Wall Street is shut today, so focus remains on the high flying UK stocks that continue to outperform. Our head of markets analyses the current state of play.
Markets ended a strong week in positive fashion despite some cautionary corporate comments from the US banks as they opened the reporting season.
Both JPMorgan Chase & Co (NYSE:JPM) and Bank of America Corp (NYSE:BAC) beat quarterly earnings estimates, but the prevailing theme from those banks reporting was that a mild recession was expected. As such, more provisions were made for potential credit losses to come, although the move was widely anticipated following similar noises during the previous quarter.
Even so, for the moment the results tended to suggest that the US consumer is faring better than expected despite inflationary concerns in the background, with a sprightly jobs market and rising wages softening any economic blows. More broadly, a consumer sentiment survey showed a reduced inflationary outlook, following a previous CPI report which suggested that inflation could finally be slowing.
The cautiously optimistic view which investors have taken in the first few weeks of January may also have prompted something of a return to growth stocks, with the likes of the technology sector seeing some buying interest. The Nasdaq finished the week ahead by 4.8% and is now up by 5.9% in the year to date. The other main indices have also moved higher, with gains of 3.5% for the Dow Jones and 4.2% for the S&P500 so far this year.
In the meantime, economic and company clues will continue to arrive thick and fast in the coming weeks. Despite a shortened trading week in the US due to the Martin Luther King holiday, earnings updates are due from the likes of The Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS) and Netflix Inc (NASDAQ:NFLX), which will begin to build a stronger picture of the current levels of earnings for the economy as well as immediate company outlooks.
Asian markets were mixed, with differing signs coming from the region. In Japan, there were concerns that the central bank could scale back its stimulative monetary policy this week in the face of downward pressure on its currency.
However, the more immediate outlook for the region kept sentiment positive on the back of China’s reopening, where early Lunar New Year indications suggest a sharp uptick in travel and therefore spending. Economic data due later in the week in the form of retail sales, industrial output and economic growth is likely to be poor, although investors will be looking through the numbers in anticipation of an expected economic rebound.
UK markets also continued their sprightly start to the year, with the premier index seeing the benefits of a raft of broker upgrades to the likes of Prudential (LSE:PRU), SSE (LSE:SSE) and Pearson (LSE:PSON). There has also been some suggestion that certain US investors are currently looking towards Europe for more immediate investment opportunities, with the FTSE 100 index having been one of last year’s relative success stories and already having added 5.5% in 2023.
The improving sentiment towards Europe could also be a factor for the more domestically focused FTSE250, having also had a strong start to the year, with the additional possibility of some bargain hunting after a dismal showing last year. In the year to date the index has added 6% despite the deteriorating UK economic outlook in the background.
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