Weekly Market Update and Featured Chart #27

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

The key takeaways:

🗳️ Political shift, steady market - following weeks of pressure, Biden stepped down as the Democratic nominee, making way for Kamala Harris. Despite the big news, markets stayed calm with Trump still favoured to win.

🚨 Eurozone growth slumps – poor manufacturing results from Germany and France pulled the Eurozone composite PMI down to 50.1, close to a contraction. 

📉 Canada cuts rates – for the second time in a row the Bank of Canada cut interest rates – from 0.25% to 4.5% in a bid to avoid recession and maintain a softer landing.

📈 US economy expands – the annualised GDP growth rate grew by 2.8% in Q2, thanks to strong consumer spending.

🤖 Not-so-magnificent 7 – big tech stumbles as Tesla missed profit targets and its robo-taxi unveiling, while Alphabet asked for more time for AI investments to start paying off, leading to a drop in their stocks.

This week’s market reaction shows big moves in politics don’t always translate into significant market movement. However, differing party and candidate views still matter, especially in the US, which is a major part of most global portfolios.

For those interested in the differences between Harris and Biden, Harris seems to place a greater emphasis on the environment and has previously expressed a desire to introduce financial transaction taxes. 

While ‘Trump trades’ cover a mix of sectors like gun companies and private prisons. The two parties also differ in other big areas such as international trade and tariffs. While Trump still leads in forecasts, his odds have dropped since Biden stepped down, and no result is guaranteed. For investors, this highlights the importance of diversification by country and industry to spread risk.

Chart of the week

Source: Bridgewater Associates, June 2024

Our chart of the week tracks the 10 largest companies of each decade since 1900, following their performance before and after their peak in terms of US market share. Here the 2024 cohort mainly covers mega-cap tech stocks, but previous decades have been dominated by the likes of big-oil, telecoms and railroads.

This week’s chart is a reminder of the life-cycle these dominant companies can go through. While today’s mega-tech stocks continue to outperform the broader market, significant short term decline could seem unlikely, especially with ever-growing AI demands. However, their dominance relies on constant innovation and re-investment. As trends change and new industries rise, their valuations and market-share could fall. This long-term thinking often leads active fund managers to underweight such stocks and keep portfolios diversified.

US tech correction hits hard: Smaller companies outperformed, but the reported US tech correction led to the NASDAQ and S&P 500 experiencing their worst single-day sell-offs since 2022. This spilled over into European markets, already struggling from a slew of disappointing results from companies like Deutsche Bank and LVMH.

Mixed UK earnings: In the UK, mixed earnings reports left the FTSE 100 marginally up and the FTE 250 dipped. Strong performances from Unilever and Carnival were offset by poorer results from AstraZeneca and ITV.

Asian markets follow US downturn: Asian markets mirrored the US decline as tech stocked dropped. Japanese exporters were hit again by a strengthening Yen, while weak economic news from China hit the Hang Seng.

Dropping oil prices: Oil fell over concerns about reduced energy usage in China, the world’s largest importer, amid a weak economy and an increase in electric vehicles.

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.