This week saw US stock indices continue their upward surge, with the Dow Jones Industrial, S&P 500, and Nasdaq each showing gains above 1%. The S&P 500 index, regarded as a key indicator, is experiencing its most promising start to the year in over two decades, reflecting the tenacity of a robust bull market. Historically, bull markets are marked by their ability to persist amid market anxieties, and as the year moves towards its close, factors such as US employment data, the upcoming election, and the next Federal Reserve Committee meeting loom large.
Adding to this sense of unease, the VIX index – also known as Wall Street’s ‘fear gauge’ – has been notably elevated, holding above 20 throughout much of the week. Normally, such levels signal a more cautious market environment. However, strong third-quarter earnings from financial giants like JP Morgan and Wells Fargo have helped propel US markets forward, defying the traditionally bearish sentiment associated with a high VIX.
Across the Atlantic, recession concerns continue to plague the Eurozone, where both France and Germany have reported disappointing economic figures. Luxury conglomerate LVMH has also been in the spotlight, not only for its merger news but also due to waning demand from China, its largest market. This faltering demand has increased the likelihood of an ECB rate cut, a measure that seemed remote just a month ago, but has since become a real possibility.
China, meanwhile, saw a surge in its markets as the government introduced significant financial stimulus. In typical fashion, volatility defined the market’s movements, with Chinese stocks swinging between gains and losses before ending the week on a higher note. This backdrop of fluctuation, marked by both 52-week highs and lows within a fortnight, reflects the mixed sentiment in the Chinese market as investors weigh the long-term impact of the newly introduced economic measures.
Closer to home, the UK is currently hosting a major investment summit in London, aiming to attract substantial funds into the country. True to the early days of Labour governance, the summit did not unfold without drama, particularly a public dispute with P&O Ferries, whose owner was labelled a ‘rogue operator’ by the transport secretary. This criticism followed ongoing negotiations regarding the company’s involvement in the £1 billion London Gateway project. After some tension and much negotiating, P&O returned to the table with a commitment to generate over 400 new UK jobs.
Balancing budget requirements with investment goals remains a pressing challenge for the UK. While tax increases might be essential to meet fiscal targets, they simultaneously risk making the UK less attractive to investors. Prime Minister Rishi Sunak and Shadow Chancellor Rachel Reeves have both warned of tough measures to come, with tax hikes potentially unavoidable as the budget announcement approaches on Wednesday 30th, when the government’s approach to balancing investment with fiscal discipline will be unveiled.
Meanwhile, the US is in the midst of its earnings season, a key moment that reflects the broader economic health. Strong earnings usually suggest a strong economy, and with major banks leading the reporting, investors are keenly observing the results. Notably, Bank of America has weathered Berkshire Hathaway’s recent decision to reduce its shares in the bank. As Berkshire’s stake fell below 10%, Warren Buffet’s firm no longer has to make regulatory disclosures regarding its Bank of America holdings.
On another front, Boeing has faced further challenges, with ongoing strikes by its workforce over wage demands. Despite offering a 30% pay rise, Boeing’s employees are holding out for 40%. The company has also encountered friction with Emirates, one of its largest customers, due to delays in new model deliveries, leading to what Emirates called a “serious conversation.”
As the US election draws nearer, polls this week indicate a significant shift in favour of Trump. Despite this apparent swing, a narrow victory for either candidate remains plausible, considering the Electoral College system and the importance of swing states. Historically, markets have responded favourably to a Trump administration due to his spending priorities, though his policies have often raised national debt. By contrast, a Harris administration is expected to focus more on social policies, but the US’s rising debt will likely require attention in the coming campaign regardless of who wins the White House.
As we look ahead to the coming week, all eyes will be on the continuation of the US earnings season, with companies like Goldman Sachs, Johnson & Johnson, and Bank of America setting the tone. With earnings expectations moderated, the environment could allow for some positive surprises to emerge.
The past week has been eventful across multiple markets, reflecting the complexities and rapid shifts in the global economic landscape. As earnings reports, central bank meetings, and political events come into play, markets will be closely watching for signals that may shape the economic narrative heading into the final months of 2024.
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