Market snapshot: US and UK stocks recoup recent losses

US markets regained some poise after a technology-led relief rally, although there remain few signs of a continuation of the festive fireworks we saw leading into the year-end.

A bullish broker upgrade lifted Apple Inc (NASDAQ:AAPL) shares by more than 3%, while the US shares of the Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) popped by almost 10% after posting an earnings and revenue beat for the final quarter. The news reignited some of the excitement around semiconductors and in turn served a timely reminder that AI is likely to remain a core theme for investors this year.

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The quarterly earnings season has taken on additional significance given the current impasse between Federal Reserve and investor thinking on interest rate cuts. Initial jobless claims were the latest data to muddy the water, sliding to their lowest level since September 2022.

Coupled with a retail sales number earlier in the week which confirmed robust consumer spending, there is apparently little cause for the Fed to be considering interest rate cuts at present given the underlying strength of the economy. The current consensus points to a 56% likelihood of the first rate cut in March, down from 70% a week ago, signalling a slowing realisation that cuts may not be on the immediate horizon.

The debate has kept a lid on market progress so far this year, even if the S&P500 is within a whisker of its all-time closing high. The first few weeks of January have seen marginal gains for the S&P500 and Nasdaq of 0.2% and 0.3% respectively, while the Dow Jones is down by 0.6%.

Next week will provide a fresh test of investors mettle, with the reporting season ramping up to include updates from the likes of Netflix Inc (NASDAQ:NFLX), Tesla Inc (NASDAQ:TSLA), Intel Corp (NASDAQ:INTC), Visa Inc Class A (NYSE:V) and American Express Co (NYSE:AXP).

The technology rally spilled over into Asia, including a rise in the shares of Taiwan Semiconductor in its home market. The economic situation in China remains one open to some debate, with sustained stimulus from the authorities still elusive, prompting investors to seek solace elsewhere. In the shorter term, there could be some small relief for the embattled property sector, but weak consumer sentiment and high levels of unemployment remain thorns in the side.

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Meanwhile, Japan’s Nikkei continued to push against the ceiling of multi-decade highs. Consumer inflation slowed for a second month in December, suggesting that the Bank of Japan may not need to abandon its ultra-loose monetary policy. While the yen has been the victim of this revelation, a positive side effect of that weakness is to improve the attractiveness of Japan’s vitally important export market.

UK markets took the positive lead from global markets and opened in positive territory. Even so, the lack of a technology focus in the premier index and an equally unclear path for interest rates has left the index in the red so far this year, unable to break away from somewhat torpid investor sentiment.

In early exchanges, there was some strength in the housebuilding sector given recent data which has shown rising house prices and a tentative return of consumer demand, while a sprinkling of risk-on sentiment lifted some of the miners. However, despite the initial bounce, the FTSE100 remains down by 2.9% in the year to date.

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The FTSE250 has also slipped by 3.3% so far this year, with the latest retail sales release offering little cause for cheer. Sales fell by 3.2% in December, which was more than expected, with consumers having apparently brought forward some of their festive purchases into November, with tempering inflation and events such as Black Friday providing a boost.

The impending and likely further squeeze on consumer spending in the new year could also hasten the debate as to where some stimulus could come from, be that in the form of either monetary or indeed fiscal policy relief.