Market Briefing: 14th October

Global stock markets rose by about 1.5% last week and closed out on Friday at a fresh all-time high. US stocks helped push the market higher, with the main drivers being the technology sector as well as the banking sector. US banks kicked off the 3^rd quarter’s earnings season last week and posted decent numbers which were much better than analysts had been expecting. We think this is going to be one of the themes of this 3^rd quarter’s earnings season, with the bar for expectations (in terms of earnings growth) being pretty low, which offers much room for upside surprise. This week sees US earnings start to gather pace and also some key data, notably inflation, out of the UK.

Last week

• Global stock markets rose by about 1.5%, with the US market driving the gains.
• US technology and US banking stocks led the way, with certain US banks posting modest growth in earnings which strongly beat expectations for a decline in profits.
• UK shares sold off, with the materials sector weighing most heavily on returns.
• Bond markets gave up some ground, with borrowing costs rising.

This week

• In the UK, we have a decent amount of economic data this week. Tomorrow sees the release of employment data, Wednesday sees the release of inflation data (CPI is expected to come in at 1.9% according to economists surveyed by Bloomberg) and Friday sees Retail Sales data for the month of September.
• The market will also be focused on US earnings. Bank of America and Goldman Sachs report on Tuesday, Morgan Stanley reports on Wednesday and then Netflix reports after the bell on Thursday.
• In Europe, we have the European Central Bank meeting on Thursday (where we expect them to cut interest rates to 3.25%).
• Chinese third quarter growth (GDP) figures are released on Friday.

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Global stock markets rose by about 1.5% last week, with the US index driving gains. Within the US share market (which itself constitutes c70% of the global share market), it was the big technology stocks as well as the banking stocks which performed best.
• Digging a bit deeper into this, it was the semi-conductor index within the Technology sector which drove gains in this area, with Nvidia rising by 8.3% on the week (in GBP) following certain analysts raising their price targets for the stock amidst increased expected demand for AI chips.
• Within the banking sector, there were some better-than-expected earnings numbers and clear evidence of companies jumping over a very low bar of expectations. This is going to be one of the key features of this quarters’ earnings season in the US. The expected growth rate of third quarter earnings for US companies is 4.4% (according to Factset). This is quite a low hurdle in itself, but if we strip out the “Magnificent 7”, then the expected “growth” rate becomes a negative number: hence the reference to a low bar of expectations! In particular, Friday saw JP Morgan and Wells Fargo both post modest earnings growth, which comfortably beat the negative growth numbers that had been expected and the stocks rallied strongly on the numbers; by 4% and 5.3% on the day respectively.
• The UK share market (as per the FTSE All Share) gave up some ground last week, falling by 0.4%. The pull-back was driven by the Materials sector, with the mining shares giving up some of their recent gains as details emerged about the fiscal stimulus package from the Chinese authorities and it generally underwhelmed expectations. There was, however, some decent performance from the Banking sector, which rose by 1.3% on the week in aggregate which took its gains for the year-to-date to c26%; firmly confirming its place as the best performing sector within the UK share market.
• Economic data was very much focused on the US last week. In particular, Thursday’s inflation print. US CPI came in at 2.4%, which was a touch higher than expected (the expected number was 2.3%) but was lower than the previous reading of 2.5%. Despite a sharp uptick in weekly jobless claims (likely closely related to hurricane Helene), the bond market sold off on the week as it scaled back its projections for interest rate cuts. The US bond market is now pricing in just 2 further interest rate cuts this year (it was pricing in 3 just 2 weeks ago), whilst the UK bond market is pricing in just 1 full interest rate cut this year (of 0.25%).
• UK government bonds fell back by 1.2% on the week, with the 10-year gilt yield rising to close the week out at 4.21%. UK 10-year yields have risen by just over 0.4% in the last month. Our view is that this rise is partly driven by the improvement in picture for global economic growth (which warrants less rate cuts than were previously forecast), but also partly driven by uncertainty around the 30^th October budget and what impact any proposed taxing and spending might have on UK growth.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

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