Markets are continuing to bask in the sunlight of easing monetary conditions, with each of the three major US indices posting gains for the third successive week, resulting in a positive November performance so far.
The latest inflation data added to hopes that the Federal Reserve could still be on track to engineer a soft landing for the economy, with the consensus firmly of the opinion that the interest rate hiking cycle has now ended. Indeed, traders are already debating the timing of potential interest rate cuts as the next development, with summer currently gaining popularity as a possible return to easier monetary measures.
There have also been other data which have boosted sentiment, such as weakening oil prices, falling bond yields and some softening in employment and consumer demand. In a shortened trading week because of the Thanksgiving holiday on Thursday, economic releases are light, although the arrival of Black Friday will herald a current perspective of consumer demand, as the run in to the festive season begins to gather some momentum.
Inevitably, all is not plain sailing. The performance of the major indices is a striking reminder of the concentrated and disproportionate effect which the “Magnificent Seven” have had on overall market performance. The Nasdaq has now added 35% in the year to date, while the S&P500, itself also having a large exposure to mega cap technology stocks, is ahead by 17.6%. The Dow Jones Industrial Average, which arguably is a more balanced barometer of the underlying economy, is also in positive territory for the year, but by a more measured 5.4%.
Indeed, one of the star performers this year given mounting excitement for the potential effects of Artificial Intelligence has been NVIDIA Corp (NASDAQ:NVDA), which is one of the stocks to bring down the curtain on this quarterly reporting season when it announces results tomorrow. The bar has been significantly raised and expectations will be high, not least of which is due to a share price which has risen by 237% this year, and where any negative surprises would spill over into other technology leaders.
Asian markets were mixed to positive, with Japanese stocks hitting highs not seen since 1990 following further evidence of strong exporting activity and improving earnings, set against a relatively benign inflationary environment. China remains the talk of the region, however, with the central bank holding interest rates steady. While the decision had been largely expected, it will nonetheless heighten calls once more for a boost to an economy which has run out of steam since the initial boost arising from the removal of Covid lockdowns at the beginning of the year.
UK markets were unable to join any current celebrations and dipped at the open, led by a fall in Compass Group (LSE:CPG) shares following a disappointing revenue miss to expectations. In contrast, full-year numbers for Diploma (LSE:DPLM) were more warmly received, while a broker upgrade to Standard Chartered (LSE:STAN) provided some relief, limiting losses to what has been a lacklustre index of late.
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Despite containing any number of companies which are well placed to ride any turbulent recessionary waves, the FTSE 100 has fallen out of favour in the last few months and currently stands ahead by just 0.5% this year. In addition, an average dividend yield of 3.9% for the index had previously been something of an additional attraction for investors, but the rise in yields elsewhere this year removed that particular plank.
Meanwhile, the FTSE250 is also down by 1.5% in the year to date, reflecting a UK economy which has largely defied the doomsters so far, but where tepid growth is unlikely to continue ahead of inflation amid an interest rate backdrop which has added further pressure to progress. The upcoming Autumn statement is unlikely to move the dial in terms of economic prospects, although any fiscal easing could provide some temporary relief.
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