Weekly Market Update and Featured Chart #16

This week’s market update highlights the latest economic news and general market performance across the UK, US and Asia.

The key takeaways:

• UK interest rates held at 5.25% – 7 members of the Bank of England's Monetary Policy Committee voted to keep interest rates at their current levels, with 2 members voting for a rate cut.
• UK rate cut expected by August – The market has fully priced in a UK rate cut by August, with a 50% probability for June.
• Q1 GDP growth lifts UK out of recession – The UK economy grew by 0.6% in the first quarter, the fastest pace of growth since exiting lockdown in 2021.
• US unemployment rises – Weekly initial jobless claims rose by the highest level since August 2023, and came in higher than the market consensus. 
• Sweden cuts, Australia holds – Sweden's Riksbank made their first interest rate cut since 2016, whilst the Reserve Bank of Australia opted to hold their rates despite recent strong inflation data.

It looks like central banks have succeeded in their attempts to slow the economy with higher rates, indicating there will be cuts in the months ahead. Whilst the market has already largely priced this scenario in, if it does happen, it would still have a positive impact on duration sensitive assets. If they don’t, these assets could suffer later in the year. 

Chart of the week

Source: Fortune 500, Datastream, Data complied by Goldman Sachs Global Investment Research

The chart shows the percentage of the S&P 500 market cap held by the largest company in the index (since 1974).

In the past, the largest companies in the S&P 500 index have tended to be in the dominant sector at the time. But as economic cycles evolve, market leadership changes. It’s the same today, which is why it’s important to be disciplined and selective in stock selection, and to have diversification within a balanced portfolio.

Expectations of interest rate cuts arriving sooner than previously thought contributed to another positive week for markets.

The FTSE 100 continued its upward march having now generated double digit returns year to date, with weakening Sterling supporting the export-heavy index. UK share buybacks also look set for a record-breaking year.

Data suggests a softening labour market in the US. This boosted confidence that rate cuts will arrive this year and helped the S&P 500 gain for a third consecutive week.

Japanese stocks retraced a little after a positive period, with Toyota and Nintendo both forecasting a weaker year ahead. Chinese equities continued their recent gains, with increased confidence in the economy after 5.3% GDP growth in the first quarter exceeded estimates.

Bond yields fell slightly in response to the more positive outlook on inflation and rate cuts – the UK saw larger drops in bond yields than the US, showing greater promise of a UK rate cut in the months ahead.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.