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“Last night’s rebound from the US market brought some relief after a weak start to the year for equities,” says Russ Mould, investment director at AJ Bell.
“The Nasdaq jumped 2.2% while the S&P 500 advanced 1.4% as Treasury yields fell and the Magnificent Seven mega-cap tech stocks pushed ahead, including Nvidia which jumped more than 6% on talk it was planning to launch a new line of AI chips. Apple jumped 2.4% on news it will start selling its Vision Pro mixed-reality headset in the US next month.
“European markets didn’t share the excitement as all of the major indices were either flat or down on Tuesday morning, suggesting investors are in a holding pattern until we get the next round of inflation and jobs figures which provide the all-important clues as to central bank interest rate decisions.
“The FTSE 100 didn’t budge at 7,694 as strength among healthcare and utilities stocks was offset by weakness in basic materials and financials.”
B&M
“Aldi and Lidl’s strong Christmas trading updates last week implied shoppers were turning to the discounters in their droves and B&M has come within a whisker of joining the celebrations.
“While its third quarter trading period was robust, including a decent showing from its Heron Foods arm, the pace of growth has slowed down from the rate reported at its half-year results.
“B&M is a general merchandise group and has its fingers in many pies, meaning it is a good bellwether for the retail sector. A slowdown in sales growth has become a common theme in the retail industry, particularly among fashion sellers. While disappointing that B&M has joined the club, it is not alone in suffering this fate.
“Investors can find reassurance that a 20p per share special dividend may not have been declared if management was feeling worried about the outlook. Yet the market reaction to the trading update understandably portrays a tone of disappointment on behalf of investors.
“The business continues to expand with new stores which creates more opportunities to reach a bigger customer base and the long-term opportunities remain rich. However, the best way to sum up B&M’s latest trading update is ‘fine but not fantastic’. It means the retailer will have to try harder to get the tills ringing faster in 2024.”
Hays
“Recruitment stocks are often a good harbinger for the wider economy as companies are keen to hire when they’re feeling confident and tend to freeze recruitment when times are more uncertain.
“In this sense a profit warning from Hays has wider significance. The speed of the deterioration in its outlook will be cause for particular concern.
“The company’s problems look particularly acute in the UK – but with fees as a whole down 10% for the quarter and down an alarming 15% for December, this is a global issue too.
“Hays is cutting its own cloth accordingly and as a cyclical business it is used to dealing with fluctuating fortunes.
“The company may have to batten down the hatches for some time, but it will hope a pivot in interest rates and a reduction in inflationary pressures will eventually lead to an improvement in business confidence and help drive a recovery in hiring activity.
“While this is out of the company’s control, levers it can pull include expanding its ‘enterprise client’ business which sees firms outsource their temporary and permanent white-collar recruitment to Hays. This could help increase the predictability of earnings.”
Games Workshop
“Fresh from formalising its agreement with Amazon to develop films and TV shows based on its IP, fantasy tabletop games outfit Games Workshop has announced a robust set of results which show its core business is in good shape.
“Games Workshop fans tend to be devotees and this conveys pricing power on the company and allows it to continue growing even against a tricky economic backdrop. Achieving record revenue, profit and dividends is certainly no mean feat. A drop in licensing revenue and the departure of long-serving chief financial officer Rachel Tongue represent the only real flies in the ointment with these numbers.
“It is the deep fandom behind Games Workshop which Amazon is looking to tap into. The company itself needs to be careful with the way its worlds are brought to the screen, for fear of any risk it might alienate its so-far loyal fanbase.”
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