Market Report: Stock markets hold the high ground as US shut down drags on

Stocks held firm as the US shutdown dragged on, with the FTSE higher at the open. Wall Street hit new highs on tech strength, while Europe set records led by semiconductors and healthcare. Hargreaves Lansdown’s Derren Nathan said rate-cut hopes could drive sector divergence as Brent crude neared $70.

Derren Nathan, head of equity research, Hargreaves Lansdown:

“The FTSE 100 has opened slightly up this morning and is within touching distance of record highs earlier in the week. The main UK economic signal to watch for on Friday is the Services Purchasing Manufacturers Index(PMI). The Services PMI is expected to have fallen from 54.2 to 51.9 in September, following a gloomy read for manufacturers earlier in the week.

There’s little in the way of company news to drive London markets today with J D Wetherspoon’s final results being one of the few points of interest. The pub chain’s served up like-for-like sales growth of 5.1%, in line with analyst forecasts, with total revenue topping £2.1bn. But the number investors should really raise a glass to is underlying operating margin which held flat at 6.9%. It’s a long way off pre-pandemic levels, but given the extra cost burdens heaped on labour intensive UK businesses last year, that’s a good performance. 

Wetherspoon has continued to outperform its peers in the early part of the new financial year, but like-for-like growth has slowed to 3.7%. Weakening consumer sentiment and cost concerns have dampened investor enthusiasm for the sector which could mark an attractive entry point for quality operators such as J D Wetherspoon. The group expects a reasonable outcome this year but remains wary of government-led cost increases in areas such as energy. With a potentially tax-heavy Budget around the corner, nerves are likely to remain on edge this side of the crucial Christmas trading season.  

A lack of digital-native names listed in London meant yesterday’s session didn’t benefit from the positive sentiment towards the technology sector, which helped US Stocks meet new fresh highs. It was a sea of green for semiconductor stocks on Wall Street, but banks, consumer defensives and real estate valuations were largely in the red. 

The good news/bad news conundrum could see further polarisation in the coming months. Weak growth is bad for mature companies in the old economy. The flip side is that expectations of falling interest rates are strengthening. That’s a boon for multinationals as the dollar weakens and a double positive for growth stocks. Their fortunes are tied not just to the economic cycle but also to longer-term megatrends. Falling rates also allows the market to put a higher value on future cash-flows, which, by definition, are expected to accelerate faster for growth companies. 

The ongoing US government shutdown means that official employment numbers are on hold, but a report from Challenger, Gray & Christmas revealed that hiring plans were at 16-year lows adding to other recent signs of weakness in the labour market. That, and Donald Trump’s opportunistic efforts to shrink central government spending, are some of the drivers that have seen expectations solidify for two further Fed cuts before 2026.

Tesla shares initially rallied on better-than-expected deliveries but finished down on fears momentum may slow now after US tax credits for electric vehicles were abolished at the end of September. Still the initial bounce was enough to see Elon Musk briefly become the world’s first demi-trillionaire according to the Forbes billionaire list.

European bourses have also been riding high, again led by semiconductor companies but also a revival in healthcare valuations as drug pricing fears recede in the wake of Pfizer’s recent deal with the White House. 

Brent Crude prices have bounced back slightly from their recent slump to around $64.4 per barrel. Rumours that OPEC+ could bring a further half a million barrels per day on stream in November are doing little to calm concerns of oversupply, as US inventories continue to rise. The potential economic fallout of Washington being close for business is also keeping prices down.

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