Market snapshot: missed opportunities for the UK market

US markets flew out of the traps after the previous day’s bruising session, but enthusiasm wore off as the day progressed leaving the main indices all but unchanged.

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The Dow Jones closed with the slimmest of gains, having earlier been ahead by more than 460 points, but at least managed to snap its worst consecutive losing streak in 50 years. The erosion of investor enthusiasm came after the release of the latest estimate for third-quarter GDP growth, which was revised up from 2.8% to 3.1% on an annualised basis. Jobless claims came in at 220,000 for the week, a decline from 242,000 the previous.

Both reports tend to vindicate the Federal Reserve comments which spooked markets on Wednesday, with the economy clearly remaining robust and in little need of stimulus. With the labour market seemingly stable, the other part of the Fed’s dual mandate, inflation, is likely to be the core feature of the central bank’s thinking over the coming months. Indeed, the first test will come later today with the release of the Fed’s preferred gauge of inflation, the Personal Consumption Expenditures index, where the core measure excluding the likes of food and energy is expected to have risen by 0.2% in November, versus a gain of 0.3% in October. At the headline level, PCE is estimated to have risen by 2.5% on an annualised basis, compared to 2.3% the month previous.

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The possibility of higher volatility in the markets could well become a feature of trading in the new year, and while today’s PCE report could provide an interim bout of uncertainty, for the most part investors are winding down on a year which has undoubtedly been largely rewarding. The Dow Jones is ahead by 12.3% in the year to date, while outsized gains have come from the benchmark S&P 500 and Nasdaq indices, which have risen by 23% and 29% respectively.

Asian markets were mixed to lower in an uneventful session overnight, with China opting to keep its loan prime rates unchanged and with an uptick in inflation in Japan after the central bank had previously chosen to keep its benchmark rate at 0.25%. Expectations remain that the Bank of Japan will tighten its monetary policy in the next couple of months, while China still has a hill to climb in convincing investors that the stimulus measures announced so far to revive its faltering economic recovery will begin to wash through next year.

In the UK, with Black Friday sales to be included in the December release which will also capture festive season trading, it will be January before a meaningful assessment of the consumer can be made. Even so, leading up to that point there are clearly signs of weakness, with November retail sales rising by just 0.2% month on month against an expected 0.5%, and with October’s numbers being revised down. It remains to be seen whether the Christmas period will provide a welcome relief, with consumers now facing unchanged interest rates and the prospects of inflation remaining elevated, and whether retailers will have enjoyed a day in the sun before the measures announced in the Budget begin to bite in earnest in the new year.

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The main indices fell once more at the open, with the latest economic release providing little succour in what has been a challenging few months. Gainers were in short supply, with a general lack of enthusiasm resulting in broad based, but contained markdowns, across a number of sectors. Weakness in some of the banking sector came against what has been an otherwise stellar year in relative terms, with the likes of NatWest Group (LSE:NWG), Barclays (LSE:BARC) and Standard Chartered (LSE:STAN) having risen by 80%, 65% and 48% respectively. At an index level, markets have been unable to maintain any positive momentum of late, resulting in gains for the year to date of 4.4% and 3.1% for the FTSE 100 and FTSE 250 respectively, each comfortably away from some of the highs recorded in previous months.

More broadly, the year has been one of missed opportunities for the UK market. On the one hand, moves to stem an exodus of high-profile companies, especially to the US in search of a deeper pool of liquidity and higher valuations, have been notable by their absence in meaningfully raising the attraction of London as an investment destination. Meanwhile, the patently undemanding valuations which are attached to UK stocks on both a historic and comparable basis to global peers has not been recognised. Hopes for a rerating of the market have been in place for some considerable time and the optimists can but hope that 2025 could mark a turning point at last.