Gary is away from the office this week, so today’s update is from Andrew Dunn.
There is so much going on with global markets (nothing new here), but overall, not much movement. There was a modest pullback in the US this week amongst tech and smaller companies, which had been the main beneficiary of the last couple of weeks’ rises. The UK and European markets were up a little too, with defence companies again a notable exception, making good gains. There is a key measure of US inflation due later on today, but the futures market indicates that markets are not expected to move much when this is released. We will take a closer look at what is driving events in this week’s commentary.
UK growth is slowing, and though that means price pressure is easing a little, it adds to the dilemmas faced by the Chancellor for her November Budget. We will highlight some potential good news from the Bank of England, but for the next two months, we will hear increasingly about what might be in the Budget, so we’ll explore that a little.
Staying in the UK, savings into cash ISAs hit record levels, and we will look at the factors driving this. It also highlights a key difference between investors in this country and in the US.
So, this week’s topics:
- Market overview
- UK growth outlook and inflation
- Who would want to be the Chancellor?
- Growth in cash savings
- Summary
Market overview
Tech and AI continue to fuel market momentum, with heavyweight earnings, blockbuster deals, and bold investments keeping valuations stretched but sentiment buoyant. Meanwhile, gold and defence stocks ride geopolitical tailwinds.
AI and tech generally continue to dominate the news and markets. Seemingly timed for maximum effect, over the last few weeks, we have had fairly constant news flow about companies seeking to outdo each other with large investments into data centres and AI.
We had the Nvidia and Microsoft news about investing in the UK, the yet to be finalised TikTok deal, which looks likely to be controlled by the US tech titans, and now Alibaba with huge extra spending and a tie-up with Nvidia. This has all been supplemented with strong earnings from the tech sector to keep the pot boiling. In these situations, there is always debate about whether valuations are too stretched, but the counterargument is the solid earnings, supportive investors, blockbuster deals and the enticement that AI will be the new industrial revolution. Only time will tell!
Jerome Powell, Chairman of the Federal Reserve and public enemy number one according to President Trump, said this week that markets were “fairly highly valued”. This has been true for a while, but to this point, the argument of US exceptionalism and the enthusiasm of US investors has kept the train rolling. The US economy is also now growing at its fastest rate for two years.
Defence has been the beneficiary of the apparent move by President Trump toward supporting Ukraine more and the Russian incursions into NATO territory. The defence-oriented funds in our Momentum and Global Themes portfolios have been beneficiaries this week as a result.
Gold continues its upward rise, breaking as many records as the US stock market of late. Partly this is due to geopolitical concerns and gold’s traditional role as a store of value, but also speculation that China is pushing its own central bank to buy and store gold. This has been unusual during a period when rising bond yields would ordinarily be a headwind for the price of gold.
Continues…
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