hand in turning attention to the second part of its dual mandate.

While not normally taken as an especially accurate indicator, the ADP employment number will be scrutinised for trends, with just 10,000 jobs expected to have been added in November, down from 42,000 in October. The reason for the additional interest relates to the lack of non-farm payrolls data given the government shutdown, where the October and November prints are expected to be released simultaneously on 16 December, which could inject some year-end volatility depending on the readings.

The softness in the labour market has yet to be fully explained, with a cautious consumer currently busy elsewhere on Black Friday and Cyber Monday shopping, where the early indications have been strong. However, there is rising concern around cashflow and employment at the lower end of the earnings scale for individuals, while weaker immigration numbers and even a spike in retirements have been touted as potential contributors.

In the meantime, the main indices are in a position of strength to withstand any volatility which could accompany trading in this final calendar month. In the year to date, the Dow Jones has added 11.6%, the main benchmark S&P500 16.1% and the technology led Nasdaq by 21.2%, each having tested several record highs along the way.

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An ambitious target for further gold exploration in the next five years lifted Endeavour Mining (LSE:EDV) in opening UK trades, leading its shares to an extraordinary gain in the year so far to 135%, largely driven by record price levels for the underlying resource. Smiths Group (LSE:SMIN) topped the leaderboard after announcing the proposed sale of its Smiths Detection business for some £2 billion, with a large portion of the proceeds expected to be returned to shareholders.

Less positively, the technical overhang of a sale of over 80 million shares by Qatar Holdings weighed on Sainsbury (J) (LSE:SBRY), driving the price lower by more than 4%, although the shares remain ahead by around 14% this year.

The mixed news left the premier index drifting, and despite also being in search of positive catalysts in the nearer term, the FTSE100 has seen its reputation transformed in the eyes of global investors, leading to a gain of 18.5% in the year so far.