Stocks mixed, as the FTSE lags. The TPP weekend update

London’s stock markets closed on a mixed note on Friday but eked out a weekly gain of 0.26%.

UK house prices rose for the fifth consecutive month in November, hitting a record average of £298,083, according to lender Halifax. Monthly prices increased by 1.3%, accelerating from October’s 0.4% rise. This was similar to data from Nationwide which reported a monthly increase of 1.2% on Monday.

Annually, prices climbed 4.8%, marking the strongest growth since late 2022, underscoring resilient demand despite broader economic uncertainties. “Latest figures continue to show improving levels of demand for mortgages, as an easing in mortgage rates boost buyer confidence,” said Amanda Bryden, head of mortgages at Halifax.

On Tuesday figures released showed that retail sales in the United Kingdom dropped 3.4% on a like-for-like basis in November 2024, reversing four consecutive months of growth and falling short of market expectations for a 0.7% increase. Helen Dickinson, Chief Executive of the British Retail Consortium, attributed the decline to a combination of factors, including a later-than-usual Black Friday and weak consumer confidence, which led to reduced foot traffic.

Storm Bert’s disruptions toward the end of the month further exacerbated the situation, particularly in northern cities. Every retail category experienced a decline, with shopping centres seeing the sharpest drop due to a significant fall in footfall. Geographically, Wales saw the largest downturn in retail turnover at 7.1%, followed by Scotland at 6.8%, England at 4.2%, and Northern Ireland at 2.8%.

Europe

The STOXX Europe 600 Index ended 2.00% higher, as jitters about political instability in France abated. Markets also appeared to anticipate faster policy easing by the European Central Bank. Major stock indexes rose as well. Germany’s DAX climbed 3.86%, Italy’s FTSE MIB 4.00%, and France’s CAC 40 Index was up 2.65%.

In France, Prime Minister Michel Barnier’s minority government collapsed after Parliament backed a no-confidence motion tabled by the National Rally and left-wing New Popular Front to stymy the proposed deficit-reducing budget for 2025. In the aftermath, the yield spread between German 10-year bunds and French 10-year OATS, a measure of political and financial risk in the eurozone, widened at one point to 90 basis points, the most since 2012. The gap then narrowed to below 80 bps when President Emmanuel Macron said he would appoint a new prime minister in the “coming days” and meet with political leaders from the left and right to form a new “government of general interest.”

Key macroeconomic data in Europe continued to point to a slowing economy in the fourth quarter of the year. Eurozone retail trade volumes declined in October by 0.5% sequentially, after increasing 0.5% in September, mainly due to drops in sales of non-food products and auto fuel. In Germany, manufacturing continued to struggle. Industrial output fell by 1.0% month over month, falling short of expectations for a 1.2% rebound. Factory orders weakened 1.5% on the month, with demand for machinery and equipment declining the most.

U.S.

Major stock indexes ended mixed in a week that saw the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite all continue to hit record highs, while the Russell 2000 Index declined after back-to-back weeks of outperformance versus its larger-cap peers. As measured by Russell 1000 indexes, growth shares outperformed value stocks by 553 basis points (5.53 percentage points), the largest margin since the week ended March 17, 2023.

Sector performance was also widely dispersed as consumer discretionary, communication services, and information technology shares all gained over 3% for the week, while energy, utilities, and materials stocks—typically more value-oriented segments of the market—all fell over 3%. Geopolitical headlines through the first half of the week were largely dominated by French and South Korean politics (see below), though these seemed to have limited impact on U.S. markets.

The week brought several closely watched economic reports, particularly related to labour market data, with much of the focus on Friday’s nonfarm payroll report. The Labor Department reported that the U.S. added a seasonally adjusted 227,000 jobs in November, which was slightly higher than consensus estimates. The November number represented a sharp rebound from October’s disappointing data amid the fallout from hurricanes in the southeast U.S. and a major strike at Boeing. The report also noted that unemployment in November increased a tick to 4.2%. Major stock indexes opened higher on Friday as investors appeared to celebrate the final major labour market update ahead of the Fed’s December meeting.

Speaking Monday, Federal Reserve Governor Christopher Waller noted that despite some recent data indicating that progress on inflation may be stalling, he is leaning toward supporting a cut to the policy rate at the Fed’s December meeting, absent any surprising incoming economic data.

Meanwhile, on Wednesday, Fed Chair Jerome Powell took a more neutral tone, stating, “The U.S. economy is in very good shape, and there’s no reason for that not to continue…. So the good news is that we can afford to be a little more cautious as we try to find neutral.” The week’s economic data releases, along with Governor Waller’s comments, helped boost expectations priced into futures markets for a 25-basis-point (0.25 percentage point) rate cut in December.

Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.3% and the broader TOPIX Index up 1.7%. The weakness of the yen supported the profit outlooks for Japan’s export-heavy industries. The yen depreciated to around the middle of the JPY 150 range against the USD, from the high 149 range at the end of the previous week. In fixed income, the yield on the 10-year Japanese government bond traded in a narrow range, closing the week broadly flat at 1.06%, as uncertainty about the Bank of Japan’s (BoJ) rate hike plans persisted.

On the economic data front, average nominal wages grew 2.6% year on year in October, matching consensus and up from a revised 2.5% in September. Real (inflation-adjusted) wage growth was flat, following a revised 0.4% contraction. Meanwhile, household spending fell 1.3% year on year, shrinking for the third straight month.

Chinese stocks rose on anticipation of fresh stimulus measures, along with resilient manufacturing data released the prior week. The Shanghai Composite Index gained 2.33%, while the blue chip CSI 300 was up 1.44%. In Hong Kong, the benchmark Hang Seng Index added 2.28%, according to FactSet.

Many analysts expect China’s leadership will announce further action to support the economy during the Central Economic Work Conference, an annual meeting in which top officials map out the economic agenda for the next year. Economic growth targets and plans for more stimulus are among the topics that investors will look for at the two-day meeting, which starts December 11. Expectations are high that China will roll out additional measures to ward off the growth risks posed by the incoming Trump administration’s trade policies.

The Week Ahead

Next week brings key updates on the macroeconomic front in the form of inflation figures from the US and UK gross domestic product data.

Wednesday’s consumer price index reading from across the Atlantic will come as markets weigh the chance of an interest rate cut by the Federal Reserve later in the month. Expectations are for a further increase in headline inflation to 2.7% through November, following October’s 2.6% rise.

“Without an upside inflation surprise,” anticipations will remain for a 25 basis point rate cut in the Fed’s November meeting, IG analysts commented.

Back in the UK, gross domestic product data for October will be the focus on Thursday, after the economy unexpectedly contracted by 0.1% in September. Forecasts are for growth of 0.2% over the month, reflecting a 1.6% uptick on an annual basis.

“We expect services activity to inch higher in October - but only just,” Deutsche Bank said, “and we see some modest gains in industrial production and construction output”.

Next week will also feature the European Central Bank’s latest interest rate call, alongside consumer confidence and RICS house price data from the UK.

Currys, Centrica, Ashtead, BAT, Moonpig, Tui and Zara-owner Inditex set the stage for a busy week of earnings ahead.

Ashtead, Moonpig and Centrica will feature on Tuesday following a quiet Monday, with the former's 'Trump bump' in focus.

Wednesday then brings updates from Inditex and British American Tobacco, after shares in both have surged recently, alongside Tui.

Currys' interims on Thursday will round up the week's big-name updates, with Adobe, Broadcom and Costco among those in focus across the Atlantic.

On our platform:

As per our strategy of the month, November was another impressive month for the trackers. Although I should also mention our active strategy American Alpha, and our Long or Flat strategy Ftse Tech Entry who both very much excelled.

This year has been a very good one for LONG only investors so far, as US equities in particular have hit new high after new high.

Sometimes when markets seem over bought, they continue to grind out results, and this is what has happened this year.

It has resulted in our leveraged trackers excelling, but it won't always be like this.

Years like this are few and far between, but it's why we would always suggest having a diversified portfolio. Like I said, sometimes stock markets they just go up when they already seem very high.

As a long term growth tool, our leveraged trackers are very hard to beat.

Our Long or Flat strategies are designed to take advantage of gyrating markets, where they buy low and sell high.

Finally, the active strategies are more aggressive, take on more risk, and witness more volatility as they'll initiate trades that other strategies wouldn't. In the main they've struggled v's our other strategies this year, as they've often looked to sell an over bought US market, but if they'd got this right, they would have looked like heroes.

Over the longer term we might expect these strategies to perform the best, but this year has been a rare poor year for them. We expect far better next year.

However, to reiterate diversification is key.

In our opinion, the foundations of a TPP portfolio should be built with our leveraged trackers and long or flats (most clients are using more long or flats at the moment), to provide the long term benchmark beating growth, with the active strategies providing a 'speculative edge' to ones portfolio.

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Here is to an excellent end to 2024.

Enjoy the rest of your weekend.

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