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Market rally defies the doubters – DAX hits new record and FTSE 100 at three-month high
Fears that the equity rally will soon fade appear to be ill-founded, while in London investors continue to pore over a multitude of company earnings updates.
Moody’s downgrade fails to register
US stocks shrugged off the downgrade of US government debt by the Moody’s ratings agency. Many might be surprised by this, but then Moody’s is the third of the three big agencies to downgrade the US, and comes far behind the other two in terms of its timing.
The downgrade provided no new information on the US debt situation, merely underlining the existing picture. As such, the news had little impact and US markets clawed back their opening losses.
The rally in global markets continues, with the DAX 40 hitting a fresh record high and the Hang Seng bolstered by news of cuts to loan rates by the Chinese central bank. Even a warning by JPMorgan CEO Jamie Dimon failed to have much impact. Dimon said that the market continues to reflect ‘an extraordinary amount of complacency’ around the impact of tariffs.
The JPMorgan CEO may well be right. He is not a man given to making pronouncements with no backing. Even at reduced levels, tariffs on goods coming in to the US are roughly seven times the level at the beginning of Trump’s term.
It still seems very unlikely that the US and global economy can get through the next few months without a notable deterioration in the data. The rebound in equity markets, particularly outside the US, means that stocks are pricing in a much more optimistic outlook than was the case in early April. The global economy may weather this potential rough patch relatively well, but it is far from certain.
Of course, this does not mean that that stock markets will retest April’s lows. The sheer scale of the recovery from April appears to argue against that. Nonetheless, Dimon’s warning remains pertinent, and investors cannot become too complacent right now.
UK stock news – Greggs soars, Vodafone higher
It continues to be a busy week for UK company reporting. Star of the day has been Greggs, which has soared after its trading update this morning. Signs of diversification in its product line have provided the market was looking for, since the shares remain cheap looking at their PE ratio compared to the two-year average.
FTSE 100 telecoms titan Vodafone continues to enjoy a rebound, and this morning’s update is further evidence that a real turnaround is in play. Vodafone’s attraction for many continues to be the chunky dividend, and it is still too early to say that a reliable uptrend is in place for the share price.
Lloyds continues to be one of the standout performers on the FTSE 100, up 40% so far this year. This is a remarkable recovery for such a key stock for many investors. With no US exposure it offers a haven from much of the recent volatility, and is making strides in its financial advice business and in providing loans to smaller businesses. At 77p, the share price sits at levels not seen since late 2015.
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