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Market jitters around US tech stocks might have put investors on the edge of their seats, but yesterday’s sell-off wasn’t severe enough to cause widespread panic.
A 2% decline in the Nasdaq index and a 10.7% jump in the Vix fear gauge were like a sharp bout of turbulence on a flight – unpleasant, but just for a moment. The fact a major sell-off didn’t occur across the whole of Asian and European markets following Wall Street’s wobble implies that we’re not at the start of the correction many people have feared. Futures prices point to a less dramatic day in the US when trading opens later today.
Certain investors have been worried about high equity valuations, US liquidity constraints, red flags in the US regional banking sector, and incestuous behaviour among mega cap US tech stocks around AI. Various leading figures in the financial world have expressed concern, and Michael Burry of The Big Short fame is betting that certain big name tech stocks will fall. That kind of chatter will always cause investors to shiver.
Big money has been made on financial markets this year, and there is the potential for some people to decide enough is enough and to lock in profits. Equally, there are also many people who believe there is good reason to stay fully invested as there are tailwinds to take markets even higher. There’s the potential for more big swings on the market over the coming weeks and months.
Novo Nordisk
The worst thing a new boss can do is take the top job and promise the world from day one. It’s always better to under-promise and over-deliver. In this context, it’s not a surprise to see Novo Nordisk’s new CEO Mike Doustdar cut the drug company’s full-year profit guidance.
The business is on a long road to recovery after disappointing with weight-loss drug trials and falling behind arch-rival Eli Lilly.
Mike Doustdar has his work cut out to revitalise Novo Nordisk. He’s already reshuffled the board, announced big job cuts, and started what looks to be an aggressive acquisition spree to fill the company’s pipeline of drugs. Creating new drugs in the lab is not easy, so buying is sometimes a quicker way to make progress. However, it can be expensive as Novo Nordisk is finding out as it is engaged in a bidding war against Pfizer to buy US weight-loss start-up Metsera.
Water companies
In a sign the water industry’s attempt to clean up its act is far from complete, six firms, including United Utilities and the ill-fated Thames Water, have blocked bonuses to bosses under rules introduced by Ofwat this summer.
Most of the corporate failings which led these payouts to be blocked involved pollution, and these firms have a long way to go to restore the faith of the public, regulators and politicians for whom the sector’s name is mud.
Investors and other stakeholders will hope this action to hold back some of water executives’ remuneration will help concentrate minds on the task at hand.
Barratt Redrow
Investors showed relief that housebuilder Barratt Redrow kept its guidance on full-year completions unchanged despite a difficult market backdrop.
The order book is proving resilient, and sales are holding up despite a lack of deals in the private rental sector.
Barratt will be crossing its fingers for an interest rate cut later this week and an easing of gilt yields which could help bring down mortgage costs and boost prospective purchasers’ confidence.
Unsurprisingly, Barratt put in a plea for greater government support for first-time buyers and further planning reforms to help facilitate growth.
The company continues to make progress with the integration of Redrow and the logic behind the merger, which completed around a year ago, looks to have solid foundations.
Wetherspoon
Pubs group Wetherspoon is not alone in wanting to press fast forward to 26 November and find out what the Budget has in store.
Uncertainty ahead of this key fiscal event means Wetherspoon is more cautious on the outlook for the remainder of the year despite solid trading in the first 14 weeks of its current financial year.
The one negative was hotel room sales, but a sharp fall is not hugely relevant given the company has a little over 50 hotels compared with an estate of more than 800 pubs.
What is important for Wetherspoon is keeping costs down so it can keep prices as low as possible for punters. Wetherspoon’s appeal relies heavily on value, and it is heavily exposed to increases in its cost base and tax burden, which is why it will be nervous ahead of the Budget.
Tim Martin, who often uses trading statements to give his views on a variety of topics, aired a familiar bugbear about the differential between booze and food sold in a pub versus a supermarket.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
