Market snapshot: Wetherspoon rallies, stocks get tariff boost

The briefest of trading statements revealed an upbeat tone, with Wetherspoon (J D) (LSE:JDW) announcing that sales had at last overtaken pre-pandemic levels. 

Unfortunately the same cannot be said of the share price, which remains 54% shy of the £16.94 achieved in December 2019. Even so, the shares are currently on something of a run, with a spike of 25% over the last three months, although over the last year the gain is more pedestrian, with a 5% rise comparing to a gain of 4% for the wider FTSE250.

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Favourable weather of late has led to a strong quarter, with like-for-like sales up by 5.1%, and by the same amount in the year to date. Bar trade has been boosted by high levels of Prosecco and Guinness sales, while on the food front breakfasts are also staging a recovery. This was achieved despite the challenges arising from the Budget measures, where the group previously reported rather morosely that increases in labour rates and National Insurance would add some £60 million per year to its costs, equivalent to £1,500 per pub, per week.

Elsewhere, the group confirmed its year-end net debt estimate of around £720 million, at the bottom of the £720 million to £740 million range previously estimated. Wetherspoon also remains busy on its estate, with three pubs opened and nine sold so far this year, five franchised pubs added and eight freehold reversions purchased at a cost of £19 million. The estate currently comprises 794 pubs, with the group having a longer term target of 1000, and plans for another 15 new and also 15 franchised pubs to be opened next year.

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Wetherspoon has fought its corner for many years and has overcome some serious hurdles, but the outlook for the wider domestic economy and the higher levels of staff costs continue to weigh heavily. While the shares have been rewarded over recent months for the group’s valiant efforts, which still leave the price undemanding in terms of valuation, the market consensus of the shares as a hold reflects some investor unwillingness to take the plunge just yet.

Market snapshot

The Nasdaq missed a beat for the first time in several trading sessions, ahead of nervy anticipation of imminent earnings reports from “Magnificent Seven” members Tesla Inc (NASDAQ:TSLA) and Alphabet Inc Class A (NASDAQ:GOOGL), while also responding to reports that the $500 billion OpenAI and SoftBank project was facing some initial difficulty.

The news read across, with a dip of almost 2% for NVIDIA Corp (NASDAQ:NVDA) and Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM). Nonetheless, the index remains ahead by 8.2% so far this year and hopes are still high that the mega cap tech stocks will make a strong contribution to ensuring that the current earnings season is a success.

Not that this is guaranteed, of course, and there were stark reminders that underperformers can be punished. Revenue misses from Lockheed Martin Corp (NYSE:LMT) and Philip Morris International Inc (NYSE:PM) saw the shares crater by 11% and 8% respectively, although the Dow nudged higher to stand higher by 4.6% so far this year. The benchmark S&P500 also eked out a marginal gain, which was enough for the index to hit another record closing high and to have added 7.3% in the year to date.

Tariff developments were a feature which lifted Asian markets overnight, with the optimism spilling over to European markets at the open. The Nikkei 225 rallied in Japan as the previously sweeping 25% tariffs were largely reduced to 15%, including perhaps most importantly car tariffs, sending the likes of Toyota and Mazda higher by some 15% and 17% respectively. In addition, the White House added that it would likely extend the current deadline with China ahead of further talks next week.

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The FTSE100 raced to a sprightly start which lifted the index to new record levels at the open. A poor production report from Fresnillo (LSE:FRES) and weakness in the utility sector given the recent water developments was not sufficient to hold the index back, with digital publishing and exhibitions business Informa (LSE:INF) popping by more than 4% on improved guidance following its half-year numbers. In addition, optimism that the Japan deal could signal another part of the “TACO” trade was enough to lift the major pharmaceuticals, with AstraZeneca (LSE:AZN) and GSK (LSE:GSK) rising by around 3% and 2% respectively.

The onward march for the premier index has resulted in a gain of 10.9% so far this year, with the total return further boosted by an average 3.3% dividend yield across its constituents. Yet in terms of valuation, the FTSE100 is still undemanding on a historic basis and is significantly lower than the multiples which the likes of the S&P500 enjoy. As such, this run could yet have further to go, with momentum building across an increasingly diverse investor base.