Wall Street joy extends to UK on Monday, more positive outlook for UK economy, Storm Isha doesn’t hold back insurance or retail shares and Sorrell’s S4 stops the rot as it sticks with guidance

“A strong session last Friday for Wall Street saw the S&P 500 hit a new record high and that positivity extended to Europe at the start of the new trading week. The FTSE 100 nudged ahead 0.4% to 7,491, led by the financial sector,” says Russ Mould, Investment Director at AJ Bell.

“Entain topped the FTSE 100 risers as investors piled back into the gambling sector after Flutter’s well-received update last week. Entain is the target of activist investors who have spotted an opportunity to drive change in the business after two years of share price weakness. It is also seen as a takeover target given the business has been sidetracked by numerous issues and is currently run by a caretaker CEO, making it vulnerable should a predator strike.

“A bullish report from EY ITEM Club on the outlook for the UK added to positive market sentiment. It has revised its economic growth forecast from 0.7% to 0.9% for 2024 and believes inflation will fall to the Bank of England’s 2% target by May and lead to 125 basis points of rate cuts this year. That is music to the ears of the market as it would imply a positive environment for UK shares, an easing of financial pressures on consumers and businesses, and also potentially see more people shift out of cash and back into equities.

“EY also sees an improving outlook for consumer spending, but there might be a few headwinds for consumer-facing companies in the near-term given current weather patterns. After a stormy weekend and more bad weather on the horizon, one might be surprised to see shares in home insurers Admiral and Direct Line move higher. Fierce storms in January raise the risk of a spike in claims as customers seek to fix any damage to their home.

“High winds straight off the back of freezing cold weather also continues the trend for a difficult retail trading environment in January. These are not favourable conditions for shopkeepers as they deter people from going out to the high street or retail park, putting pressure on earnings.

“Those companies with an online presence will be hoping for a boost in web sales to compensate for any weakness in physical shops. Retailers will certainly be hoping the weather improves in February and they can make up for any weakness at the start of the year.

“Despite EY’s bullish outlook, there is no doubt that corporates have found life hard going of late. Begbies Traynor’s latest red flag report found a sharp increase in the number of companies in critical financial distress. The construction and real estate sectors are looking particularly vulnerable.

“Many are struggling with high levels of debt so any reduction in the Bank of England’s base rate could bring significant relief to the UK businesses, but the key challenge is surviving in the interim.”

S4 Capital

“After a series of warnings in 2023, S4 Capital has started 2024 with an in-line trading update and this has proved just the salve for a beaten-up share price. Martin Sorrell started S4 with grand ambitions to rival the empire building he pursued at his former charge WPP, before an acrimonious departure in 2018, but this time with a digital bias which would mean it wasn’t stuck with the legacy analogue interests.

“Despite strong early backing from the market it hasn’t worked out quite as planned. The backdrop has not helped – a period of considerable uncertainty doing nothing for companies’ appetite to allocate funds to advertising.

“S4’s performance to date will have merely confirmed the biases of investors who are suspicious of firms which grow rapidly through acquisition. Deals are notoriously difficult to get right and throwing together a collection of businesses is fraught with risk as their cultures may not be in sync.

“Still, given his experience, it is worth listening to Sorrell on the outlook for the wider market. While there is nothing to get too excited about, he is displaying some cautious optimism that a shift in the trajectory on interest rates will translate into higher advertising spend.”

These articles are for information purposes only and are not a personal recommendation or advice.