Market Briefing: 4th November

Global stock markets fell back by about 0.8% last week, with most of the sell-off coming at the end of the week. Whilst it was the UK budget which grabbed the headlines, its impact on the market was fairly muted. Much of the sell-off was driven by the big US tech stocks, with some of the high-profile names issuing cautious guidance for the current quarter (despite all posting beats on earnings and revenues for the quarter just gone!). This week, there is lots to keep investors on their toes, with the big focus being the US election on Tuesday!

Last week

• Global stock markets fell by around 0.8% in an action-packed week!
• The UK budget grabbed the headlines but had little impact on global markets.
• Big US companies beat their earnings numbers, but some weaker guidance weighed on the market.
• UK listed Banks continued to post very strong profit numbers.
• US economic data came in below expectations, although the monthly jobs numbers were heavily affected by strikes and the recent hurricanes.

This week

• The US election on Tuesday is likely to be the focal point.
• Alongside that, we have Central Bank meetings in Australia (Tuesday), the US and the UK (both on Thursday). We expect the US and the UK central banks to cut interest rates by 0.25% to 4.75%.
• We also have corporate earnings reports for several UK companies, including Marks & Spencer (Wednesday) and Sainsburys (on Thursday).

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 fell by 0.8% last week. Much of the sell-off came on Thursday (following some weaker guidance from a couple of the big US tech companies), but that didn’t take the shine off of what was a positive month of October, with Global Stocks rising by 2.05%, and a strong year-to-date, with global stocks up by 15%.
• The UK stock market was down by about 1% on the week, with Wednesday’s budget dominating the headlines. We cover this below, but the reality was, the equity market reaction to it was fairly muted. Large companies (i.e. those in the FTSE 100) fell by about 0.9% on the week, whilst smaller companies, namely those in the AIM index, rose by about 2.3% on the week as the partial removal of Business Property Relief for these stocks was not as bad as feared.
• UK banks continued their trend of strong recent corporate earnings. Last week saw strong numbers from HSBC and Standard Chartered. Both these companies beat their profit and revenues expectations, with HSBC announcing a new $3bn share buyback (bringing the total announced this year to $9bn) and Standard Chartered posting pre-tax profits that were 37% higher than this time last year.
• In US stock markets, there was a large number of companies reporting their earnings last week, with roughly 40% of the index doing so. The focus was on the big technology focused stocks, with 5 of the so-called Magnificent 7 reporting. Meta, Microsoft, Google parent Alphabet, Apple and Amazon all beat expectations for their earnings and revenue, but the market was disappointed by some of the finer details (Meta and Apple) and guidance (Microsoft). Meta reported lower user numbers than expected as well as higher future spending on AI, whilst Apple’s net income was hit by a one-time charge as part of a tax decision in Europe. Microsoft guided to lower-than-expected revenue numbers for the current quarter. This saw both stocks trade lower on Thursday, which tended to drag the index down over the course of the week.
• On the whole, US corporate earnings have been strong so far in this Q3 reporting season. With c70% of companies having reported, earnings growth is tracking at 5.1% (according to Factset), which is better than the 4.3% that was forecast (at end September 2024) and puts us on track for the 5^th consecutive quarter of positive earnings growth in the US. This matters, as the US makes up c70% of the global stock market!
• The UK budget grabbed a lot of headlines, but the impact on equity markets was fairly muted. The main impact was felt in the bond markets, with gilts (10 year) selling off by 1.7% on the week as yields rose to close out the week at 4.44%. The UK bond markets initially rallied during Rachel Reeves’ speech, but then sold off once they’d had a chance to digest the 205 page outlook from the Office of Budget Responsibility (“OBR”)! The OBR’s report said, essentially, that the £70 billion of spending over the next 5 years would marginally weaken long-term growth and marginally increase inflation: hence higher bond yields!
• Other key news last week revolved around US macroeconomic data. In particular, growth, jobs and manufacturing data. US growth came in at 2.8% in Q3, this was a hair lower than expected, but still a very strong number, with consumer spending making up the bulk of the growth. The much-watched monthly payrolls print on Friday, showed just 12,000 jobs to have been created in October. This was way below estimates (of c100k) and made for the lowest reading since December 2020. Despite the big miss, the market wasn’t overly perturbed, due to the impact of strikes (Boeing) and hurricanes. Finally, the ISM manufacturing reading also came in weaker-than-expected and in contractionary territory. Again, the market wasn’t overly phased by this given manufacturing’s diminishing role in the US economy and the fact that this reading has been in contractionary territory for 23 of the last 24 months: a period in which the US stock market is up c40% in GBP terms!

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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