A bad week for the FTSE 100 got even worse on Thursday as a US tech selloff gathered momentum, dragging the global equity universe down with it on what is the busiest day for UK earnings in the current season.
The FTSE 100 had shown signs of resilience when the ‘Magnificent 7’ US tech began their fall from grace, but the sheer impact on major US indices from sharp declines in Tesla, Google, Meta and Nvidia overnight resulted in a decline of over 1% for the FTSE 100 in early trade, before the index recovered some of the losses to trade down 0.5% at the time of writing.
The recovery in UK stocks was aided by fairly robust results from heavyweights Unilever and British American Tobacco and the reality that the FTSE 100 has very little connection with US technology shares that have long been trading at rich valuations.
“Shares in the US tech giants are facing a reset after an incredible run of outperformance over the past 18 months,” Mike Owens, Senior Sales Trader at Saxo.
“There are a cocktail of reasons affecting different parts of the market ranging from cost and profitability of AI investments, weakening consumer outlook, trade tariffs and sanctions on sales to China and the anticipation of a new rate cutting cycle from the Federal Reserve. Some of the equity sell off feels completely logical, investors cancrystallize tech stock profits and still lock in over 4% yield on government bonds rather than risk losing 5-6% a day on some of the favoured equity names.”
The recovery from the worst levels of the session was helped by a strong set of results from Unilever, which was among a plethora of UK stocks reporting results on Thursday. Unilever, British American Tobacco, Lloyds, AstraZeneca, Howden Joinery and Centrica all reported recent results with differing outcomes for their shares.
Unilever flew to the top of the leaderboard with a 6% gain after announcing increasing volumes in emerging markets and improving margins across the board.
“A big improvement on margins has put a rocket underneath Unilever’s shares, taking the stock to its highest level since November 2020. Key to its success has been shifting greater volumes of products, suggesting that consumer demand for big brands is bouncing back,” said Dan Coatsworth, investment analyst at AJ Bell.
“It’s a healthy sign when volume growth exceeds pricing growth, as it implies solid underlying demand for the products, rather than simply slapping an extra amount on the unit price to boost revenue.
AstraZeneca
AstraZeneca released a fairly respectable set of results that investors will be disappointed didn’t cause more of a positive reaction in the stock. Shares were down 2.2% despite the group increasing both revenue and profit guidance for the year after sales jumped in the first half.
“AstraZeneca is once again proving quite literally that they have just the medicine for investors with another impressive update, said Adam Vettese, Market Analyst at eToro.
“Sales continued to boom for the firm’s suite of cancer drugs with that division now a huge $5.3 billion per year juggernaut making up over 40% of sales. Total revenue guidance has been raised and is now expected to be in the mid teens. Astra is reaping the benefits of a priority focus on a strong pipeline of upcoming drugs and this continues to be the case going forward.”
Investor favourite Lloyds announced a run-of-the-mill half-year report that, despite beating analyst estimates, did little to inspire hopes of additional growth with interest cuts on the horizon.
Centrica was the top faller, sinking 8%, as the company revealed earnings were normalising after a period of bumper profits assisted by higher fossil fuel prices.
Shrinking gross margins and flat EPS growth sent Howden Joinery shares down by 3%.