Market snapshot: records on Wall Street and rebound in UK

There is no sign of risk appetite having been sated after US election week, with the possibility of a new era of growth propelling markets to new record highs.

Expectations are high that the new administration will equate to less regulation, lower taxes and a spending spree which could sprawl across much of the economy, including the consumer who is a vital cog in the economic engine of growth. That valuations are becoming stretched and that some of the measures could be inflationary as well as adding to the ballooning deficit are all apparently concerns for further down the line.

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Indeed, Federal Reserve comments last week that they do not see a meaningful inflationary impact from such potential measures provided some solace, although the pace of rate cuts have been scaled back slightly in terms of market estimates.

The proverbial rising tide has lifted all boats, with the possibility of domestic growth policies resulting in smaller companies joining the party, resulting in a near 9% gain for the Russell 2000 index last week. The sheer weight of buying interest left the main indices all at closing record levels, with the Dow Jones now having added 16.7 and the S&P500 25.7% so far this year, with those indices briefly passing new psychological levels of 4,4000 and 6,000 for the first time on Friday. The Nasdaq, meanwhile, is ahead by 28.5% in the year to date, with the current technology zeitgeist being reflected by Nvidia being added to the main Dow index at the end of the week.

The results reporting season is now beginning to wind down, with an estimated 75% of companies having beaten profit estimates by an average of 6%. There are a handful of stocks to come which could provide the final clues as to the strength of the economy on the ground, and this week reports are expected from the likes of The Home Depot Inc (NYSE:HD), Cisco Systems Inc (NASDAQ:CSCO), The Walt Disney Co (NYSE:DIS) and Alibaba Group Holding Ltd ADR (NYSE:BABA). There are also some important economic readings on the agenda, such as retail sales as well as inflation data in the form of Consumer Price Index and Producer Price Index releases.

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In stark contrast to the investment euphoria sweeping across the US, China is once more the source of disappointment with what is being seen as insufficient stimulus providing a strong headwind. The latest announced measures, while substantial, seem to equate to little more than shuffling the deck as government debt is refinanced, as opposed to promoting growth in the more troubled consumer and property sectors.

A lower inflation reading of 0.3% from the previous month’s 0.4% added to the downbeat mood, while the likelihood of some swingeing trade tariffs hitting Chinese shores from an aggressive US administration has also weighed on sentiment, in moves likely to continue the fractious relationship which has existed for some time between the world’s two largest economies.

The reported possibility that the UK could escape the most punishing tariffs from the new US regime enabled a sprightly start to the week. The main indices had been hamstrung by tariff concerns following the election result, especially given the perceived nature of the America first mentality to the detriment of economies elsewhere, in addition to inflationary concerns which had been sparked by the announced measures in a recent radical Budget.

The FTSE100 and FTSE250 are both now up by 5.2% in the year to date, although the former is some way off its own record high as set in May. 

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A positive update from speciality chemicals company and FTSE100 constituent Croda International (LSE:CRDA) lifted the shares by over 4% in early trade, with other gains being broadly based.

NatWest Group (LSE:NWG) shares added more than 1% after announcing a £1 billion share buyback specifically aimed at further reducing the government stake, which now stands at 11.4% from a previous 14.2%. Since the initial bailout, where the government stake equated to 84%, the shares had until more recently been hamstrung by this technical overhang. As the possibility of removing the government stake entirely has come into view, the shares have effectively broken out of the overhang and the spring has been released, resulting in a share price which has risen by 75% in the year to date.