The FTSE 100 was broadly flat on Friday as a busy week for company earnings drew to a close.
London’s leading index was down just 2 points at the time of writing as Standard Chartered topped the index with a 7% gain after beating Q4 profit estimates.
A bumper session for US stocks overnight helped the FTSE 100 start the session on the front foot before the rally diminished as the session progressed.
Better-than-expected results from chipmaker Nvidia helped propel US stocks higher as markets cheered the continuation of the AI boom, which has supported equities over the past year.
“Indices around the world are hitting record highs as the latest test for investor sentiment came and went in the form of Nvidia’s results,” said AJ Bell investment director Russ Mould.
“These managed to outmatch the market’s already elevated expectations, suggesting the AI theme is very real. However, how healthy it is for a single stock to have such a big bearing on global markets is questionable.”
Whether it is healthy or not appears to be of little consequence for investors in US stocks in the short term as the S&P 500 hit fresh record highs overnight.
With European and Japanese equity indices hitting record highs yesterday, the FTSE 100’s recent performance will disappoint UK equity investors.
The defensive nature of the index, which is also heavily weighted towards commodities, has prevented the FTSE 100 from retesting record highs and down is 2.8% over the past year compared to a 26.8% gain for the S&P 500. The Japanese Nikkei is 44% higher.
However, the FTSE 100 provides a greater dividend than overseas indices, and its composition may lead to outperformance in the future.
The FTSE 100 is heavily weighted towards China, and disappointing updates from miners and HSBC this week highlight the challenges the index has faced over the past year as China struggles to build momentum.
The eventual recovery in the Chinese economy could prove to be the catalyst for the FTSE 100 to close the gap between US and European stocks.
Interest rates
Financial markets struggle to focus on more than one thing at once, and with corporate updates front and centre this week, economics and monetary policy have taken a back speak.
Expect the focus to shift back to interest rates in the coming trading sessions as the corporate calendar slows and traders once more question when major central banks will first cut rates.
With data supporting the argument major economies can withstand higher interest rates, expectations of the first-rate cuts by the Federal Reserve and BoE are being pushed further and further out. This hasn’t impacted stocks thus far, but it doesn’t mean it won’t.
“Latest figures show that the US market remains tight, which further muddies the picture for the Federal Reserve. Those banking on swift rate cuts are likely going to be disappointed,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
