Stock Market Update: Taking stock of the recent market

The wider media interest in Nvidia’s second quarter results last week demonstrated just how important a few large technology companies have become to the US market.

The market reaction also demonstrated just how much is now expected of them.

In this case, Nvidia beat most expectations, reporting second quarter revenue of $30 billion, versus forecasts of $28.7 billion; announced a further $50 billion share buyback; and said it expected to generate $32.5 billion in the current quarter, $10 billion more than was forecast.

Yet this was clearly not enough for some, and the tech giant suffered a notable drop in its share price, with the company ending the week down over 8%.

While Nvidia’s recent volatility has been the most notable, a number of other large companies in the technology and communications sectors have struggled compared to the wider US market since the general slump at the start of August.

This is in contrast to recent history, where many of these same technology companies powered much of the growth in US equities, leading to value being increasingly concentrated in a small group of extremely large companies, such as the so called ‘Magnificent Seven’.

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Outside of this, however, US equities have generally performed well in recent weeks. Markets continued to react positively to Federal Reserve Chair Jerome Powell’s indication that interest rates would likely be cut soon.

The sense of momentum was reinforced late last week, as the core Personal Consumption Expenditures price index – a key inflation metric for the Federal Reserve – came in a touch lower than expected, at an annual rate of 2.6%, within sight of the Fed’s 2% target.

Meanwhile, prior fears of a recession faded further into the background, as the US Commerce Department revised up its second quarter GDP figures from 2.8% growth to 3%.

If this painted a reasonably robust picture of the US, there was more challenging news in Europe.

The German economic malaise continues, with Europe’s largest economy shrinking 0.1% in the second quarter. The country has struggled with a number of issues in recent years, including higher energy costs damaging manufacturing output. Figures released last week showed unemployment rose by less than expected, although it remains at 6.0%, and a fall in job openings recorded by the labour office suggest this struggle is far from over.

Regional elections over the weekend saw the far-right Alternative for Germany party make significant gains in the regions of Thuringia and Saxony, although they are unlikely to control either state without other parties agreeing to collaborate with them – something that has so far not happened.

France is also facing a political situation, as President Macron has so far rejected the candidacy of left-wing Lucie Castets from the role of Prime Minister. This has left the French political system in limbo, two months after a left-wing coalition won the most seats in the surprise snap election Macron called.

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This deadlock will have to move soon, as under French law, the Government must submit a draft 2025 budget to Parliament by the start of October.

With a general sense of economic malaise across much of the EU, Mark Dowding, Chief Investment Officer at BlueBay suggests the EU needs to spend big in areas such as defence and energy. However, he notes, “it is questionable whether EU leaders will want to cede increased authority to Brussels to spend, at a time when domestic priorities and national interests are dominating the debate. However, we still expect a material increase in spending in the months ahead, we just don’t know by how much – and the extent to which this may offset the need for lower interest rates in the Eurozone.”

Wealth Check

Saving for retirement might not be something you think about starting while you’re still reading bedtime stories and going to soft play centres. But opening a pension for your children can set them – and their own future family – up for financial wellbeing.

Setting up a pension for a young child means even small contributions have more time to grow. And given that we’re all living longer, planning now for future generations of your family can have a real positive impact. Financial advice can help you find the most tax-efficient way to help spread your wealth across generations of your family – and make sure that you’re not giving away more than you can afford.

A child can have a pension from birth – there’s no minimum age. Only a parent or guardian can set up a pension for a child, but once it’s up and running, anyone can contribute – parents, grandparents, godparents, friends or other family members. Whether you’re a member of the family or a friend, any contribution you make to the pension counts as a gift.

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Like an adult pension, eligible contributions receive a 20% boost from the government – even though your child is not yet a taxpayer. This tax relief from the government is something you won’t get from contributions into a Junior ISA, another tax-efficient saving tool for eligible children.

If you’re the child’s parent or guardian, you’ll look after their pension until they turn 18. At that point, control passes to them. But they won’t be able to access their pension until they reach the normal minimum pension age, which is rising to age 57 in 2028, and is expected to rise again after that.

Saving into a child’s pension is a rewarding way to spread your wealth among your children and grandchildren. It also helps mitigate an Inheritance Tax (IHT) liability by reducing the size of your estate. Payments may be covered by the annual £3,000 tax-free gifting allowance, or the exemption for regular payments if made out of surplus income.

Ben Stark is a chartered financial planner with over a decade of experience advising businesses and families. He is partnered with St. James's Place Wealth Management.