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“A catastrophic day for US tech shares hasn’t caused widespread contagion on the markets,” says Dan Coatsworth, Investment Analyst at AJ Bell.
“While the Nasdaq had a miserable day on Wednesday, only Japan’s Nikkei 225 caught a cold in response. Its semiconductor industry might be affected if the US government gets heavier with measures to stop China getting its hands on foreign chip technology.
“Take a step back and it looks like a market rotation is slowly bubbling up. In the US, small caps got some long-overdue attention as investors switch to more unloved parts of the market and away from higher-rated go-go growth stocks. The Russell 2000 has risen by 11% in just over a week, putting the small cap index at its highest level since the start of 2022.
“Even the UK is getting more attention as the market is full of stocks offering growth at a reasonable price. That growth might be more pedestrian than what’s on offer in the US, yet it looks like we’re entering a phase where valuations matter more to investors, and the UK trumps the US on this basis. A 0.7% jump in the FTSE 100 was driven by gains in energy, pharma, banking and mining stocks.”
UK Jobs data
“You only had to listen to what recruitment agencies have been saying for months to know the jobs market has cooled. The latest figures from the ONS confirm this to be the case, with a decline in the number of job vacancies and a slowdown in the number of employees on payrolls.
“That being said, the new Work and Pensions Secretary Liz Kendall calling the state of the labour market ‘truly dire’ feels a bit excessive and is perhaps more of a dig at the previous government.
“What continues to surprise is how wages have remained relatively strong despite the more fragile employment backdrop. While wage growth has slowed, it is still outstripping inflation. That puts the Bank of England in a difficult situation with its next interest rate decision.
“Yesterday’s stronger than expected data on services inflation has already dampened expectations for a rate cut on 1 August and traders only see a 41% probability of it happening. The wage growth data only strengthens the argument for rates to stay where they are, at least for the rest of the summer.
“The Bank of England has a reputation for being conservative in its thinking, and there just isn’t enough in the latest round of data to warrant the Monetary Policy Committee breaking trend and cutting now.”
Frasers
“Frasers might have the reputation for being a vulture which likes to pick at the bones of failed rivals, but its full-year results paint a different story. They show a business making big strides strategically, leaving its days as a straightforward pile ‘em high, sell ‘em cheap retailer in the distance.
“Sports Direct is still at the core of the group and helped to generate profit at the top end of expectations, but it’s what’s being layered on top of this operation that makes Frasers a lot more interesting. As well as going upmarket with the types of products sold and the clientele it attracts, Frasers has also fine-tuned its engine, adding a spoiler to go faster, upgrading the tyres and topping up the tank.
“It is now selling a wider range of brands, has spread its wings geographically, invested money to have more efficient logistics and warehouse operations, and has dipped its toe into the water with a buy now, pay later service for its own shops and third-party retailers.
“Frasers is a business which cannot stand still. It is finding more ways to make money and the results are clear to see. It has now passed the half-a-billion-pound mark for annual pre-tax profit, double what it made a decade ago.
“While Frasers may always be tempted to snap up rivals on the cheap if the opportunity arises, it feels as if it is no longer reliant on acquisitions to support growth. There are plenty of things underway to achieve organic gains, perhaps reflecting a different mindset between how Mike Ashley used to run the business and how the strategy is actioned under Michael Murray.
“It has been two years since Murray took the top job and he says the year to April 2024 was a ‘break-out’ year for Frasers’ future growth. That’s a fair statement and the results suggest he’s done a fine job despite having had big shoes to fill by taking over from one of the most notable characters in British retail.”
International Distribution Services
“There are finally signs of a positive turnaround at Royal Mail, with growth in parcels putting a shine on its latest trading update. The general election certainly helped to give a boost to letters activity, and service levels are picking up. Importantly, Royal Mail seems to be coping well in a highly competitive market and an uncertain economic backdrop.
“The performance improvement comes at an interesting time for shareholders who must decide whether to accept the takeover bid from Czech billionaire Daniel Kretinsky or sit tight and wait for the value of the business to be driven by its own achievements.
“The fact IDS’ board is recommending that shareholders accept the bid doesn’t instill too much confidence in the business being worth a lot more simply as a result of organic achievements.”
These articles are for information purposes only and are not a personal recommendation or advice.
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