Market snapshot: investors await key decisions

A combination of lighter pre-Christmas trading and anticipation of the Federal Reserve interest rate decision kept investors on the sidelines as the week limped to a weaker close.

A rare bright spot was Broadcom Inc (NASDAQ:AVGO), which rose by almost 25% after reporting adjusted earnings ahead of expectations and that its artificial intelligence (AI) revenue soared by 220% over the year. The company passed the $1 trillion market cap valuation, while also being a stark reminder that the theme which has driven much of this year’s gains in mega-cap technology stocks has much further to run.

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Elsewhere, the highlight of the week to come will be the interest rate decision from the Fed on Wednesday, the day after a retail sales release which could conform that the consumer remains in rude health. While a 0.25% cut is almost fully priced into expectations, the outlier would be a no-change decision resulting from an economy which has remained surprisingly robust. In any event, the accompanying comments will take on extra significance in terms of the outlook, where it is widely expected that the pace of cuts will slow next year, not least of which is due to the potentially inflationary policies which the president-elect is likely to announce next month.

In the meantime, the main indices remain on course for a generally stellar performance this year, where the Dow Jones has risen by 16.3%, the S&P 500 by 26.9% and the Nasdaq by 32.7% in the year to date.

China remained the central focus for Asian markets in another show of economic weakness which sent markets lower. Retail sales slowed in November, home sales declined and factory output was largely unchanged in a report which maintained that the economy was stable but that a complicated external environment was weighing on sentiment. The likelihood of a fractious new year after the inauguration of the US president is also a major reason for more caution, given the reported strict tariffs which could be heading in China’s direction.

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The UK will also be subject to an interest rate decision this week. On Thursday, preceded by an inflation report and then followed by a retail sales update, the Bank of England is expected to leave rates unchanged despite increasing signs of economic stagnation. Again, its rationale will be of particular interest in establishing the short to medium-term outlook for rates, given that the inflation genie is not quite back in the bottle which is clearly weighing on its propensity to cut.

The premier index drifted lower by the open, with a bounce in Bunzl (LSE:BNZL) following a broker upgrade being more than offset by a fall in Entain (LSE:ENT) shares as the company announced that its Australian subsidiary was the subject of legal proceedings by the anti-money laundering regulator, the outcome of which could be potentially material according to the group. The tepid moves in opening exchanges leaves the FTSE 100 ahead by 7.3% so far this year, and the FTSE 250 up by 6.1%, with both indices struggling to continue some positive momentum from earlier this year.

A rare event came in the form of a new IPO, with the float of CANAL PLUS (LSE:CAN)representing a welcome relief for the London market. In addition, should the regulatory and working practices hurdles be overcome, there is the additional possibility of a bumper IPO next year in London for fast-fashion company Shein to float in what could value the company up to £50 billion.

However, even together these would represent a trickle rather than a flood, and the general direction of travel has been away from the UK market and the FTSE 100 in particular more recently. Even though there have been signs that the UK is beginning to position itself as a more attractive investment destination, given the strength of the opposing tide, it is rather too early to call a full-blown recovery.