Market snapshot: investors upbeat but questions to come

Global markets are moving into the final day of the quarter and the half-year in generally buoyant mood, although the outlook for the remainder of 2024 currently carries more questions than answers.

Much of the rally in US markets so far this year has been driven by a handful of mega cap technology stocks, especially those with a large exposure to AI developments, which has led to concentration risk.

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Of late there have been increasing signs of some rotation out of these stocks into value plays as a hedge against the possibility of a correction in what has been a stellar sector.

In addition, with expectations so high, stocks are increasingly likely to be punished on any disappointments, as evidenced by Micron Technology Inc (NASDAQ:MU) shares which fell by more than 7% after keeping fourth-quarter revenue guidance in line, taking NVIDIA Corp (NASDAQ:NVDA) down by almost 2% as a chipmaker read across.

The next few weeks will also herald the onset of the latest corporate reporting season, and there are some early red flags which investors will be hoping are the exception rather than the rule. Levi Strauss & Co Class A (NYSE:LEVI) shares fell more than 15% on disappointing revenues yesterday, while Walgreens Boots Alliance Inc (NASDAQ:WBA) plunged over 22% after cutting its full-year outlook. In extended trading, Nike Inc Class B (NYSE:NKE) shares were also under pressure, dropping 12% after revealing a surprise 10% fall in quarterly revenues.

For the most part, this week has been one of subdued moves ahead of the highly anticipated Personal Consumption Expenditures (PCE) print today, which investors are hoping will pave the way for an interest rate cut from the Federal Reserve. A rise of 0.1% is expected, annualised to 2.6%, which would be marginally lower than the previous month’s 2.7% and some way from the peak of over 7% in 2022.

Cooling inflation, alongside data yesterday which showed higher recurring unemployment and a drop in manufactured capital goods add to this narrative, although GDP growth for the first quarter was revised slightly upwards. If the PCE print is hotter than expected, it will reignite concerns of inflation having reaccelerated, while also pushing out the likelihood of an imminent cut.

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General political uncertainty is also likely to feature in investors’ thoughts over the coming months, but in the meantime the US market looks likely to book some solid gains for the first six months. In the year to date, the Dow Jones has risen by 3.9%, while the more tech-exposed S&P500 and Nasdaq indices have spiked by 15% and 19.6% respectively.

Asian markets were also generally positive overnight, with the weakness of the yen continuing to unsettle currency traders but also boosting the Nikkei index as Japan’s exports become cheaper. By the same token, however, this has also increased import prices which, along with higher fuel costs has led to higher inflation, prompting speculation that the Bank of Japan may be poised to raise interest rates again. 

In the UK, the latest GDP revision was also higher, rising by 0.7% in the first quarter against a previous estimate of 0.6%. The services sector was a particular driver of growth and as a central plank to the domestic economy, it implies further signs of a recovering economy.

The resilience of the economy has been in contrast to the doomsayers over recent months, despite the obvious headwinds, and the FTSE250 has now risen by 3.4% in the year to date. For the index, an increasing amount of M&A activity has also boosted sentiment as overseas investors continue to run the slide rule over what is largely considered to be an undervalued raft of stocks.

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The FTSE100 was also off to a brisk start on the final day of the half-year, consolidating its more recent performance. Although some way off the highs recorded in May, the premier index is ahead by 6.5% so far this year, driven by the likes of the miners and oil majors.

Indeed, BP (LSE:BP.) and Shell (LSE:SHEL) were among the day’s early gainers after another rise in an oil price which is now up by 13% this year. On the downside, the JD Sports Fashion (LSE:JD.) collaboration with Nike weighed heavily given the latter’s disappointing update, sending the shares almost 6% lower and also reading across to the likes of Frasers Group (LSE:FRAS).