Market snapshot: defence stocks on the attack

Markets limped to a weak finish after a strong month, as US investors retreated ahead of the long weekend.

NVIDIA Corp (NASDAQ:NVDA) was a disproportionate weight to the downside, falling again by more than 3% as news emerged that Chinese e-commerce behemoth Alibaba Group Holding Ltd ADR (NYSE:BABA) – whose shares added 13% - had created a more advanced chip among the confusion of the current talks between the US and China. This added to an uncharacteristically poor week for Nvidia, with some blockbuster earnings numbers coming up against an increasingly high bar of expectations.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Elsewhere, the Personal Consumption Expenditures index, which remains the Federal Reserve’s preferred inflation measure, rose by 2.9% at the core level, which excludes volatile energy and food prices. The number was in line with expectations although up on the previous month, with the final piece of the jigsaw ahead of the Fed’s September interest rate decision coming on Friday with the release of the non-farm payrolls report.

The recent narrative has been one of a labour market which is slowing sharply, and indeed the expected number of just 78,000 jobs having been created in August would compare with an equally anaemic reading of 73,000 the previous month. Unemployment is expected to tick higher from 4.2% to 4.3% and, barring a game-changing high reading, consensus remains firmly of the opinion that a rate cut is now imminent.

In the background, a development in the Trump tariff strategy came with a decision from an appeals court that many of the levies imposed were illegal, although for the moment they will remain in place, opening up the likelihood of the decision to be taken to the Supreme Court.

In the meantime, markets are closed for Labor Day but will go into the final month of the quarter comfortably ahead, with gains of 7.1%, 9.8% and 11.1% for the Dow Jones, S&P500 and Nasdaq respectively in the year to date.

• Insider: at least one of these four stocks is ‘simply too cheap’
• Stock pickers strike back as value investing returns
• The Week Ahead: Ashtead, M&G, Curry

Asian markets were mixed overnight, with China returning to being in focus. A factory activity report showed a marginal improvement in August, as did a private sector PMI release which together show some resilience in defiance of the tariffs. 

Alongside ongoing negotiations as well as the reported emergence of chips to rival those of Nvidia, Chinese markets have enjoyed a strong month. Should the latter come to fruition, there will be some added pressure on the US mega cap tech sector, although perhaps not to the extent of the shock in January following the Chinese AI company DeepSeek announcement.

The absence of clear direction was enough to temper gains for the UK premier index at the open, although progress was sufficient to erase the losses suffered at the end of last week. 

• Shares for the future: why this company is still a top two stock
• Trading Strategies: does Rolls-Royce still offer growth potential?
• Huge month for dividends as Lloyds Bank, BP, Shell, L&G pay out
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Further gold price strength and a broker upgrade lifted the likes of Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV), while the defence sector came into renewed focus following the announcement of a £10 billion deal with the Norwegian navy. The news lifted Babcock International Group (LSE:BAB) and Rolls-Royce Holdings (LSE:RR.) as well as the more involved BAE Systems (LSE:BA.), which is now ahead by 55% so far this year.

The banks also regained some poise after the threat of a potential windfall tax was assimilated into estimates, and the FTSE100 as a whole is now ahead by 12.7% in the year to date, underlining its increasing attraction for domestic and global investors alike in a period of generally high uncertainty.