The FTSE 100 fell on Thursday as losses for Lloyds and HSBC meant London’s leading index missed out on an AI-inspired global equity rally.
A 5% decline for HSBC and a number of stocks trading ex-dividend meant the FTSE 100 had little chance of a positive session, and the index fell 0.4% despite the S&P 500 achieving another record high overnight.
“Another day, another record closing level for both AI chip giant Nvidia and the tech-heavy Nasdaq index in the US,” said Russ Mould, investment director at AJ Bell.
“Investors who have held their nerve are cleaning up, yet the drums of worry are banging louder each day.
“Concerns around excessive valuations, elevated levels of government borrowing, uncertain economic growth, and political turbulence are omnipresent. There are a multitude of factors that could trigger a market pullback, but for now it is another day where there are more bulls than bears.”
A land grab is underway for the hottest AI start-ups and the infrastructure that supports them, sending some companies to eyewatering valuations.
Although there are growing concerns about valuations, especially for AI shares, bulls will argue that valuations are justified by the sector’s future earnings potential. Bears will point to the Dot Com boom and bust. Many say this time is different. Only time will tell.
While US markets are being whipped into a frenzy about AI, UK markets suffered declines from Lloyds and HSBC.
“The FTSE 100 was an outlier, weighed down by a double dose of bad medicine from the banking sector,” Russ Mould said.
“HSBC removed the share buyback carrot that has been keeping investors excited. It is using cash that might otherwise have funded buybacks to pay for the buy-out of Hang Seng Bank.”
HSBC shares were down over 5% at the time of writing.
Just a day after an FCA announcement was deemed as favourable for the banks involved in the motor finance scandal, Lloyds disappointed investors with news that they will need to set aside more cash for redress.
“Lloyds Banking Group has announced that it is likely to have to make a further provision, potentially a material one, against the costs of Motor Finance customer redress,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.
“This comes just a day after the FCA announced an industry-wide scheme that saw compensation levels set at what were thought to be the lower end of expectation for industry costs. The statement from Lloyds was not in the market’s playbook and the shares have reacted badly, erasing yesterday’s gains, with Close Brothers similarly impacted.”
Lloyds shares were down 2.5% at the time of writing.