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Weekly comment: US stocks rise on tech earnings and stunning NFPs

Date: 06 February 2024

Weekly podcast – Market overview

This week’s host, Property Analyst, Oli Creasey discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter and Healthcare equity analyst, Sheena Berry. Among the topics discussed – central banks and rate cuts, Chinese economic data and healthcare results.

This is a marketing communication and is not independent investment research. Financial Instruments referred to are not subject to a prohibition on dealing ahead of the dissemination marketing communications. Any reference to any securities or instruments is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any securities or instruments mentioned in it.

Market overview: Richard Carter, Head of Fixed Interest Research

Global Equities moved higher last week, driven by a sizable gain in mega-cap US tech stocks, with the MSCI All Country World Index (MSCI ACWI) adding 0.9% (0.6% in January, 1.9% YTD). The week has been viewed by many investors as centred around central bank decisions on both sides of the Atlantic, but the Bank of England and Federal Reserve were coy about the timing of interest rate cuts as they kept monetary policy unchanged.

It was business as usual last Thursday, as the Bank of England (BoE) held rates steady at a 16-year high of 5.25%. While stating a commitment to reviewing the rate, the bank’s statement maintained a cautious tone regarding inflation, signalling a need for further evidence before considering rate cuts.

In a sign of disharmony among rate setters, two voted for increases, one for a decrease and the remaining six for unchanged. Although this was the first time since January 2020 that members voted for a rate cut, the fact they were still outnumbered by those calling for hikes suggests the first reduction could still be some time off.

The market reaction was muted. UK large-cap stocks experienced a 0.3% decline on the week (-1.3% in January, -1.5% YTD) while the mid-cap space fell further, finishing -0.8% (-1.5% in January, -2.4% YTD). The British pound weakened against the US Dollar, closing the week at USD 1.26 for GBP, down from 1.27, in part due to a relatively more hawkish update from the Federal Reserve (Fed).

Across the pond, the day before the BoE meeting, the Fed maintained their overnight federal funds rate at 5.25% to 5.5% — the fourth straight meeting at which policymakers have opted to hold rates steady. The statement of economic projections shows that rate setters anticipate three-quarter point rate cuts in 2024, but the chances of the first cut coming in March are seen as lower by market participants following the update.

In response, major US Indices end the week 1.4% higher (1.7% in January, 4.1% YTD). Growth stocks outperformed value shares and large caps outperformed small caps, with small-cap indices recording losses. Continental European benchmarks ended the week broadly flat (+1.9% in January, 1.6% YTD).

‘Stunning’ US jobs growth

The latest US non-farm employment report revealed a robust labour market that continues to defy expectations. Non-farm payrolls increased by 353,000 in January, nearly twice  the 180,000 forecast and the highest figure since the previous January.

The US jobs data is always important for global markets, but it has taken on an even greater weight of late due to the Fed’s insistence that it is too soon to cut interest rates. The Treasury yield responded positively as the likelihood of an interest cut in March diminished, up 18 basis points to 4.37%.

Several sectors responded positively to the news, particularly those sensitive to economic conditions, including financials, consumer discretionary, and technology – all receiving notable upticks.

Meta’s mammoth value

Big tech stocks surged on Friday following particularly strong results from both Amazon and Meta, with the latter recording the biggest ever one-day increase in a company’s market value.

The parent company of Facebook and Instagram announced on Thursday after the market closed that it would pay a quarterly dividend of US$0.50 per share, and increased share buybacks by US$50bn – news that sent Meta stock to its highest ever level. The social media group closed 20.3% higher with a market cap of US$1.2tn.

Speakers

Ollie Creasey

Head of Property Research

Richard Carter

Head of Fixed Interest Research

Sheena Berry

Equity Research Analyst

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