Markets struggled to make any meaningful progress in the UK at the open, with Unilever (LON:ULVR) and Rolls-Royce (LON:RR) among the early fallers after broker downgrades, although for the latter the markdown made little difference to a share price which has risen by 89% over the last year.
On the flipside, there was some strength in the shares of Barratt Redrow (LON:RDW) after a broker upgrade, where a 23% decline in the price in the last year has reflected disappointment across the sector as a whole that the anticipated recovery in housebuilders has failed to materialise.
The premier index has been something of a laggard of late, adding 5.7% in 2024, or around 9.4% in terms of total return including dividends. A meaningful recovery in UK shares has been anticipated by many in the market over the last couple of years, but for the moment investors are choosing to chase growth elsewhere, although that could change in the event of corrections over other global indices should they come over the course of this year.
Global Markets Overview
Investors finally found their footing in the new year, with markets snapping a five-day losing streak as AI resumed its mantle as a major driver.
Microsoft (NASDAQ:MSFT) announced on Friday that it would be spending some $80 billion on AI-enabled data centres this year, which spilled over into the wider mega tech sector. Nvidia (NASDAQ:NVDA) shares added almost 5%, Super Micro Computer advanced by 11%, with some strength also in evidence in the likes of Amazon (NASDAQ:AMZN) and Meta Platforms.
However, heightened valuations means that markets will be prone to disappointments this year. The benchmark S&P 500 ended 2024 with a gain of 23%, having posted a rise of 24% the previous year. For the Nasdaq the strength has been even more pronounced, with a spike of 29% last year following on from a jump of 43% in 2023.
At the same time, with the yield on 10-year US treasury notes remaining at around 4.5% on inflationary concerns which could begin to become apparent following the inauguration of the new President later this month, this level could also put some pressure on equities.
In the meantime, US markets are subject to another four-day trading week as markets will be closed on Thursday in honour of former President Jimmy Carter, who died at the end of December. On Friday, the first acid test of the year comes in the form of the release of the non-farm payrolls report, where the current consensus is that 150000 jobs will have been added in December, after posting a gain of 227000 in November.
The report is often market-moving and the number will provide a gauge of the health of the employment situation. By the same token, by the time of the release there will have been any number of other data reflecting whether the consumer dug deep during the festive season to maintain the momentum which is centrally important for US economic growth.
Asian markets were lower overnight, failing to respond to comments from the Japanese government that it would act to secure economic growth through wage increases and investment. Equally, and despite a report indicating that China’s services economy grew at the fastest rate in several months, the overarching threat of increased tariffs from the new US administration continues to weigh. The sentiment was further dented after President Biden blocked an attempted $15 billion bid for US Steel Corp by Nippon Steel, further ratcheting up geopolitical tension.