Market snapshot: tech fervour returns

Tech fervour returned to the US in earnest, with buying interest lifting all boats and driving the S&P500 to a record high.

Buoyed in part from a rally earlier last week in Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) shares, the likes of NVIDIA Corp (NASDAQ:NVDA) and Advanced Micro Devices Inc (NASDAQ:AMD) posted gains. The return of focus on tech stocks across the board was made easier by an acceptance that interest rates have peaked, even if the timing and level of any rate cuts still remains the subject of much debate.

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Indeed, consumer data on Friday showed increasing confidence in both the economy and inflation. Coupled with earlier releases of initial jobless claims and retail sales numbers which underlined the strength of the economy, the possibility of a soft landing is apparently increasing by the day. At the same time, this could leave the Federal Reserve under little pressure to ease monetary policy and the current consensus for an initial rate cut has now been priced in at May rather than March as had been originally envisaged.

This week will provide several more clues as the earnings season switches up a gear. Updates are due from the likes of Visa Inc Class A (NYSE:V), American Express Co (NYSE:AXP) and Netflix Inc (NASDAQ:NFLX), as well as a host of tech stocks such as International Business Machines Corp (NYSE:IBM), Intel Corp (NASDAQ:INTC), Tesla Inc (NASDAQ:TSLA).

In addition, US GDP and core inflation numbers will add further colour to the Federal Reserve’s consideration ahead of its meeting next week. In the meantime, the latest rally has pushed each of the main indices into positive territory, and in the year to date the Dow Jones is now ahead by 0.5%, the S&P500 by 1.5% and the Nasdaq by 2%.

The main Asian markets continue to see diametrically opposing fortunes, with Japan’s Nikkei continuing its assault on multi-decade highs, while Hong Kong and China continue to languish, with the Hang Seng already down by more than 10% this year.

Investor exasperation at Beijing’s apparent unwillingness to deliver major stimulus has left the region increasingly alone in terms of international investor attention. The latest decisions to leave lending facility rates unchanged drove sentiment lower again, with no apparent respite in sight to an ailing economy. 

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By contrast, Japan moved strongly ahead, partly powered by technology gains being seen elsewhere. The Nikkei has added almost 9% so far in January, and the imminent Bank of Japan meeting is expected to reveal no change in policy, leaving its loose monetary measures in place to propel the economic recovery further.

UK markets also joined the bullish turnaround, albeit at a more measured pace. The FTSE100 was buoyed by a broad mark-up which included a broker upgrade for Segro (LSE:SGRO).

In addition, retailers recovered some poise with gains for the likes of Ocado Group (LSE:OCDO), JD Sports Fashion (LSE:JD.) and Kingfisher (LSE:KGF) ahead of a week which will see an update from Primark owner Associated British Foods (LSE:ABF). A broker downgrade to Sage Group (The) (LSE:SGE) scuppered what little hopes there may have been for strength in UK tech stocks, such as they are.

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Banks also saw some support ahead of annual updates towards the end of next month, with recent economic data suggesting that the robust capital reserves which the banks have built should be enough for them to withstand any further bumps in the road.

Despite today’s bounce, the FTSE100 is already underperforming on the global stage having dropped 3.1% in the year to date, while the FTSE250 is down by 3.6%.