Weekly Market Update and Featured Chart #8

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For financial professionals only

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

Here’s the key takeaways:

  • Stubborn US inflation – February saw a slight increase in annual US inflation to 3.2%. US producer prices also rose by 0.6% in February, the most in 6 months, driven by higher fuel and food costs. Evidence is inflation remains elevated, so the Fed is likely to take a cautious approach to easing.

  • UK bouncing back – GDP rose 0.2% month-to-month, with real wage growth driving improved household spending power. Retail sales drove the January re-bound with a 3.4% month-to-month jump.

  • UK’s cooling job market – total pay grew at 5.6% in the three months to January, below expectations, and unemployment increased to 3.9%. The Bank of England’s effort to slow demand in the economy appears to be cooling the job market.

  • Japan’s positive rebound – Japan avoided recession after new figures show its economy expanded by 0.4% in Q4 2023, reversing estimates of a 0.4% decline.

  • Surging crypto interest – Bitcoin’s price hit an all-time high of $73,000 on a backdrop of huge flows into Bitcoin ETFs in the US. The London Stock exchange also stated that they’ll soon accept applications for ETN’s backed by Bitcoin and Ethereum. 

What does that mean for me and my clients?

Economies appear to be in better shape than they were at end of last year. Real wage growth is driving consumer spending and economies are tentatively growing and edging out of recessionary territory.

However, with stubborn inflation, interest rates remain high. Central banks will only start cutting rates if they’re confident. The picture ahead is likely to see the US easing first, but slower than previously anticipated.  

Chart of the week

US Tech as % of US and Global Market Cap. The line chart displays two trends from 1980 to beyond 2020. The dark line, representing US Tech as a percentage of US Equities, shows a general upward trend with a peak around 2000, followed by a sharp decline and then steady growth to about 33% by the end of the period. The lighter line, indicating US Tech as a percentage of World Equities, follows a similar pattern but at a lower percentage, ending around 17%. Both lines show significant growth after 2015.

Source: ASR Ltd. / LSEG Datastream, February 2024

The chart above shows the historical percentage weighting of US Technology stocks as a proportion of total US and Global equity market capitalisations. The percentage weighting is now back at historical highs.

Why’s this worth sharing?

The incredibly strong run of the ‘Magnificent Seven’ means US equities have an unhealthy bias to tech. This is risky, US equities are approaching similar levels last seen in the dot.com phase, which didn’t end well. Earnings and profits are strong in those business, but valuations are looking dangerously high. While history doesn’t repeat, it often rhymes, and the chart demonstrates what the impact can be from an overextended sector position and the speed at which that can unravel.

The Markets

In the UK the FTSE 100 continued to notch up healthy gains, rising by 1.08%. This was partly driven by the oil majors, with Shell reducing some of its near-term climate targets, keeping oil production flat and expanding its LNG business. Oil majors also benefited from higher oil prices and a weakening Sterling.

Vodafone agreed to sell its Italian business to Swisscom for £6.8bn, with a large chunk of the proceeds going to investors. Lastly, Elliot investment management walked away from a potential takeover of Curry’s after the board rejected its final 67p per share offer.

The US continues to grind ever higher, again led by technology names with Oracle group and Nvidia. It wasn’t all good news though. Tesla’s share price continued to decline with analyst’s expecting zero sales growth for the electric car manufacturer this year. The share price has fallen by almost 35% with its growth not matching its lofty valuation.

Bond yields rose in the US and UK following stickier inflation in the US. This led markets to re-set expectations for both the pace and severity of interest rate cuts. Oil surged higher on the week following OPEC’s continued supply cuts and strikes on Russian refineries.

Weekly ChangeYtD Change
FTSE 1001.08%0.28%
FTSE 250-0.59-0.13%
S&P 5000.74%8.60%
Hang Seng1.78%-0.49%
Nikkei 225-1.34%16.28%
Brent Crude4.43%11.48%
Gold Spot-0.69%5.15%
UK 10yr GILT+11bps+53bps
US 10yr Treasury+22bps+39bps

Source: FE FundInfo, figures as at close Thursday.

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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