The FTSE 100 continued its rebound on Friday in a broad rally led by cyclical sectors, including miners, housebuilders, and retailers. Defensive names were also getting in on the action with Unilever surging 3%.
“The UK market looks set to end a tumultuous week with gains as it took its cue from advances in the US and Asia overnight,” said AJ Bell investment director Russ Mould.
“More reassuring data on the US economy, as jobless claims came in below forecasts, has helped calm fears over recession risks and made the calls for emergency rate cuts from the Federal Reserve earlier in the week appear premature.
“Mining stocks supported the move higher in the FTSE 100, which is now only a touch lower for the week as a whole, as an uptick in Chinese inflation allayed fears about deflation and economic slowdown in the world’s second largest economy and most rapacious consumer of many commodities.”
London’s leading index has rallied from the worst levels of the week after Monday produced the greatest volatility in global equities in over a year.
As the week progressed, a distinct calm descended over markets, with fears about the end of the Yen carry trade and an imminent US recession steadily fading into the background.
This doesn’t mean these risks have gone away or will not rear their heads again; rather, equity traders took a step back and focused on what’s important for stocks: earnings.
The outlook for earnings isn’t tremendously strong; however, it isn’t as bad as the dramatic declines in stocks on Monday suggested.
Many have taken the sell-off as a buying opportunity and bought into some of their favourite names. Given the extent of their declines, US technology shares were obvious choices. Whether the ‘Magnificent 7’ rally continues will depend on market perceptions of risk when it comes to AI and whether traders are prepared to wait it out in stocks with frothy valuations until earnings catch up with market pricing. Nvidia earnings at the end of August will be a big test of this.
In the UK, the FTSE 100 displayed its defensive attributes again this week, with declines relatively contained and quickly bought into. Surprisingly, zero FTSE 100 stocks are over 10% lower than they were a week ago. More than half are higher over the past 5 days.
Stalwarts AstraZeneca and Unilever are actually trading higher this week, and their combined market capitalisation means they have offset losses in some of the worst performers.
Housebuilders have had a good week, all things considered. Halifax released upbeat average house price data for July, suggesting the market could be on the turn. Rising housing prices coupled with Labour’s new housing targets have the potential to fire up the housebuilders’ afterburners.
Entain continued its rally of Friday and was the top riser with a gain of 3.2%.
Only 8 of the FTSE 100’s constituents were down at the time of writing.