Weekly podcast – Market overview
This week’s host, Deputy Head of Managed Portfolio Services, Anthony Webb catches up with Head of Fixed Interest Research, Richard Carter and Ben Barringer, Senior Equity Analyst. Among the topics discussed – World Economic Forum meeting in Davos, inflation and tech stocks pushing U.S. markets to all-time highs.
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The MSCI AC World Index ended last week at a similar level to where it began, but a strong move higher on Wall Street on Friday sent US stock benchmarks to their highest level on record. Nvidia, the chip maker giant seen as one of the largest beneficiaries of the surge in interest in Artificial Intelligence (AI), led the way, rising nearly 10% on the holiday-shortened week.
US indices gained 1.2% on the week, pushing above their previous peak from early January 2022. The market has been hovering around these levels for most of the last month but managed to push to a fresh high on Friday. A strong move higher that began in October brought the benchmark within striking distance of the record level, with a 16% rally over nine consecutive weeks.
Economic data releases provided differing views on the strength of the US economy, as manufacturing gauges displayed weakness while consumer spending and sentiment metrics came in strong. US retail sales rose by 0.6% month on month in December, surpassing consensus forecasts for a 0.4% rise. Meanwhile, the University of Michigan consumer sentiment index jumped to its highest level in nearly three years, marking the second consecutive month of topping forecasts after three successive misses.
The strength in the US was in contrast to European stocks last week, where UK benchmarks fell 2.1% and the MSCI Europe ex UK declined 1.3%. Both these indices remain lower year-to-date as investors are scaling back expectations for significant interest rate cuts in the near future. Poor sentiment regarding the Chinese economy is weighing on UK large-cap stocks which are now down 3.5% for the month while mid-cap benchmarks have fallen 4.1%.
A sizable increase in bond yields reflects the dynamic of higher interest rate expectations, with the 10-year gilt yield increasing 14 basis points to end the week at 3.93%. This closely followed metric has now increased by 40 basis points in 2024. The pound dipped against the US dollar to 1.27 from 1.28.
On the data front, there was little good news for the UK as inflation increased in December for its first time in 10 months while consumer spending sagged. The consumer price index rose 4% year-on-year, as the core measure remained at 5.1%, against expectations for a decrease. There was a positive for the Bank of England on easing price pressures from a further moderation in wage growth, which slowed to its lowest pace in nearly a year at 6.6%, but any joy would have been more than offset by the largest month-on-month decline in retail sales since January 2021, as the December figure fell 3.2%. Whereas US consumers seem to be going from strength to strength the latest UK figures are a cause for concern.
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