U.S. Market Performance
The U.S. stock market faced a turbulent week. The S&P 500 index reached an all-time high mid-week but concluded with a decline of 1.63% for the week. This downturn was primarily attributed to an overheating tech sector, potential tariffs and a dip in consumer sentiment, leading investors to engage in profit-taking.
Key Stock Movements and Corporate Earnings
NVIDIA Corporation: The semiconductor giant reported robust earnings, surpassing market expectations. The strong performance was driven by heightened demand for AI-related technologies given the ramp up in capital expenditure. Following the announcement, NVIDIA opened higher on Thursday morning, however, once fully digested, a big sell off of 8% on the day implied that investors weren’t happy enough and commentary turned to potential overcapitalisation in the AI CAPEX race. Highly valued AI names have been sold down over the past week, indicating a shift in investor sentiment.
Tesla: Tesla has fallen over 16% over the last week, continuing a slide of around 40% since its December highs as sales declined and investors and consumers alike question Elon Musk’s impact on the company given his high-profile duties in the Trump administration.
Mega-Cap Technology Stocks: The “Magnificent 7” stocks, leaders in the AI sector, exhibited mixed results. While they were the market darlings in 2024, only Amazon managed to end the week in the black with a circa 2.5% return. Meanwhile, the ‘S&P 493’, represented by the Invesco S&P 500 Equal Weight ETF (RSP), which includes the remainder of US large cap companies outside of the ‘Magnificent 7’, experienced a smaller decline of 0.59%, indicating that the broader market, excluding the top seven tech giants, was relatively more stable.
U.K. Market Performance
The U.K. market showed much better performance over the week, with the FTSE 100 edging 0.4% higher, supported by strength in banking and energy stocks. Despite global volatility, U.K. equities proved relatively resilient, driven by improved corporate earnings and stronger-than-expected economic data. However, uncertainty over interest rates and geopolitical developments capped gains, and the index retreated slightly on Friday in line with broader risk-off sentiment.
Key Stock Movements and Corporate Earnings
Rolls-Royce (+6.2%): The aerospace giant surged after reporting strong earnings and raising its profit outlook due to improved operational efficiency and higher demand in the defence sector.
BP (+4.8%) & Shell (+3.9%): Energy stocks outperformed as oil prices rebounded amid heightened geopolitical risks in the Middle East.
Lloyds Banking Group (+3.5%): Shares climbed as higher net interest margins continued to boost profitability, with investors reacting positively to its earnings report.
Ocado (-7.1%): The online grocery and technology firm fell sharply after issuing a cautious outlook, citing weaker-than-expected retail demand.
Macroeconomic Factors
· Tariff Concerns: Discussions about the impending imposition of tariffs, led to increased market apprehension. The uncertainty surrounding trade policies prompted investors to reassess risk exposures.
· US Inflation Data: The release of the Personal Consumption Expenditures (PCE) index for January indicated a slight uptick in inflation. This development sparked jitters with investors speculating on potential interest rate cut adjustments to curb inflationary pressures. The uptick in the PCE index should not alarm long term investors, as core inflation continues to trend downward on a year-over-year basis, wage growth is moderating, reinforcing the view that the war on inflation is ending.
· US Consumer Sentiment: Macro and earnings data highlighted a decline in consumer confidence, attributed to uncertainties surrounding potential tariffs and their impact on the economy. This decline in faith in the American consumer continues to weigh on investor sentiment of future economic conditions and is driving this current market volatility.
· UK Inflation and Bank of England Outlook: The latest inflation data showed a slight cooling but remained above the Bank of England’s 2% target, keeping policymakers cautious about the timing of future rate cuts.
· Stronger-than-Expected U.K. Retail Sales: British consumers demonstrated unexpected resilience, with retail sales rebounding by 1.2% in January, defying concerns over inflation-driven spending slowdowns.
· U.K. Bond Yields and Currency Movements: The British pound weakened slightly against the U.S. dollar as bond yields in the U.K. eased, reflecting expectations that interest rates could come down sooner than previously anticipated.
The week ahead: Key Market-Impacting Events (Week of March 3rd):
This morning, UK and European markets experienced gains driven by a surge in defence shares, following European leaders’ commitments to increase defence spending amid geopolitical tensions. The flow through to European defence companies is two fold- the spend of governments is ratching up significantly increasing the size of the pie and secondly, 80% of this spend has previously gone to US and non European players which will now likely see new money shift in favour of European names, increasing their share of the pie. Notably, shares of BAE Systems jumped 17%, while Rolls-Royce saw a 4% rise.
Macroeconomic Perspective:
Inflation’s Path & Central Bank Response: While inflation remains a constant in daily market news flow and the last step toward 2% target remains testing, we may start hearing from policymakers that it is no longer the primary concern, shifting attention to economic growth. Bank of England Chief Economist Huw Pill will be speaking on Monday, setting the tone for the BoEs views on interest rates and inflation. Federal Reserve Chair Powell’s Testimony to Congress (Wednesday, 6th of March & Thursday, 7th of March) will lead to further reading of the tea leaves about the Fed’s rate-cut timeline, especially after recent inflation data surprised slightly to the upside.
Labor Market Trends: A still-tight U.S. labour market could delay further rate cuts. The ADP employment report will give a preview of private-sector job creation ahead of Friday’s nonfarm payrolls report.
Consumer & Business Resilience: Retail sales, house prices, and PMI data will help determine whether economic momentum is strong enough to support corporate earnings in the UK.
