Stock markets around the world enjoyed a buoyant week as investors focused on the potential for technological advances to drive growth, regardless of wider macroeconomic conditions
Worries about the timing of potential interest rate cuts have taken a back seat, as a highly impressive trading statement from one of America’s biggest manufacturers of the microchips used in multiple artificial intelligence (AI) applications drove gains in the US, Europe and Asia.
AI was one of the dominant investment themes in 2023, something that seems unlikely to change in the foreseeable future. With the prospect of central banks starting to unwind monetary policy in the first half of this year – a development that will increase the present value of future earnings streams – there seems to be little standing in the way of technology stocks at the moment.
The positive mood was helped by economic data in the US and Europe that was neither too strong nor too weak. While business activity is proving relatively resilient in the face of high borrowing costs and a lengthy period of above-target inflation, there are nonetheless a number of signs of frailty that may encourage policymakers to cut rates sooner rather than later.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.1% up for the week so far, with the S&P 500 gaining 1.6% to reach a record high. The tech-heavy Nasdaq index posted even more impressive returns after markets re-opened following the Presidents’ Day closure on Monday. Away from AI-related optimism, recent data showed a sharp decline in mortgage applications last month, with borrowing rates rising in response to the surprise uptick in December’s inflation figure. Minutes from the most recent meeting of the Federal Reserve indicate that policymakers continue to advise caution when deciding how soon to relax monetary policy, but signs that growth in the private sector is slowing could force their hand.
UK
In the UK, the FTSE 100 closed on Thursday 0.4% down for the week so far, with shares in London unable to participate in the global rally due to a shortage of major technology names. Subpar quarterly trading statements in the banking sector also weighed on the index, although the latest economic data suggested Britain’s services sector was continuing to show resilience. Meanwhile, disruption to global shipping routes appears only to be having a limited impact on the input costs faced by manufacturers.
Europe
In Frankfurt, the DAX index ended Thursday’s session up 1.5% for the week, while France’s CAC 40 gained 1.8%, with both reaching record highs on the back of ebullience in the technology sector. At the same time, weak economic data from the eurozone – France and Germany in particular – increases the likelihood of rate cuts by the European Central Bank in the first half of 2024. Officials in Germany expect the country to enter a technical recession, defined as two consecutive quarters of negative growth, while the ECB increasingly believes inflation is being brought under control.
Asia
In Asia, the Hang Seng index in Hong Kong gained 2.5% to stage a small recovery from its recent slump. Investors in China welcomed signs of improved tourism levels around the new year holiday, while officials cut key mortgage rates more sharply than expected. There are hopes the government will introduce additional stimulus measures in the weeks ahead. Japan’s Nikkei 225 index of leading shares, meanwhile, surged to an all-time high, gaining 1.6% and surpassing the previous peak recorded in 1989. The Tokyo market has been a major beneficiary of optimism around the global semiconductor industry and the potential of AI in general.
February 16 | February 22 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7711.7 | 7684.5 | -0.4 |
FTSE 250 | 19191.9 | 19263.5 | 0.4 |
S&P 500 | 5005.6 | 5087.0 | 1.6 |
Dow Jones | 38628.0 | 39069.1 | 1.1 |
DAX | 17117.4 | 17370.5 | 1.5 |
CAC 40 | 7768.2 | 7911.6 | 1.8 |
ACWI | 750.2 | 760.4 | 1.4 |
Hong Kong Hang Seng | 16340.0 | 16743.0 | 2.5 |
Nikkei 225 | 38487.2 | 39098.7 | 1.6 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 22 February 2024.
