The FTSE 100 continued its upward trend on Friday, driven by a broad rally across cyclical sectors such as miners, housebuilders, and retailers. Defensive stocks also saw gains, with Unilever surging by 3%.
“The UK market finished a tumultuous week on a positive note, taking cues from advances in the US and Asia overnight,” said Russ Mould, investment director at AJ Bell.
“Reassuring data on the US economy, with jobless claims coming in below forecasts, has alleviated recession fears and made earlier calls for emergency rate cuts from the Federal Reserve seem premature.
“Mining stocks boosted the FTSE 100, which is now only slightly down for the week, as an uptick in Chinese inflation eased concerns about deflation and economic slowdown in the world’s second-largest economy and major consumer of many commodities.”
London’s leading index has rebounded from the week’s lowest points after Monday saw the greatest volatility in global equities in over a year. As the week progressed, markets calmed significantly, with fears about the end of the Yen carry trade and an imminent US recession receding.
This doesn’t mean these risks have disappeared; rather, equity traders have refocused on what’s crucial for stocks: earnings. Although the earnings outlook isn’t overwhelmingly strong, it’s not as dire as Monday’s dramatic stock declines suggested.
Many investors have taken the sell-off as a buying opportunity, picking up some of their favourite stocks. Given their recent declines, US technology shares were obvious choices. The continuation of the ‘Magnificent 7’ rally will depend on market perceptions of risk regarding AI and whether traders are willing to wait for earnings to align with market pricing. Nvidia’s earnings at the end of August will be a significant test.
In the UK, the FTSE 100 demonstrated its defensive nature this week, with declines being quickly bought into. Surprisingly, none of the FTSE 100 stocks are more than 10% lower than they were a week ago, and over half have risen in the past five days.
Stalwarts AstraZeneca and Unilever are actually trading higher this week, and their combined market capitalization has offset losses among some of the worst performers. Housebuilders have also had a good week, bolstered by upbeat July house price data from Halifax, suggesting the market could be turning.
Rising housing prices, coupled with Labour’s new housing targets, have the potential to further boost housebuilders. Entain continued its rally on Friday, becoming the top riser with a gain of 3.2%.