Geopolitics: Following on from Friday’s events in the oval office between Zelensky and Trump and Vance, the prospects of a peace deal in Ukraine will impact on commodities, energy and the defence industries. Whilst tariff news will also continue to affect market sentiment. 4th of March is go time for Donald Trump’s tariffs on Canada , Mexico and China, so we will wait and see for confirmation, possible delays, retaliation and subsequent market reaction. This coincides with major annual Chinese Communist Party events known as the “Two Sessions.” These consist of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). Xi Jinping may use this as an opportunity to announce retaliatory trade measures and potential stimulus initiatives.
Earnings: Key Themes and Expectations
This week is another big week for corporate earnings both here and across the pond. Here we have grouped together the companies reporting this week by key investment themes to be watched. It is a definite tale of two countries, with a high hurdle of expectation in the US regarding valuations in tech and the AI boom colliding with signs of an ailing US consumer as notable tech and consumer discretionary names report. Whilst in the UK, we hope to see economic resilience in the face of low expectations with a focus companies in the industrials and consumer staples sectors.
1. Technology & Cybersecurity: AI and Cloud in Focus
Companies: Okta (Monday), CrowdStrike (Tuesday), Marvell Technology (Wednesday), Veeva Systems (Wednesday), Zscaler (Wednesday), MongoDB (Wednesday), Broadcom Inc. (Thursday), Hewlett Packard (Thursday), Samsara (Thursday).
· Growth in cybersecurity and cloud adoption will be key themes, particularly for Okta, CrowdStrike, and Zscaler. CrowdStrike is expected to post strong revenue growth, reflecting continued cybersecurity demand but will the market’s high expectations be met?
· AI and semiconductor demand remain critical for Marvell and Broadcom. A bit like NVIDIA last week, Broadcom will also be seen as a barometer of the AI capital expenditure boom.
· Hewlett Packard’s results will indicate the state of enterprise IT spending, while Samsara’s report will reflect adoption of IoT (internet of things) and automation solutions.
2. Retail & Consumer Discretionary: Inflation and Sentiment Impact on Spending
Companies: Dollar Tree (Monday), Target (Tuesday), Best Buy (Tuesday), Ross Stores (Tuesday), Burlington Stores (Thursday), Costco (Thursday), Kroger (Thursday).
· Discount retailers (Dollar Tree, Ross, Burlington) may benefit from value-focused consumers. While Costco’s membership model will be scrutinised for signs of resilience amid inflationary pressures.
· Best Buy’s electronics sales will indicate consumer sentiment on big-ticket discretionary spending.
· Target’s results will be key for overall retail sector performance. Much like Walmart over a week ago, Target’s outlook will be critical in assessing the health of the American consumer.
3. E-Commerce & Digital Platforms: Tech-Driven Consumer Trends
Companies: Sea Limited (Tuesday), JD.com (Wednesday), Flutter Entertainment (Tuesday), Entain (Thursday)
· South East Asian gaming giant Sea Limited’s revenue growth will show whether its e-commerce and gaming units continue to scale. Chinese behemoth JD.com’s report will provide insight into China’s retail and e-commerce recovery.
· Flutter Entertainment and Entain’s focus on online betting and gaming, will be a significant indicator of consumer engagement and online betting trends as well as the fledgling growth of the US online gambling industry. Perversely, gaming revenue can be resilient and has previously performed well during periods of economic downturns.
4. Industrials & Infrastructure: Supply Chains and Economic Resilience in the UK
Companies: AutoZone (Tuesday), Ashtead Group (Tuesday), Intertek (Tuesday), Bunzl (Monday), Inchcape (Tuesday), IWG (Tuesday), Rentokil (Thursday).
· Ashtead Group’s earnings will provide insights into construction and infrastructure spending, their results will be analysed for capex trends in construction and rental equipment.
· Intertek, Bunzl, IWG and Rentokil’s performance will highlight broad growth in the industrial goods and services sectors.
· Autozone and Inchcape will give insight into consumer and commercial automobile activity in the UK.
5. Financial Services: Insurance, Wealth and Asset Management
Companies: Direct Line Insurance Group (Tuesday), ABRDN PLC (Tuesday), Beazley PLC (Tuesday), Quilter (Wednesday), Admiral Group (Thursday), Schroders (Thursday).
· Insurance companies will provide insights into claims trends and premium pricing for the broader sector.
· Schroders and ABRDN will reveal the current nature of investor flows and how asset managers are navigating market volatility and investor sentiment.
6. Consumer Goods & Healthcare: Defensive Sectors in an Uncertain Economy
Companies: Reckitt Benckiser (Thursday), Campbell’s Soup Company (Wednesday), The Cooper Companies (Thursday)
· Reckitt’s report will be key in gauging demand for household products and health brands globally. The market’s focus will be on organic growth and margin resilience.
· Campbell’s Soup will provide insight into consumer spending on packaged food in the US.
7. Energy & Commodities: Global Demand & Production Recovery
Companies: Fresnillo (Tuesday), Harbour Energy (Thursday).
· Fresnillo’s report is projected to put up a surge in profit and revenue on the back of high gold and silver prices.
· Harbour Energy’s result comes on the back of a ramp up in production.
This article is for information purposes only and no part of it or its contents are deemed to be nor should be taken as advice. Past performance of investments is no guide to future returns and you may get back less than you invested. Capital at Risk.