Interactive Investor

Market snapshot: stocks bounce back ahead of key jobs data

With Wall Street determined to maintain this three-month rally and keep breaking records, ii's head of markets rounds up the latest tech results and what's driving UK shares higher.

2nd February 2024 08:31

by Richard Hunter from interactive investor

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US markets bounced back Thursday following the previous day’s sell off, with focus switching back to an increasingly successful earnings season.

Merck & Co Inc (NYSE:MRK) was an early contributor to the improved sentiment, rising by nearly 5% after an upbeat set of fourth-quarter numbers. Over 200 of the S&P500 have now reported full-year results, with an estimated 80% having beaten estimates.

The good news continued after the bell with three of the so-called “Magnificent Seven” reporting. Meta Platforms Inc Class A (NASDAQ:META) surged 15% in extended trading as it comfortably beat expectations while also announcing a share buyback programme of $50 billion and the introduction of a quarterly dividend for the first time.

Amazon.com Inc (NASDAQ:AMZN) similarly impressed investors and jumped by 7%, although a slight blot on the landscape came in the form of Apple Inc (NASDAQ:AAPL), where shares lost 3% on the back of weakening sales in China.

While the reporting season remains in full flow, inevitably thoughts will return to the Federal Reserve, who seemingly quashed hopes of an interest rate cut in March earlier in the week, sending shares sharply lower.

Further updates in terms of jobless claims and the private payrolls report subsequently pointed to a healthy but weakening labour market, with the next acid test at Friday lunchtime with the release of the non-farm payrolls report. 185,000 jobs are expected to have been added in January, compared to 216,000 the month before, while the unemployment rate is expected to tack higher from 3.7% to 3.8%. A weaker number could reignite the debate over the timing of the first rate cut, which is currently being priced in for May, from March previously.

In the meantime, the ever-increasing possibility of a soft landing, or even the avoidance of a shallow recession, is underpinning shares and is being further supported by a strong set of corporate earnings so far this season. In the year to date, each of the main indices have made progress, with the Dow Jones ahead by 2.2%, the S&P500 by 2.9% and the Nasdaq by 2.3%.

Asian markets were initially lifted by the latest US rally, only to be scuppered by another weak showing in China and an uncharacteristic off-day in Japan. The fall in China came despite the Ministry of Finance pledging that fiscal spending would be maintained at the necessary intensity this year to prop up the economy. However, as the Lunar New Year approaches, the overhanging concerns remain in terms of a beleaguered property sector, weak domestic demand and patchy consumer sentiment.

In Japan, the Nikkei slipped following an update from Aozora Bank which predicted a net loss for the year, due to higher impairments for US office loans, with the subsequent 21% fall in its share price weighing heavily on the index, dragging the overall return down by 0.8%.

The Nikkei nonetheless remains near multi-decade highs, with the next milestone coming in the form of an update from the Bank of Japan on its monetary policy intentions.

UK markets also regained some of their poise following a previously weaker session in which sentiment was dented by the Bank of England’s apparent reticence to confirm the timing of any interest rate cuts, and indeed suggesting that a second round of inflation could be on the cards given the current geopolitical climate.

The more domestically focused FTSE250 rebounded sharply at the open, shaving some of its previous losses to leave the index behind by 1.7% in the year so far. 

The premier index was also boosted by a generally rising tide, despite some small pressure on the oil majors. The likes of Scottish Mortgage Ord (LSE:SMT) received an indirect boost from the renewed strength of US tech, while there was a broad mark up among sectors which would normally be considered to represent more of a risk-on approach, such as telecoms and airline-related stocks.

The initial surge of optimism has improved but not erased losses for the FTSE100, which is now down by 1% in the year to date.

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