Written by Chris Ayton
Equity and fixed income markets fell over the week. The MSCI All Country World Index fell -1.0% and, in fixed income markets, the Bloomberg Global Aggregate Index was -0.5% in GBP hedged terms.
In the UK, the FTSE All Share Index was down -1.0% over the week, with the more domestic- oriented mid and small-cap indices down even more. The UK bond market was also down, with the Bloomberg Sterling Aggregate Index falling -1.7% over the week. The negativity driving the above returns primarily came on the back of Chancellor, Rachel Reeves’, first budget where she attempted to perfectly navigate the government’s desire to raise taxes and borrow more to fund huge new spending commitments without spooking the markets. However, the eye-watering sums involved stoked fears that higher borrowing would lead the bond market to require higher yields on government debt and that the potentially inflationary impact of greater spending could hamper the ability of the Bank of England to reduce interest rates as fast as hoped going forward. The announcement of higher minimum wages and higher employer national insurance contributions, combined potentially with the prospect of interest rates staying higher for longer, was also expected to be greater felt in the pockets of medium and small businesses, hence the underperformance of mid and small capitalisation equities.
In the US, the S&P 500 index fell -1.4% over the week in local terms. The technology-heavy Nasdaq 100 index was down even further at -1.6% for the week, also in local terms. For UK investors, the declines were dampened in Sterling terms by the Pound’s weakness against the Dollar. Microsoft fell approximately 6% on the day of its earnings results while Facebook owner, Meta, fell 4% on the same day. Although current quarter earnings results were still robust, warnings of rising costs for artificial intelligence led to some dampening of future expectations. Apple also produced strong quarterly sales numbers, but the market was disappointed with the accompanying future revenue forecasts. With many leading technology and AI-related stocks trading on elevated valuations, the market will likely continue to seek perfection to justify current share prices. In brighter news, Amazon posted third quarter profit numbers that were above Wall Street estimates, helped by strong retail sales. The latest US GDP Growth data release also indicated that the US economy grew at an annualised rate of 2.8 per cent in the third quarter, supported by ongoing strength in consumer spending.
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