Market snapshot: guarded progress after Nvidia share split

Despite all the data and speculation about interest rates, major US indices continue to set record highs. ii's head of markets explains what's driving sentiment right now.

11th June 2024 08:31

Richard Hunter from interactive investor

The interest rate concerns which have dominated recent trading sessions were temporarily brushed aside as two of the main US indices breached new record highs.

Both the S&P 500 and Nasdaq hit new record levels, once more underpinned by a strong showing from mega-cap technology stocks such as Meta Platforms Inc Class A (NASDAQ:META), while the Apple conference, which is expected to reveal more progress on AI, generated some interest.

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Meanwhile, NVIDIA Corp (NASDAQ:NVDA) edged higher following its 10 for 1 stock split, a move designed to make the share price more affordable for retail investors and therefore likely boosting demand for the shares further. As a result, the S&P 500 brought its gains in the year to date to 12.4%, with the Nasdaq now ahead by 14.5%.

However, other concerns remain close to the surface. The narrow nature of this year’s rally has been highlighted as one which masks lesser progress across the rest of the economy, particularly among mid- and small-cap stocks. Indeed, the more traditional Dow Jones Industrial Average has capped its own gains to 3.1% so far this year, driven in part by company earnings which have held up despite the constraints of a higher interest rate environment.

In addition, key tests of investors’ mettle are imminent in the form of the latest Federal Reserve rate decision and inflation numbers, both due tomorrow. The Fed is not expected to move rates, but any accompanying comments on the timing and number of rate cuts will provide the key focus.

Following the bumper non-farm payrolls number at the end of last week, expectations for a cut have now been pushed back to November, which adds importance to the inflation release in justifying the Fed’s current thinking on holding firm for the time being.

Asian markets were rather more guarded in a mixed performance which reflected a reaction to some political uncertainty in France. Chinese shares edged lower, reopening after a holiday on Monday and ahead of an inflation report due on Wednesday. Sentiment remains fragile given the economy’s current travails, with weakness on a number of fronts including property and unemployment continuing to limit enthusiasm for the region as an investment destination.

Elsewhere, Japan’s Nikkei index moved slightly higher following an upward revision to more recent economic data, with the weakness of the yen continuing to boost exports. Investors will now switch attention to the upcoming Bank of Japan policy meeting, where a tapering of the bank’s bond-buying programme is increasingly expected ahead of a possible further rate hike as the central bank continues to tighten monetary conditions.

UK markets regained some poise after a poor start to the week, although gains were tempered by some weakness across the mining sector. Even so, housebuilders, supermarkets and even the utilities were subject to buying interest which propelled the FTSE 100 higher to now stand up by 6.8% so far this year, as a general warming of investment sentiment towards the UK continues to build slowly.

The release of jobs data in the UK contained conflicting forces which are unlikely to move the dial in terms of a possible interest rate cut in August. The headline unemployment rate ticked marginally higher to 4.4%, above both the previous reading as well as estimates of 4.3%, which could bolster some optimism of a cooling labour market.

However, more ominous were average earnings which rose by around 6% including and excluding bonuses, slightly above consensus and adding to fears that wage inflation reduces the likelihood of an imminent easing from the Bank of England.

There are also some concerns that while the more recent dip in inflation has brought the number nearer to the Bank’s 2% target, the decline has been largely driven by energy prices. This means that when these effects normalise, the possibility remains that inflation could remain elevated given the ongoing rise in wages.

As such, the inconclusive jobs data did little to move sterling as a result, with more evidence needed before the Bank of England can contemplate monetary easing with the conviction which it will need.

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