Further strength in the shares of US market darling Nvidia (NASDAQ:NVDA) helped propel the Nasdaq and S&P500 to fresh record highs, underpinned by some weakening economic data which strengthens the case for Federal Reserve cuts in the upcoming months.
Nvidia gained by more than 5% to exceed a market capitalisation of over $3 trillion, second only to Microsoft (NASDAQ:MSFT) having nudged past Apple (NASDAQ:AAPL). Earlier in the week the company had unveiled new chips which reinforce its dominance in the AI market, while Wall Street analysts suggested that the stock could have further to go. The shares have now risen by 550% over the last two years and by 220% in the last year alone, marking a stratospheric rise reflecting euphoria around the financial potential for all things AI. The new record coincides with a 10 for 1 stock split which will become effective on Monday, making the price more affordable for retail investors and theoretically also boosting demand for the shares further.
Meanwhile, ADP private payroll data came in below estimates for the month of May in a further sign of weakness in the labour market, adding to a lower-than-expected reading on job openings the previous day. The weekly jobless claims figure today will provide further clues, but the acid test will come tomorrow with the release of the non-farm payroll report, arguably the singularly most important economic release of all. The state of the labour market is also being scrutinised as other numbers such as manufacturing are showing signs of fragility, prompting the consensus to have recently switched back to a potential Fed rate cut in September. Even so, the situation is finely balanced, with consistently weak economic data fuelling some concerns that a broader slowdown could actually outweigh the benefits of lower rates and push the US economy towards recession.
For the moment, though, positive sentiment has been rekindled after an erratic May, and investors will remain on high alert as further economic developments unfold. In the year to date, the Nasdaq is now ahead by 14.5% and the S&P500 by 12.2%, with the Dow Jones trailing with a more sedate gain of 3% so far this year.
Across Asian markets, domestic concerns such as the Chinese property market, the weakness of the Japanese yen and the volatility following the Indian elections were brushed to one side, as the appetite for tech stocks drove most indices higher. The likelihood of an interest rate cut later today from the ECB also boosted sentiment, potentially signalling a new era of easier monetary conditions across the globe.
In the UK, a busy June reshuffle was confirmed for the FTSE100, involving six stocks. Ocado finally came a cropper as investors lost patience with what has unfortunately become a perennial “jam tomorrow” stock. The stock’s relegation from the premier index follows a turbulent time which has seen the share price crater by 81% over the last three years, despite some vague bid speculation surrounding the stock which subsequently came to nothing last year. The scale and capability of the group’s cutting-edge robotic technology remains rightly much admired, but these large swathes of investment have yet to deliver profitability on anything like a sustainable basis.
The reshuffle also involved demotion from the FTSE100 for both St James’s Place (LON:SJP) and RS Group (LON:RS1R). The replacement promoted shares provided further proof of something of a revival in the property sector, with Vistry Group (LON:VTYV) and LondonMetric (LON:LMPL) Property being added to the index as well as a final sprint which brought Darktrace (LON:DARK) over the line to regain its status after previous relegation in December 2021.
More broadly, the London market edged higher at the open, with tentative buying interest in the mining sector offsetting some of the more recent weakness across oil and commodity prices in general. Such weakness has tempered gains in the FTSE100 after a record-breaking level was reached in May, although the index remains ahead by 6.8% so far this year. In addition, and despite the uncertainty of an imminent general election, the more domestically focused FTSE250 has reversed early year losses to stand up by 5.3% in the year to date, latterly propelled by a UK economy which is seeing some benefit from easing inflation and the possibility of lower interest rates, in addition to recently having left a short and shallow technical recession.