Market snapshot: Trump trade reverse hits tech stocks

The Trump trade faltered further at the end of last week, as investors switched attention to the economic implications of the new regime.

The twin concerns of reigniting inflation and deepening the nation’s debt have quickly risen to the surface, while the likelihood of US “exceptionalism” and any number of trade wars, most notably with China, have taken the steam out of the post-election rally. The situation was muddied further by Federal Reserve comments last week suggesting that the central bank is in no rush to reduce interest rates at pace. Although the markets are still pricing in a cut for December, the rate of reductions for next year has now slowed significantly.

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

Aside from the issues arising from the likely policies of the new administration, there are questions over whether the economy is heading for a landing of any description at all, or whether indeed the current strength can be maintained.

The release of retail sales numbers on Friday showed an increase of 0.4%, higher than the 0.3% expected, although revisions to the previous month’s numbers were particularly noteworthy, with an uptick to 0.8% from the previous 0.4% reported. The consumer remains a vital cog in economic growth, and the only weakness in the numbers was that excluding auto sales, the number ticked down slightly. This may mean that shoppers chose to delay spending until the election outcome was known, which in turn could suggest a strong bounce in future numbers, especially with the likes of Black Friday and the festive season both imminent.

The possible appointment of vaccine sceptic Robert Kennedy to lead the US Department of Health and Human Services has weighed heavily on pharmaceutical shares on both sides of the pond, with weakness in the UK last week in the likes of GSK (LSE:GSK) and AstraZeneca (LSE:AZN). In the US, Moderna Inc (NASDAQ:MRNA) fell by more than 7% in another choppy session and Amgen Inc (NASDAQ:AMGN) by more than 4% over the possibility of a hit to profits.

Elsewhere, the technology sector was also under pressure, with falls for Meta Platforms Inc Class A (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA), the latter of which reports later this week in what could be a market moving experience. Indeed, the market is expecting that the numbers could result in a share price move of up to 9%, in either direction, in what could lay down a new benchmark for the sector.

Despite the recent pressure, the main indices are still strongly ahead so far this year, although the weight of earnings expectations is becoming more pronounced as they increase in line with share prices. The Dow Jones is now ahead by 15.3%, the S&P500 by 23% and the Nasdaq by 24.4%, with each having constantly tested record highs of late.

• Insider: chiefs spend millions on these FTSE 100 shares
• Shares for the future: the best stock on my subs’ bench so far
• Stockwatch: possible bid target and hedge against IHT
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Asian markets were mixed to positive overnight, although there was some weakness in the Nikkei index. Comments from the Bank of Japan governor simply reiterated previous comments that interest rate rises would continue as conditions permit, whereas investors had been expecting a more concrete plan of action, leaving the likelihood of a December hike in doubt.  

Given the global backdrop, markets in the UK made a positive if slightly unconvincing start in early trade.

Aerospace group Melrose Industries (LSE:MRO) was an early bright spot as the shares rose by more than 8% after a trading update in which the company maintained guidance despite some supply chain issues, and suggested more sustained progress next year.

The miners also saw some tentative buying interest, despite the concerns currently overhanging China as a result of potential US tariffs to come, while Entain (LSE:ENT) also ground higher in what has been a tempestuous year so far, with the shares still down by 24% this year despite the small bounce today.

• The Week Ahead: Imperial Brands, JD Sports, Sage
• What is tipped to be the best asset class of 2025?
• The Income Investor: dividend stocks still appeal after Budget

The FTSE100 is now up by 4.5% so far this year and the FTSE250 4.2%, with gains from earlier in the year having been eclipsed by the rush for growth stocks in other jurisdictions, most notably with investors looking to ride the coattails of the technology surge in the US and more latterly chasing the Trump trade.

The UK’s reputation as a more stable, and even defensive investment destination tends to weigh against prospects in this kind of environment, despite the increasingly accepted acknowledgement that valuations are historically cheap against most other developed markets.