“There are five clear trends to explain the big movements on the UK and US stock market in the first half of the year. They involve takeovers, AI, interest rates staying higher for longer, shifting fortunes in the fashion sector and lingering concerns around growth for certain companies,” says Dan Coatsworth, investment analyst at AJ Bell.
“Overall, it’s been a good six months for investors as all the major equity indices around the world have delivered positive returns apart from the CAC 40 in France, the SSE Composite in China and the Bovespa in Brazil.
“Excluding dividends, the FTSE 100 has returned 5.6%. Doing the same again in the second half would amount to a reasonable year for UK stocks. The main US indices once again smashed it out of the park with gains in the region of 14% to 18%. It’s no wonder that investors have put their faith in North America to build their wealth.”
- The UK takeover trend is still intact.
“Four of the top 10 best performing stocks in the FTSE 100 during the first half of 2024 were propelled by takeover activity, including Darktrace, DS Smith and Anglo American.
“The narrative remains the same – there are plenty of stocks trading on cheaper or depressed valuations relative to peers in other parts of the world and if the market cannot recognise true value, then either a trade buyer or private equity will come along and gobble them up.
“The loss of Darktrace to a takeover is particularly frustrating as it will remove one of the few big technology stocks from the UK market, a sector which is woefully under-represented in the FTSE 100.”
- Interest in AI remains high… for now.
“A big chunk of the best performers on the S&P 500 in the first six months of 2024 is connected to technology and AI. Interestingly, chips giant Nvidia is not the overall best performer despite it being the stock everyone talks about. The top slot went to Super Micro Computer which designs and builds servers and storage systems.
“The two sets of quarterly earnings reported by Super Micro so far this calendar year have significantly beaten market expectations, driving up its shares to new record highs. While the stock has pulled back in recent months, anyone lucky enough to have started January with the shares in their ISA or pension, and still hold them today, will still be sitting on some tasty returns.
“Both Super Micro and Nvidia have been propelled by the craze for companies to spend big on AI. The prospect of technology making lives easier for businesses and their customers has led to a diverse range of industries spending large amounts to upgrade their IT capabilities. That can involve a lot of hardware and processing power, playing to the strengths of Super Micro and Nvidia.
“The key risk to these stocks and any company seen as an AI winner is that growth rates could moderate leading into 2025, potentially leaving some investors disappointed and leading to widespread profit-taking in the sector.”
- Banks might be one of the few industries to welcome interest rates staying higher for longer.
“There are two key reasons why NatWest and Barclays feature among the top 10 best performing FTSE 100 stocks so far in 2024. First, expectations were fairly low at the start of the year due to various issues in 2023. These issues now look to have been ironed out, improving market sentiment towards the companies. Second, the Bank of England had been expected to start cutting rates in May but this still hasn’t happened. That’s supportive for net interest margins, the difference between what a bank makes on lending money and the amount it pays out on deposits.
“NatWest has gone from being mired in controversy, which cost former CEO Alison Rose her job, to having new boss Paul Thwaite, who quickly reset expectations. The consensus analyst earnings forecast has been upgraded six times since February (after significant downgrades throughout 2023) which has helped to drive positive sentiment towards the stock and lift the share price.”
- Big brands going out of fashion.
“There was a common theme involving some of the losers on both the UK and US stock market, namely that consumers are spending less on some of the big-name clothing or footwear brands or shopping elsewhere.
“Burberry has had a disastrous time of late as demand continues to be weak in China, traditionally one of its strongest markets. On a broader basis it has been caught up in a luxury goods downturn. A lot of people thought wealthier individuals wouldn’t be impacted by the cost-of-living crisis but that proved to be incorrect. Even the rich have been watching their pennies and that’s bad news for a company like Burberry.
“The craze to pay big bucks for posh leggings or the latest trainers has also lost momentum, explaining why Lululemon and JD Sports are among the worst performers on the S&P 500 and FTSE 100 this year, respectively. A mixture of consumers being more cautious with spending and fashion moving onto the next big thing have left these companies having to worker harder to shift products.
“Brands now deemed to be ‘on trend’ include Hoka, which explains why Deckers Outdoors is one of the top performing stocks this year in the US, sitting at number 14 in the top S&P 500 risers. It owns Hoka, which is selling running shoes by the bucket load as people now wear them for everyday use. Deckers is also benefiting from a wave of nostalgia as consumers race to own another of its brands, Ugg.”
- Running low on batteries? It’s sometimes hard to sustain high levels of growth.
“Investors buy shares in individual companies with the hope they will make more money each year than the last and repeat this trend forever. But even the best-known businesses aren’t guaranteed to do well. Whitbread certainly falls into this category and it is one of the worst performing stocks on the FTSE 100 this year.
“Miserable weather for much of the first half of 2024 dampened appetite for a last-minute weekend away, thereby hurting Whitbread’s Premier Inn hotels. Mid-week demand has been fine, but the tourist trade has disappointed and that’s spooked investors. Its most recent update implied that Whitbread was wading through mud in the UK with like-for-like sales for accommodation, food and drink all in decline, leaving it to the relatively small German operation to provide any growth.
“B&M is a fellow company which has a long history of doing well and a lot of people might assume this situation remains intact permanently. The stock market seems to think otherwise, with questions being asked over its ability to sustain strong growth levels. The business is still doing well, but the pace of growth looks more of a slog.”
Best performers in H1: FTSE 100 and S&P 500
| FTSE 100 (UK) | Return | S&P 500 (US) | Return | ||
| 1 | Darktrace | 57% | Super Micro Computer | 188% | |
| 2 | Hargreaves Lansdown | 54% | Nvidia | 149% | |
| 3 | Rolls-Royce | 52% | Vistra Energy | 123% | |
| 4 | NatWest | 42% | Constellation Energy | 71% | |
| 5 | DS Smith | 37% | Eli Lilly | 55% | |
| 6 | Barclays | 36% | Micron Technology | 54% | |
| 7 | Beazley | 36% | NRG Energy | 51% | |
| 8 | Intermediate Capital | 30% | CrowdStrike | 50% | |
| 9 | Vistry | 29% | Arista Networks | 49% | |
| 10 | Anglo American | 27% | Targa Resources | 48% |
Source: AJ Bell, SharePad. Data 1 Jan to 28 June 2024
Worst performers in H1: FTSE 100 and S&P 500
| FTSE 100 (UK) | Return | S&P 500 (US) | Return | ||
| 1 | Burberry | -38% | Cooper Companies | -77% | |
| 2 | Entain | -37% | Walgreens Alliance | -54% | |
| 3 | JD Sports | -28% | Lululemon | -42% | |
| 4 | B&M | -22% | Intel | -38% | |
| 5 | Croda | -22% | EPAM Systems | -37% | |
| 6 | Reckitt | -21% | Warner Bros Discovery | -35% | |
| 7 | Spirax | -19% | Albermarle | -34% | |
| 8 | Prudential | -19% | Globe Life | -33% | |
| 9 | Whitbread | -19% | MarketAxess | -32% | |
| 10 | Barratt Developments | -16% | Paycom Software | -31% |
Source: AJ Bell, SharePad. Data 1 Jan to 28 June 2024
