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Market Snapshot: A Flourishing FTSE100

Published 03/05/2024, 08:14

US markets regained some of their footing as attention turned back to what has been a mostly successful quarterly earnings season so far.

Mega cap technology shares were back in the limelight, rising as bond yields dipped, with the Nasdaq advancing by 1.5% amid jumps of more than 3% for the likes of Nvidia (NASDAQ:NVDA) and Amazon (NASDAQ:AMZN). Qualcomm (NASDAQ:QCOM) earnings beat expectations, sending the shares higher by almost 10%, while Apple (NASDAQ:AAPL) rose by more than 6% after the bell having reported sales which had declined by less than had been feared. In addition, the company announced an increase to its dividend, as well as a share buyback programme of $110 billion.

Deep into the earnings season, an estimated 75% of companies have so far beaten expectations, which has limited some of the losses for the main indices as corporates take the lead for justifying higher valuation levels. Investors have been rattled by economic data which continues to show strong growth and persistent inflation, neither of which are likely to compel the Federal Reserve to cut rates any time soon. Expectations are constantly being revised for the number and timing of rate cuts this year, with the Fed increasingly being vindicated for its previous “higher for longer” mantra and also the fact that its decisions will remain data dependent.

The next test of investors’ mettle comes later today with the release of the eagerly anticipated non-farm payrolls report, where the consensus is that 243000 jobs will have been added in April, as compared to 303000 the previous month, and for the unemployment rate to remain unchanged at 3.8%. More recent NFP prints have tended to provide surprises which have resulted in sharp market moves and any large deviation from the consensus in either direction would add to volatility. A particularly high reading, for example, would play against the narrative that higher interest rates are cooling demand, potentially pushing the need for any rate cuts at all further out.

In the meantime, the main indices each remain ahead so far this year although some way lower than the levels seen during the unbridled optimism of the early months. In the year to date, the Dow Jones is now up by 1.4%, the S&P500 by 6.2% and the Nasdaq by 5.5%.

Asian markets also rose on tech stock buying, although overall volumes were lighter with public holidays in both Japan and mainland China. The week has been dominated by speculation around the Japanese yen, where the likelihood of intervention by the Japanese authorities to shore up the currency seems to have been proven. Elsewhere, the level of interest in tech shares increased following the ongoing possibility that the Chinese authorities have further moves planned in an effort to revitalise an ailing economy and overseas investment interest in the country.

US markets may have lost some of their mojo but the same cannot be said for a flourishing FTSE100, where opening strength lifted gains in the year so far to 6%. The mixture of technical factors, such as rising commodity prices and higher interest rates underpinning the likes of the mining, oil and banking sectors has been combined with improving sentiment towards the premier index. Even at these elevated levels at or around record highs, the valuation of the index remains undemanding in comparison to many of its peers which could suggest that the recent rally still has some way to go.

More broadly the improving sentiment and some chinks of light at the end of the UK economic tunnel have reversed earlier losses for the more domestically focused FTSE250, which is now ahead by 1.8% in the year to date. The growing acceptance of the UK as something of a value trap has also prompted increased Merger and Acquisition activity, with a number of companies attracting the attention of overseas suitors.

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