Markets returned to a holding pattern ahead of two key imminent events which could shape the immediate outlook for investor sentiment.
The upcoming speech by Federal Reserve chair Jerome Powell at the Jackson Hole symposium is eagerly awaited, as it is expected to provide further colour on the central bank’s current thinking. The probability of higher rates for longer in an attempt to finally quash inflation is increasingly being reluctantly accepted by investors, while the jury remains out as to whether there could actually be more rises to come.
In corporate news, NVIDIA (NASDAQ:NVDA) will post its latest earnings release later today. Expectations are high following a blockbuster report in the last quarter and a meteoric share price rise as a result. Such a high bar paves the way for an earnings disappointment, which could have a much broader impact on the mega cap technology stocks, which have recently seen an additional boost from the excitement for the monetary potential for AI.
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Currently seen as the poster child, Nvidia’s processors are currently used in many AI apps with the rise of the likes of ChatGPT heightening awareness of the technology’s extraordinary potential.
In the meantime, US markets drifted, with some weakness in bank shares following a report from S&P Global, which revised its outlook for the sector, based on the currently tough operating conditions. Even so, the reaction was muted and did little to move the dial on the strong performance of the main indices in the year to date, where the Dow Jones has added 3.4%, the S&P 500 14% and the Nasdaq 29%.
The FTSE 100 maintained its own sideways shuffle in early trade, posting a marginal gain. Some tentative buying interest in the mining sector provided something of a prop, with investors now likely to return to macro matters as the latest quarterly earnings season moves into the rear-view mirror. In the meantime, the FTSE 100 has drifted by 2.2% in the year to date, underperforming many of its global peers and having seen earlier year gains disappear into thin investment air.
FTSE 100 reshuffle
Based on current prices, the upcoming FTSE 100 reshuffle is likely to involve eight stocks, with four moving in either direction.
Of the likely relegation candidates and in something of a sign of the times, Persimmon (LSE:PSN) is likely to lose its place at the top table. Having been previously relegated at the height of the financial crisis in 2008, the group returned to the FTSE 100 in 2013. More recently, however, Persimmon has found itself in the eye of the storm. The housebuilding sector as a whole is currently on shaky foundations, with Persimmon’s particular exposure to first-time buyers an additional strain. The shares have fallen by 19% in 2023, by 39% over the last year and by 70% from the pre-pandemic peak of £32.30 achieved in February 2020.
Likely to regain its premier index status after an absence of four years is Marks & Spencer Group (LSE:MKS). Demoted in September 2019, the retailer is enjoying a new lease of life following a transformation of the group. Additionally boosted by its traditionally strong Food business, strengthening signs of a revitalised Clothing & Home unit are washing through. The lines and the look of the Clothing offering are clearly appealing to the new target market of the “modern mainstream customer” as the company attempts to throw off the shackles of a previously dowdy and tired image. Not only is the new look appealing to shoppers, but investors have also been attracted and the shares have risen by 77% so far this year.
Two pharmaceutical companies look set to continue their own yo-yo relationship with the premier index. Hikma Pharmaceuticals (LSE:HIK) is set to return after previous admission in September 2019 and relegation in September 2022. Dechra Pharmaceuticals (LSE:DPH) was ousted from the index in December 2022, having previously joined in December 2021. This particular promotion is likely to be temporary, however, with the group having agreed a £4.5 billion buyout by Swedish private equity firm EQT in June, a deal which should complete either late this year or in early 2024.
The reshuffle will be confirmed after the market close next Wednesday, 30 August, based on closing prices from the previous day. The changes will then become effective on Monday 18 September.
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