Daily market update: housebuilders, Lululemon, Broadcom, Gear4Music

“Equity markets were quiet at the end of the week, albeit there is still a chance for a last-minute wobble if US jobs data delivers a shock,” says Russ Mould, Investment Director at AJ Bell.

“Non-farm payrolls are expected to have grown by 75,000 in August, slightly above July’s 73,000 figure. Investors are looking to see if the jobs market is hot or cold, as that will play a key role in the Fed’s decision making on interest rates. Hot gives the Fed less reason to cut, cold does the opposite.

“Constant movement regarding tariffs in recent months have been a nightmare for businesses trying to plan for their future. Ongoing uncertainty has the potential to put a freeze on hiring, thereby depressing the labour market.

“This situation isn’t ‘new’ news to investors, but they are watching every data point like a hawk to see if things are getting worse or better.

“Elsewhere, gold crept higher, fuelling the rally in FTSE 100 miner Fresnillo which has sparkled on the stock market this year.”

Housebuilders / Berkeley

“Housebuilders were in demand as signs of a robust property market raises hopes for stronger earnings in the sector. Halifax says average UK prices are now at a new record high of £299,331.

“It’s not a simple green light for the sector. Interest rates arguably need to come down a lot more to convince investors that the sector has legs as mortgage affordability is still an issue for many aspiring homeowners.

“Berkeley says its trading over the past four months has been ‘stable’, which investors have taken to be a win given negative comments from rival housebuilders in recent months.”

Lululemon

“For a business once at the cutting edge of athleisure, Lululemon’s shares have been as fashionable as a Christmas jumper bought from the supermarket of late.

“They’ve fallen by two thirds in value since the end of 2023 as the business made mistakes, became less trendy, and got swept up in Trump’s trade war.

“A near-16% decline in pre-market trading puts the shares at a five-year low, triggered by disappointing results and forward earnings guidance.

“Lululemon has found itself in the firing line of duty changes on small value items, putting a cloud over prospects for its e-commerce arm.

“US sales were already patchy before Trump scrapped the ‘de minimis’ rule which previously allowed orders worth $800 or less into the US without being subject to import duties.

“Last year, Lululemon messed up by failing to have the right sizes of in-demand products in stock. Second quarter net sales this year in the Americas grew by a mere 1%. Discounting has contributed to weaker margins and inventory of unsold items is piling up – a disastrous situation for a retailer.

“Shoppers are less interested in its products and investors are dumping the shares.”

Broadcom

“The mystery around Broadcom’s new multi-billion-dollar client for custom AI chips did not take a master sleuth to figure out. All the reporting suggests OpenAI is the customer in question as it looks to take a more active role in the physical infrastructure behind artificial intelligence.

“In this sense OpenAI is merely following in the footsteps of the likes of Alphabet, Meta and Amazon who have designed their own bespoke chips to run their AI models.

“This new business with OpenAI reflects a key strength of Broadcom which lies in working closely with customers to develop application-specific chips which, in turn, aim to deliver superior performance and energy efficiency at lower cost for specific jobs.

“Excitement about the potential of customised AI chips has been a big driver of positive sentiment towards Broadcom this year.

“Investors are betting these products will take an increasing share of the market, as AI increases in sophistication, compared with off-the-shelf solutions designed by the likes of Nvidia and Advanced Micro Devices.

“Broadcom not only beat expectations for the third quarter but also guided for better-than-expected fourth-quarter revenue. Growth in the infrastructure software business – including VMWare which was acquired in November 2023 – was also robust.”

Gear4Music

“The benefits of an improved competitive position as rival companies exit stage left is allowing Gear4Music to deliver a tune very much to investors’ liking.

“The online musical instrument and equipment retailer has delivered a second upgrade to forecasts for the current financial year in just a matter of months.

“The collapse into insolvency of two competitors who offered aggressive discounts has clearly helped Gear4Music’s competitive position.

“In fact, the benefit has been even more direct as Gear4Music announced in April it had snapped up stock with a cost value of £1.8 million, together with assets including websites, trademarks and commercial data, for a total of £600,000, from the administrators of one of these rivals – GAK.

“Gear4Music has also strengthened its marketing capabilities and invested more in its platform and own-brand products which is helping to improve profitability.

“The shares may be some way from the heights they attained during the pandemic when people had lots of time and money to spend on hobbies, including music, but with the company sounding the right notes they have more than doubled in the last six months.”