Market snapshot: record-breaking FTSE 100 is a surprising upstart

US markets faltered after a blowout session the previous day, while the surprising upstart came in the form of the FTSE100, which has set the early pace and blew past its previous record high in opening trade.

The pause for breath in the US came despite what has been a promising opening to the fourth quarter and full-year earnings season, with the banks in particular doing their part to support the lofty valuations which currently sit astride higher market levels. Each of the banks which have reported so far have exceeded earnings expectations, with Morgan Stanley (NYSE:MS) rising by some 4%, although Bank of America Corp (NYSE:BAC) dipped by 1%.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Mega cap technology stocks later weighed on the benchmark S&P500 and Nasdaq indices, with Apple Inc (NASDAQ:AAPL) falling 4% following reports of tepid iPhone sales in China, while Tesla Inc (NASDAQ:TSLA) dropped by more than 3% over worries on overcrowding within the electric vehicles sector, where the company announced that it would be offering discounts on some of its new Cybertrucks. 

More broadly, the recent surge in Treasury yields has eased for the moment, with economic developments this week bringing the possibility of more interest rate cuts back to the table. A softer than expected inflation reading earlier in the week was followed by reports showing a rise in jobless claims and a retail sales figure which slowed in December and came in below expectations.

The Federal Reserve will remain data dependent as it has promised all along, and signs such as these which imply a tapering of strong economic growth could leave the door open to further monetary easing.

Nest week the earnings season will continue to dominate, with updates expected from the likes of Netflix Inc (NASDAQ:NFLX, Johnson & Johnson (NYSE:JNJ), Procter & Gamble Co (NYSE:PG) and American Express Co (NYSE:AXP). In the meantime, the main US indices remain subdued so far in January, with the Dow Jones having risen by 1.4% and more moderate gains of 0.9% and 0.1% for the S&P500 and Nasdaq respectively.

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• 19 financially robust companies to own in 2025
• What Trump 2.0 means for investments – and funds that could benefit

Asian markets were mixed following the release of Chinese economic numbers which showed growth of 5% for the year, which hit government estimates but was shy of both expectations as well as the 5.2% recorded the previous year.

Markets were unimpressed with the update, even though fourth quarter growth of 5.4% suggested that some of the stimulus measures previously undertaken could now be gaining some traction. Even so, the potential for some strict tariffs following the imminent inauguration of the US President and the continuation of a fractious relationship could temper sentiment for some months to come.

The stability of its constituents and the weakness of sterling, which makes overseas earnings more valuable on repatriation, have led to the UK’s primary index falling into favour with investors over the first few weeks of the new year. Meanwhile, an average dividend yield of 3.6% adds to total returns, while even at this level the market remains severely undervalued compared to most of its global peers.

An early 10% surge in the oil price this year has underpinned the fortunes of the oil majors, with both BP (LSE:BP.) and Shell (LSE:SHEL) positive in opening trade. The housebuilders were also strong, given a combination of potentially lowering interest rates and some recent updates which have shown robust forward order books, with rises of 2% or more for the likes of Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.), Barratt Redrow (LSE:BTRW) and Berkeley Group Holdings (The) (LSE:BKG). The FTSE100 is now ahead by 3.5% this year, and marginally ahead of the previous record level set last May.

• Top-performing fund, investment trust and ETF data: January 2025
• A bullish signal on this ETF
• Four reasons why this stock just got interesting
• 19 small-cap shares for 2025

At a domestic level, retail sales fell by 0.3% in December, suggesting a sombre Christmas trading period, with food sales apparently sinking to the lowest level in over a decade. While this finding seems wholly at odds with the most recent updates which have been provided by the retailers and the supermarkets, the potential enormity of the challenge which consumers and the economy as a whole will face this year looms large over investor sentiment. 

The FTSE250, which is rather more domestically exposed has failed to benefit from the optimism surrounding the premier index and has dipped by 0.3% so far this month. more positively, yet another sign of economic weakness could well prompt the Bank of England to cut interest rates at its meeting next month.