Market Report: Stocks remain near record highs as focus shifts back to the economy and earnings
Derren Nathan, head of equity research, Hargreaves Lansdown: “Some further profit taking by investors in the FTSE 100 looks likely this morning, after the index lost some of its shine on Wednesday following a pull-back in precious metal and oil prices. But at over 10,000 points, the Index remains over 20% higher than it was this time in 2025, despite the unpredictable start to the geopolitical year.
Food retailers have been telling their Christmas stories this morning, with trading updates from Tesco, M&S and the home of the festive bake Greggs. There’s been no sign of the Grinch over Christmas at any of these names, with guidance for Greggs and Marks & Spencer unchanged, and Tesco now expecting full year profit to land at the upper end of its previously upgraded range.
US stock futures are down today, with a focus firmly on the first jobs data of 2026. Initial jobless claims are expected to have risen slightly from the previous week, to 213,000, still a relatively benign number compared to last year’s weekly average. A stabilising labour market puts less pressure on the Fed to take a knife to rates, but the political will to do so remains ever present. Presently however, markets are betting on June as the most likely moment for the first cut of 2026. Inflation remains the elephant in the room, with the recent Washington shut down delaying and distorting price data.
Unit labour costs are one key forward indicator and if today’s numbers come in flat, as forecast, that should give some confidence to the notion that the US Economy isn’t overheating. If economic growth can be driven by productivity rather than prices that’s a strong foundation for long-term stability. Non-farm productivity is expected at 4.9%, up from a previous read of 3.3%. If Artificial Intelligence can live up to its promises, there could be more to come, but the speed and size of these gains remains to be seen.
US Stocks are at close to record highs as we head towards fourth quarter earnings season. Next week kicks off with the banks, where a strong finish for IPOs, M&A and trading is likely to have boosted Investment Banking revenues. Across the wider market, Q4 estimates have been steadily rising since September, with average earnings growth for the S&P 500 up from 7.2% to 8.3% according to the latest Factset earnings insight.
Turning to the 2026 outlook, average earnings are forecast to accelerate from 12.3% to 15%, well above the long-term norm, which should provide some support for valuation premiums. It’s no surprise that tech is leading the way, but with all sectors expected to be in positive territory, there are some grounds for broad based optimism if policy doesn’t get in the way of business performance.
The Venezuelan saga continues to unfold after the US seized two oil tankers in the Atlantic. With underdeveloped infrastructure and the world’s largest oil reserves, the stakes are high. Chevron, the only US major with Venezuelan operations, saw its shares rally following the capture of Nicholas Maduro, but they’ve now given up most of those gains as investors take stock of the huge investment required to boost production as well as continuing oil price weakness in a well-supplied market.
Progress towards a peace deal between Russia and Ukraine in this long-running human tragedy could lead to the lifting of sanctions on Russian fossil fuels. However, markets have seen numerous false dawns before and Brent crude prices have nudged back above the $60 per barrel mark, helped by a surprise fall in weekly US oil inventory holdings.”