“Investors largely kept their nerve in the face of fresh trade-war salvos from Washington, a cautionary Bank of England stability report and the latest volley of corporate updates.
“The boy who cried tariffs continues to warble his perplexing ballad of random numbers from the White House, this time threatening to impose 50% tariffs on copper and 200% tariffs on pharmaceuticals. Investors are listening, and nodding to acknowledge the latest verse, but largely getting on with business as usual. Most are probably waiting for the wolf to actually show up before properly evaluating the danger.”
NVIDIA / US TECH
“The really big market news of the day comes from across the pond, where Nvidia became the first company to hit a $4 trillion stock market valuation. Admittedly $4 trillion is worth considerably less than it was before the dollar’s steady decline this year, but it’s still a sizeable chunk of cash.
“The stellar rise of Nvidia shares shows the AI trade is still alive and well, for now. This is pretty heady stuff for a company that started the year looking down the barrel of the disruptive entry of DeepSeek, which threatened to undermine demand for its high-end microchips. Those fears now look to have been put firmly to bed.
“Along with the S&P 500 trading near a record high, this suggests animal spirits are very much back in control of the market, and any fears about the global economic impact of US trade policy have been put firmly on the shelf. Only time will tell whether this proves to be foresight or folly.
“In the US earnings season is about to kick off, which might provide some fresh direction for markets. Updates from US corporates will deliver some real data on the economic reality in the United States. It will also be fascinating to see how the US tech titans are faring after a year which has so far split the pack.
“Microsoft, Meta and Nvidia have all posted healthy share price gains so far this year. On the other hand, Apple and Tesla have seen significant share price falls, while Amazon and Alphabet have seen more modest declines. Earnings updates from these companies will give us some indication of whether the market has chosen wisely from the Magnificent Seven, or whether some recalibration is required.”
BANK OF ENGLAND FINANCIAL STABILITY REPORT
“Reading the Bank’s Financial Stability Report is a little like getting a survey when you buy a house. It’s hugely significant, presented in a deadpan manner, and leaves you feeling petrified if you linger too long on the actual meaning of the words.
“The report tells us, somewhat redundantly for anyone with eyes and ears, that the world is currently subject to a number of macroeconomic risks. More meaningfully, it adds that asset prices remain elevated in these uncertain circumstances and are ‘vulnerable to a sharp correction.’ Sounds like tin hat time.
“Regulations implemented by the Bank are designed to make the structure of the financial system robust enough to weather an economic storm, accepting these will occur from time to time. However, the reality is we will only truly know whether regulators have done a good enough job when the storm hits. The LDI pension crisis following the mini-Budget wasn’t exactly a stomach settler.
“The Bank of England also issued a warning over the private equity market, which has been growing rapidly. The Bank points out that parts of this market have high levels of leverage which haven’t been tested at scale in an environment of higher interest rates and lower growth. It also highlights the market can be opaque, and vulnerable to conflicts of interest over valuation. They might also have added that an investment in private markets often comes with high charges attached.
“Does this sound like something you’re desperate to usher into your pension? Because that is what Rachel Reeves is trying to do on your behalf. The chancellor has stopped short of mandating pension schemes to invest in private assets, but the big pension providers are being dragged towards the private markets pool to drink deeply from the magical elixir, whether they like it or not.
“Reeves thinks this might turbocharge growth in the UK economy, and also pay for some much needed infrastructure which the government can’t afford on its own. On that score, she’s probably right to some degree. But the broader question is what returns will be delivered to pension savers after all charges, and taking into account all the risks? The primary purpose of a pension scheme is to provide savers with a retirement income, not to prop up the UK economy.”
WPP
“Investors might reasonably wonder what WPP is anymore. It used to be a global advertising operation with whom large consumer businesses would spend hundreds of millions a year pushing their various products, services and brands and as such, acted as something of a bellwether of the global economy.
“But the world has turned and WPP is struggling to retain its relevance in a landscape that is very different to the past. This year, the company had been forecast to post around £12 billion of revenue – less than it did a decade ago with lower margins and lower profits. And that was before today’s ugly trading update which has seen shares plummet to 429p, a low not seen since the aftermath of the Global Financial Crisis in 2009.”
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