The FTSE 100 soared 1% to fresh all-time highs on Tuesday morning, almost touching 9,900 as global equity markets enjoy a relief rally on hopes the protracted US government shutdown would end soon, whilst a bounce in AI stocks lifted sentiment across the board.
The blue chip index had rallied yesterday to hit 9,800 for the first time, as a broad risk-on tone took hold over following the Senate vote on Sunday, while there are some FTSE-specific factors at work too.
Vodafone is taking the lead this morning after a strong set of interims contained a promise to return to a progressive dividend policy as it returned to service revenue growth in Germany, while housebuilders rose on rate cut bets and similarly utilities were up as gilt yields came down on softening UK labour market indicators.
Back at the start of October I looked at several reasons why I thought the FTSE 100 could hit 10,000 by Christmas. Those reasons hold true today as we approach the level.
Some soft UK employment data pushed sterling lower to give the blue chips another leg of support. Unemployment rose by more than expected to 5%, while payrolls continue to shrink and wage growth cooled. It’s a sign that employers are suffering some pre-Budget worries about both employment costs and output demand. The Budget – particularly the delay to its announcement and the rampant speculation about what it will contain – is already having a chilling effect on the economy.
The Bank of England should be cutting rates now – December looking increasingly certain, especially since the Budget will deliver a major contractionary impulse to the economy. The employment data confirms me in my view that the Bank of England should have cut already and, given the Budget about to be, we should see it go much deeper than the market has priced – 3% by next summer is the top of my expectations…2.5% could be a reality if the economy is tipped into a serious recession by the Budget.
Just one last thing on the employment figs, private wage growth was 4.2% vs 6.6% for the public sector at a time when the Labour government is facing a major fiscal black hole and needs to raise taxes…it shouldn’t be this hard.
Will the bounce last?
AI and tech stocks led a recovery on Wall Street after last week’s wobble. Nvidia rallied almost 6% and Palantir jumped almost 9% while chipmakers notched gains across the board. The Nasdaq composite climbed over 2.2% and the S&P 500 rose more than 1.5%. Remember we do get down days in bull markets – progress is non-linear, and the roughly 4% corrective move last week was for many market commentators a healthy thing. The deterioration in some of the market internals and technicals however does need to be watched.
The (likely) reopening of the government could be a boon to liquidity at a seasonally auspicious time as we had seen some stress creeping into money markets, it can clear away some near-term overhangs about growth and GDP, and it means we can start to see some data to support a Fed rate cut. A vote is due on Wednesday to confirm what the market has now largely assumed. Nvidia earnings are coming down the pipe, too.
AI bubble: One of the big retail faves, CoreWeave, which rents out Nvidia GPUs to leading cloud businesses like Google and Microsoft, reported better-than-expected revenue growth in the third quarter but disappointing guidance for the coming quarter sent the shares lower after-hours. Revenues rose 134% from a year before but full-year 2025 guidance was short of consensus. It’s announced a slate of deals with the likes of OpenAI and Meta in the last couple of months, helping send shares up 164% since its IPO earlier this year, though they’re down almost 50% from their record high. Rigetti shares were down a modest 3% after missing Q3 earnings estimates. Nebius reports today.
Earnings generally are very strong as we enter the end of Q3 reporting season – with 90% of S&P 500 companies having reported, 82% have beaten EPS expectations. Aggregate year-over-year earnings growth is near 12%. Nvidia reports on November 19th, which is going to be a major risk event for the broad market – not just its almost 8% weighting in the index but as the bellwether for the entire AI trade that has powered stocks higher this year.
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