Market snapshot: US shutdown optimism and Diageo’s rally

After several weeks which have left investors and the Federal Reserve in the economic darkness, some light at the end of the tunnel has lifted spirits.

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News of a potential end to the US government shutdown, the longest on record, began to swirl on Friday which enabled the main indices to pare back most of their losses. The subsequent confirmation on Sunday that a bill had passed the first procedural hurdle has lifted Dow Jones futures, which at this early stage are pointing to a strong opening later today. The deal has yet to pass the Senate and the House and could take several days, but is nonetheless being viewed as a welcome development.

In the absence of key economic data, the spotlight has been on corporates for a clearer picture of what is actually happening on the ground, and for the most part they have delivered, with more than 90% of the S&P500 now having reported and the majority having beaten expectations. This has helped to offset some of the growing concerns over valuations and hyper-investment in the AI sector, let alone concentration risk, which has weighed on the Nasdaq in particular, which fell by around 3% last week.

The shutdown has also laid bare some other economic news which has been troubling investors. A lesser-known report last week suggested that labour layoffs reached their highest level in over two decades, while the consensus for a non-farm payrolls report which did not happen was for a decline of 60,000 jobs and an increase to 4.5% in the unemployment rate. In addition, a report at the end of the week suggested that consumer sentiment was close to nearing its lowest ever reading.

Taken together, sentiment remains brittle but market performance has been strong. In the year to date, the Dow Jones has added 10.4% and the S&P500 14.4%, while despite last week’s weakness the Nasdaq remains 19.1% ahead.

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Asian markets were for the most part higher overnight, buoyed by the bounce in sentiment. The Nikkei 225 continued to drift around its recent record high, with investors optimistic on the change which the new political landscape could bring. In the meantime, a hike in interest rates in Japan is growing increasingly likely, although the timing remains open to debate.

The FTSE100 shook off some of its recent weakness to bathe in the global overnight optimism. Among a broad based mark-up, and as the gold price continued its inexorable rise, Endeavour Mining (LSE:EDV) was among the top risers taking its gains to 118% in the year so far.

Elsewhere, the mining sector as a whole rose, reflecting risk-on sentiment, while International Consolidated Airlines Group SA (LSE:IAG) recouped some of its losses following Friday’s trading update. The move lifts the performance of the premier index to a rise of 19.1% in the year to date and closing in on the record high which it recently set.

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The stand-out performer, however, was Diageo (LSE:DGE), with its shares rising by around 7% on the appointment of a new CEO. The announcement is clearly being seen as a potential inflection point for the group given the new hire’s proven ability in brand building, and where the shares have been under some considerable pressure of late, having fallen by 28% so far this year. The news may prompt investors to reconsider the strength of Diageo’s premier brand portfolio.