Breadth widens

Fish and chips on a Friday used to be a family tradition, and this week the team have been in Scotland where the fish was rather fantastic! Hot chips of another sort caught our attention this week, too. Nvidia reported staggering earnings growth relative to last year once again. However, it was the tempered revenue growth and focus on overheating in its new Blackwell AI chips which raised eyebrows. It’s no surprise to us that a business that’s grown so quickly is likely to see a softening of growth and greater volatility in its share price.

There was a widening of market breadth following Nvidia’s announcement as their shares stalled. Seeing the rest of the market take up the slack was pleasing to note, especially for investors like us who had warned about the unhealthy concentration risk in the US market. It was pleasing to see stocks such as agriculture and machinery maker John Deere performed well despite the Magnificent 7 headwind, as investors responded to the fundamentals of a good earnings report for this stock.

Notable support to this week’s equity market moves were the bond markets. Government bond yields have fallen in the UK and US. The UK 10-Year Bond now sits at 4.37% at the time of writing, down from the 4.5% of the last few weeks. You may have thought the inflation data would have pushed yields higher. The UK inflation rate ticked up to 2.3% from 1.7% in September, with energy price pressures and rents were to blame. Private rents in the UK rose 8.7% in the last 12 months, according to new data from the Office for National Statistics. Interest costs and pressures on landlords are a significant driver. Interestingly, it is slowing economic growth expectations that are the major reason why yields have come down.

A lot of this can be aimed at the Eurozone, where business activity on Friday morning came in weaker than expected. Manufacturing in Europe is in a recession and services are starting to struggle. The HCOBs Eurozone composite euro zone Purchasing Managers’ Index fell to a 10-month low.

A region we talk little about but is likely to feature more in the future is India. Its structural growth drivers have made it very appealing, with none of the headwinds we see in the developed world or China. Yet this week India’s richest man Gautam Adani faces US fraud charges, which has wiped 20% off the value of shares in Adani Group. Evidence that even one of this year’s growth stories is prone to risk after a good run.

It’s very easy after a more positive environment to get caught up in negativity, yet cautiousness and optimism are very closely linked. We read with interest Martin Wolf’s piece in the FT on why Trump’s trade wars will cause chaos. He highlighted that it is likely there will be inflation pressures in the US on the back of tariffs, conflict between Trump and the Federal Reserve and loss of trust in the dollar. Most of these make sense, and it’s no surprise there is worry building around the long term prospects for the biggest market in the world. The threat of tariffs is most directly aimed at China, which may have to retaliate with the weaponisation of rare earth exports. It will be very interesting to see how this plays out.

This could, for the first time in many years, mean global equities outside of the US can outperform. There are many fantastic businesses in Asia and the emerging markets which are no doubt likely to be a similar size to some of the mega-caps in time. Is this the turning point?! Maybe not immediately, but Trump could upset the norm and there aren’t many consecutive decades where the same top 10 companies in the world remain unchanged.

Looking ahead

Next week we have the Federal Reserve providing the last Federal Open Market Committee (FOMC), and an indication of how hawkish some may remain.

We’ll also have The Eurozone inflation figures, which could tip the European Central Bank into cutting rates by 0.5% at the next meeting.

It was the hot chips that caught our attention this week…