Weekly Market Update and Featured Chart #21

PIM Weekly Update
For financial professionals only

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

The key takeaways:

  • Unemployment on the rise… – The UK’s unemployment rate rose to 4.4% to in the 3-month period to end of April, led by those unemployed for 6 months or more.
  • …as the British economy stalls – April’s GDP figures showed no growth compared to March. Strong services were balanced out by declines in production and construction.
  • US inflation slows – Producer prices dropped 0.2% in May versus the previous month, indicating a potential slowdown in the economy, especially with recent flat month-on-month consumer price index (CPI) numbers.
  • China speeds up– China’s annual inflation remained at 0.3% in May, its fourth straight month in positive territory, suggesting improving domestic demand.
  • UK IPO catalyst? – PC maker Raspberry Pi listed on the London Stock Exchange this week, with strong first-day performance, which might encourage other tech-firms to choose the UK market over the US.

What does that mean for me and my clients?

This week's data suggests that the UK's rebound from the 2023 downturn might be slowing, despite continued growth in the services sector. The ONS highlighted recent wet weather as a possible reason for the decline in consumer spending and construction activity. Lower demand could help reduce inflation and lead to interest rate cuts, which should be positive for many investors.

Chart of the week

Chart showing large-cap stocks are more expensive than small-cap stocks

Source: Bloomberg, Apollo Chief Economist, June 2024

Our chart of the week shows the price to earnings (PE) ratio (a measure of how high or low a stock is valued compared to its earnings) of companies in the S&P 500, split by market cap. 

Why’s this worth sharing?

The chart shows US large-cap companies are much more expensive than small-cap stocks. Large-caps have done well as they have been able to handle higher interest rates better and have benefited from the AI boom. But as valuations keep rising, the risk of a sudden drop increases. As economic conditions improve, and rate-cuts become more likely, smaller companies (which we tend to favour) are starting to look cheaper and more attractive, both in the US and closer to home.

The Markets

US markets rose on strong tech earnings and signs inflation may be easing, a message that was pared back later in the week following hawkish Fed comments on rate cuts.

European markets also fell as political risk grew following Macron’s snap election call, alongside news China would respond to EU tariffs on electric vehicles.

Despite the positive economic data providing an early boost, UK markets fell following the French election news, weaker banking and mining results.

Oil gained on shrinking US stockpiles and higher expected demand, while gold rose and bond yields fell on increased bets of near-term interest rate cuts.

Weekly ChangeYtD Change
FTSE 100-1.47%5.73%
FTSE 250-2.51%3.51%
S&P 5001.68%14.57%
Hang Seng-2.50%7.89%
Nikkei 2250.32%16.32%
Brent Crude3.29%8.38%
Gold Spot0.15%11.88%
UK 10yr GILT-2bps+53bps
US 10yr Treasury-5bps+30bps

Source: FE FundInfo, figures as at close Thursday 13th June 2024.

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.  

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