Market snapshot: US markets flying high amid gloomy outlook for UK

US markets scaled more record highs, as the artificial intelligence (AI) euphoria wave cascaded over investor sentiment.

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The optimism was not restricted to the mega-cap technology stocks, however, with the Russell 2000 smaller cap index also adding 2.4%, hitting an intraday record along the way. Smaller companies are seen as needing funding for their expansion as opposed to drawing on their own capital as is the case for larger corporates and the Federal Reserve interest rate cut – and the prospect of more to come – signalled that the economy is on the verge of new growth.

Within the tech space, Intel Corp (NASDAQ:INTC) shares spiked by almost 23% following an announcement that NVIDIA Corp (NASDAQ:NVDA) would be investing $5 billion (£3.7 billion) in the chipmaker in a joint venture to develop new chips and data centres. The shares of Nvidia also rose by 3.5%, boosting its price gain to 27% in this year alone. The recent reinvigoration of all things AI has lit a fire under tech shares, with the “Magnificent Seven” in the vanguard once more.

A slowing of jobless claims provided further relief, and each of the main indices sailed past previous record highs. As such, the Dow Jones, S&P 500 and Nasdaq have now added 8.5%, 12.8% and 16.4% respectively in the year to date.

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In Asian markets, the Nikkei 225 after a recent rally which has seen the index setting its own record. As expected, the Bank of Japan left interest rates on hold, with a separate report indicating that inflation had slowed to 2.7% from 3.1% the previous month. A fresh rate hike seems to be on the cards over the course of the next few months, while the central bank is also seeking to sell financial assets such as exchange-traded funds (ETFs) and REITs (Real Estate Investment Trusts) in what would be a further act of monetary tightening.

Given the generally parlous state of prospects for the UK economy, there was some brief relief as retail sales grew by 0.5% in August, in a repeat of July’s growth and in line with expectations. Any relief was short-lived, however, with a consumer confidence survey indicating a gloomier outlook ahead of what could be another punishing Budget in November. In addition, government borrowing rose to £18 billion in August in the face of higher spending and borrowing costs, despite an increase in tax and National Insurance receipts.

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The retail sales numbers provided a small boost to Next (LSE:NXT), whose shares took a rare beating after its interim results yesterday as the CEO launched a thinly veiled attack on the current economic path being followed by the government. More strength in the gold price lifted the likes of Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV), whose shares have now accumulated gains of 243% and 83% respectively this year.

The general economic despair for the outlook on the domestic economy weighed on the FTSE 250 at the open, although the index has managed a gain of 5% in the year to date, mainly due to exogenous factors such as revival of investment interest in the UK more generally. The premier index also found the going heavy in opening exchanges, although its gain of 12.9% so far this year is further proof of overseas demand, even if its temporary slip is more reflective of investors returning to the flying US market in their droves.