Market Report: All eyes on the Fed and AI optimism continues
Steve Clayton, head of equity funds, Hargreaves Lansdown: “All eyes are on the Fed today, ahead of the US central bank’s upcoming interest rate-setting meeting where the market is widely expecting the Fed to cut rates by a quarter point. Hopes of a rate cut and further optimism about the potential for AI to drive profits in the tech sector helped to push Wall Street higher last night, with the NASDAQ Composite index gaining 0.8%. Asia picked up the baton overnight, with gains in most major markets, led by tech stocks. Nvidia rose by 5% in US market trading and powered further ahead on the Asian Blue Ocean trading platform after US trading had ceased for the day.
Optimism about AI continues to bubble away and the latest boost to sentiment came from President Trump, who said that he would be discussing Nvidia’s flagship Blackwell AI chips with Chinese Premier Xi Jinping at their upcoming meeting. It has been banned from selling its market-leading Blackwell chips into China, the largest market in the world for AI technology. Any easing of these restrictions would be welcome news to Nvidia. The chip maker has enough to be happy about in the meantime, having hit a record $5tn market cap – creating $2tn of value since June 2024. The rise in its stock price was the most significant influence in driving US equities higher last night, and other leading tech names tagged along too, with Microsoft, Broadcom, Amazon and Tesla also pushing higher.
Demand for AI technology is extraordinarily buoyant. So much so that Korea’s SK Hynix, a leading chip manufacturer has reported overnight than not only are current sales strong, but that the group has already sold out its expected 2026 output of key AI components. It all sets a positive backdrop for the flood of trading statements from the largest names in technology, expected tonight and tomorrow.
The question for investors of course is when sentiment is so positive, will Microsoft, Alphabet, Amazon, Meta and Apple actually be able to deliver enough when they report their earnings to keep investors so euphoric. Apple’s stock price was boosted by reports of strong sales of its latest iPhone 17 models, pushing the tech giant’s market value north of $4tn. But it’s noticeable that outside of the increasingly narrow tech leadership of markets, stocks in many other sectors are actually struggling. More than 400 S&P 500 constituents actually fell last night, with similar patterns showing up in Asian markets overnight.
Trading in London this morning is rather mixed. NEXT plc is powering upwards after a positive trading update, with the stock some 7% higher at £143.5 in early trade. GlaxoSmithKline is also among the leaders, up almost 4% to 1708p after its own upgrade. At the bottom of the board, Barratt Redrow are 1.5% weaker at 388p. Overall the FTSE 100 is around 0.2% ahead, standing at 9715.
NEXT plc has raised its guidance for full year sales, after its overseas division delivered an extraordinary 39% jump in international sales in the third quarter of the group’s financial year. UK sales growth had been expected to slow, given last year’s outcome had benefited from M&S being hamstrung by the impact of a cyber-attack, but in the event UK sales still came in ahead of expectations with a 5.4% gain. It all adds up to a £30m uplift to profit guidance for the full year. NEXT is benefitting from a virtuous circle in its international business – strong sales are enabling more spending on digital marketing which in turn drives higher profitable sales, enabling a higher digital marketing budget, pushing sales further ahead.
GlaxoSmithKline (GSK) has released Q3 results which show the group enjoying solid sales growth and an increase in the full year projected outcome, which is now seen as delivering 10-12% growth in earnings per share with revenues up 6-7%. GSK highlight growth in Specialty Medicines, Vaccines and General Medicines as the drivers of growth. It highlights notable new product approvals in areas from Meningitis, Myeloma and Antibiotics which it expects to fuel longer-term growth.”