Market snapshot: Burberry shock sends shares to 14-year low

After more records were broken on Wall Street Friday, it's a different mood here on Monday following the Trump assassination attempt and bad news from Burberry.

15th July 2024 08:29

by Richard Hunter from interactive investor

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The rally in US markets continued to fan out on Friday, despite some mixed earnings reports from the banks and a slightly warmer than expected wholesale inflation number.

The inflation print was largely dismissed by investors after Thursday’s consumer reading had shown cooling inflation, with the consensus now firmly pointing to a rate cut in September.

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Meanwhile, the banks posted generally positive updates but were mostly lower, with Wells Fargo & Co (NYSE:WFC) falling by 6% after missing estimates on net interest income. Citigroup Inc (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM) shares also slipped, despite posting revenue beats, although more encouragingly JP Morgan was boosted by rising investment banking fees which could yet read across to the likes of Barclays (LSE:BARC) ahead of the UK half-year earnings reports which begin next week.

The Dow Jones also rose to over 40,000 for only the second time ever, buoyed by gains in the likes of Caterpillar Inc (NYSE:CAT) and The Home Depot Inc (NYSE:HD). More broadly, the rotation into value stocks continued as investors assess a new world with lower interest rates, seen as providing the smaller companies with some much needed relief and nudging the Russell 2000 index 6% higher over the week.

In the year to date, each of the main indices remain in rude health, with the Dow Jones having added 6.1%, the S&P 500 17.7% and the Nasdaq 22.6%.

This week will see the news flow move from a trickle to a flood, with retail sales, industrial production, weekly jobless claims and housing starts all on the economic agenda. On the corporate front, a whole host of companies will report to investors, including further bank earnings from The Goldman Sachs Group Inc (NYSE:GS), Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS), as well as updates from the likes of Netflix Inc (NASDAQ:NFLX), American Express Co (NYSE:AXP) and Johnson & Johnson (NYSE:JNJ).

In Asia, focus was firmly on China with Japan closed for a public holiday. Second-quarter growth came in at 4.7% higher against expectations of an increase of 5.1% and compared to 5.3% in the first quarter, while retail sales edged up by just 2% compared to the estimated 3.3% level. While the government was at pains to highlight improvements in factory output, income and investment, the calls for further stimulus from investors will remain at elevated levels.

Sluggish consumer demand, high youth unemployment and a beleaguered property sector have all added to the country’s faltering economic recovery, let alone the perennially fractious relationship with the US, particularly with regard to technological developments and security risks. On balance, investors have voted with their feet, preferring the likes of Japan for greater returns in the nearer terms.

UK markets opened lower in the face of developments over the weekend including the assassination attempt on Donald Trump, which is largely being seen as a major boost to his electoral chances, which in turn could lead to higher debt and inflation in the world’s largest economy.

The lacklustre start does little to mar a strong run over recent weeks which leaves the FTSE 100 and FTSE 250 ahead by 6% and 7.2% respectively in the year to date.

Burberry Group (LSE:BRBY) grabbed the headlines in company news, bringing forward its first-quarter update amid some developments which came as a shock to investors. An immediate change of the chief executive was accompanied by a suspension of the dividend on the back of what the company itself described as a disappointing start to the year.

Indeed, if the current levels of trading persist, the group could slip to an operating loss in the first half of the year, which will add to what has been a significantly difficult time for the company. The level of the group’s appeal has been thwarted by weakening consumer demand, especially in the likes of China, with sales in the Asia-Pacific region declining by 23% in the first quarter.

Even prior to a dip of up to 12% in the share price at the open as investors attempted to digest the news, the shares had fallen by 58% over the last year and today’s announcement will have a seismic impact on the group’s nearer-term fortunes.

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