Market Update – 4th August 2021.

With most major economic updates still to come, global equity market gains have largely been driven by company results so far this week.

We are entering the later part of what has been a positive earnings season, with 360 of the scheduled 498 S&P 500 companies having reported quarterly results. In aggregate, company sales have beaten analyst estimates by 4.38%, with positive surprises from all but the utilities sector. From an earnings perspective, all sectors have so far beaten estimates and by a greater degree than sales, with an aggregate beat of 17.30%.

In the UK, this week we have had positive updates from larger companies HSBC, BP, Legal and General and Standard Chartered.  Investors have been attracted to the UK lately as its economic rebound is expected to be the fastest among the G7 this year, this has been particularly evident in the FTSE 250 which has reached an all-time high this week.  The FTSE 250 has a more domestic bias, as it generates approximately 50% of its revenue from the UK, versus approximately 30% for the FTSE 100, although it has also been boosted by a recent spate of takeovers, the most recent of which was Meggitt announced on Monday. Consequently, the FTSE 250 now stands at an above average premium versus the larger company index, and we believe the FTSE 100 continues to offer compelling value exposure to the global economic recovery.

In terms of economic data, the main release so far this week has been the US ISM Manufacturing Index. From a headline perspective, it showed continued expansion in July coming in at 59.5, albeit at a slightly softer pace than the June reading of 60.6.  The small drop in the headline was driven by production and new orders, however, a rebound in the employment component suggests that some of the manufacturing labour shortages could be easing.  Encouragingly, the report also suggested that supply constraints, while still severe, are also beginning to ease. However, a small rise in the backlog of orders and a fall in customer inventories suggests that it may be some time before production can catch up with the surge in demand caused by the reopening of the global economy.

Still to come this week, we have an update on monetary policy from the Bank of England on Thursday and more insight to the state US labour market on Friday with the release of non-farm payrolls, the unemployment rate; the participation rate; and average earnings.

Peter Quayle, Fund Manager

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