Wall Street closed for Presidents Day, markets are catching their breath after a record-breaking week of inflows. But beneath the surface, volatility remains high as bullish momentum faces geopolitical twists, economic shifts, and policy decisions that could change the game.
Last week saw an unprecedented $95 billion flood into US markets through leveraged ETFs, surpassing even the meme stock frenzy of 2021. Optimism is fuelled by strong earnings from 80% of S&P 500 companies, particularly in banking, where financial giants have exceeded revenue and margin expectations. Across the Atlantic, European markets remain cautiously upbeat. HSBC’s cost-cutting efforts are expected to drive profit growth, while Airbus anticipates soaring results thanks to increased aircraft deliveries.
Geopolitics, however, adds complexity. Donald Trump’s influence looms large as he positions himself as a key figure in potential Russia-Ukraine peace talks. Defence stocks have surged on increased government spending pledges, yet trade tensions threaten stability. Trump’s proposed tariffs on UK steel could backfire, raising costs for the US defence industry, while unexpected UK retaliatory measures have unsettled British businesses.
At home, UK firms are bracing for the Chancellor’s budget, warning of job losses, reduced hiring, and price hikes amid rising national insurance costs and minimum wage increases. Employment and wage growth hit an eight-month high in Q4, but uncertainty could complicate the Bank of England’s efforts to balance inflation and economic stability.
The week offered key signals on the trajectory of interest rates. Investors will scrutinise the Federal Reserve’s meeting minutes, while UK inflation data on Wednesday could shape future monetary policy.
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