Market snapshot: Nvidia nerves and FTSE 100 reshuffle

US markets succumbed to NVIDIA Corp (NASDAQ:NVDA) nerves ahead of the company’s update which came after the closing bell.

Despite an update which forecast third-quarter revenues of $32.5 billion, which exceeded estimates, the shares fell by 2% during the session and by 3% in extended trade. The company is facing increasingly higher hurdles to please investors, following a stellar share price rise which includes a hike of more than 160% this year alone. Caution ahead of the group’s numbers inevitably washed through to the more tech-exposed S&P 500 and Nasdaq indices, given Nvidia’s disproportionate weighting, with some weakness in fellow “Magnificent Seven” constituents such as Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT).

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Even so, fears of a major disappointment seem to have been averted following the update, with attention now turning to the latest GDP growth estimate today and the latest inflation reading in the form of the Personal Consumption Expenditures index tomorrow. This should inform investors as to whether the widely expected rate cut in September remains on track, with the likelihood of a 0.25% reduction remaining in the driving seat. Ahead of these numbers and notwithstanding yesterday’s nervous session, the main indices remain in rude health in the year to date, with rises of 9% for the Dow Jones and of 17% for both the S&P 500 and Nasdaq.

Asian markets followed the cautious lead from Wall Street and generally edged lower overnight, although the FTSE 100 hovered around the flatline in a further sign of its relative resilience this year. The latest move came despite the traditional Thursday headwind of any number of stocks being marked ex-dividend, today applying to the likes of Diageo (LSE:DGE), Glencore (LSE:GLEN) and Auto Trader Group (LSE:AUTO).

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Early features of note were in short supply, with some early strength in Whitbread (LSE:WTB), Centrica (LSE:CNA) and JD Sports Fashion (LSE:JD.) providing some relief. The premier index is now ahead by 7.9% this year, excluding an average dividend yield across the index of 3.5%, adding to the attraction of a stable, mature index which has been increasingly sought as a safer investment destination in days of market stress elsewhere. The FTSE 100 is also just over 1% away from the record high achieved earlier in the year, which would be well within range should the current measured return to an out-of-favour index continue.

FTSE 100 reshuffle

Barring a last-minute miracle, Burberry Group (LSE:BRBY) will lose its place in the premier index after a tortuous year. A slowdown in consumer demand for luxury goods has weighed on the sector, with Chinese consumers particularly notable by their absence. Burberry grabbed the headlines in July for the wrong reasons, bringing forward its first-quarter update amid some developments which came as a shock to investors. An immediate change of the chief executive was accompanied by a suspension of the dividend on the back of what the company itself described as a disappointing start to the year.

Indeed, if the current levels of trading persist, the group could slip to an operating loss in the first half of the year. The shares have declined by 51% in the year to date and by 68% over the last year, leaving the group at number 144 in the overall market capitalisation rankings, where anything below 110 spells automatic relegation. The demise will see Burberry lose its FTSE 100 status after a run which stretches back to 2009, with a turnaround strategy not yet obviously in place.

It is rather less certain whether Burberry will be joined on the way down by easyJet (LSE:EZJ), who are currently holding at number 108 in the rankings and are therefore on the cusp of relegation. This is despite a recent update which saw the group set fair as the peak summer season got into full swing, with progress across each of its revenue streams and indeed at the headline profit level. Growth was particularly notable from its ancillary revenues and at easyJet holidays, which has all but come from a recent standing start to now represent 13% of group income.

Even so, the sector is historically a notoriously difficult one in which to invest, with recent conflicts adding to the litany of external factors outside of the industry’s control, which have ranged over the years from the possibility of strike actions to conflicts and volcanic ash clouds, let alone the major shock which the pandemic brought. The shares have dropped by 12% over the last six months, and relegation would be another example of the group’s weak grip on its place in the premier index, having been relegated in June 2019, only to return in December before falling out of the index again in June 2020 as the pandemic hit. It did not regain this status until March of this year, which could signal a short-lived return.

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As such, it is not yet clear whether there will be one or two promotions to the FTSE 100, and at present insurer Hiscox Ltd (LSE:HSX) and large logistic warehouse investor Tritax Big Box Ord (LSE:BBOX) are neck and neck in this race. Hiscox shares have risen by 11% so far this year and recently announced a rise of 7.1% in pre-tax profit and 3.3% growth in written premiums, leading to a dividend hike of 5.6%. The company also announced an interim chair following the tragic death of Jonathan Bloomer in the recent sinking of a yacht off the coast of Sicily.

Tritax shares have jumped by 19% over the last year, with the latest August update noting improving conditions after the recent Bank of England interest rate cut and the conclusion of the general election. In turn, the company added that considerable pent-up demand is likely to increase business confidence and crystallise occupier leasing decisions, with the possibility of reducing vacancy and a continuation of rental growth.

The reshuffle will be based on prices as the markets shuts on Tuesday 3 September, with the announcements made after close of play on Thursday 4, with the changes becoming effective on Monday 23 September.