US stocks move higher, Tesla in demand, shift in FTSE leaders and better than expected Christmas for Primark

“Investors increasingly believe we are going to get a soft landing in the US and that might explain why the Nasdaq and S&P 500 had such a good start to the week, rising 2% and 1.2% respectively,” says Russ Mould, Investment Director at AJ Bell.

“Risk appetite is returning, with Tesla jumping nearly 8% as investors took advantage of recent price weakness to buy ahead of its fourth-quarter results on Wednesday.

“Many people believe its recent decision to slash vehicle prices will drive up sales volumes and keep Tesla at the forefront of the electric vehicle space, whereas analysts worry that it will hurt profit margins and lead to a reduction in earnings forecasts.

“The change in the market mood might explain why the pound didn’t fall dramatically on a big overshoot in UK public sector borrowing, which hit £27.4 billion in December 2022 versus £10.7 billion in the same month a year earlier. The figure has jumped principally because of a large rise in energy support scheme spending and an increase in debt interest.

“The latest insight into the minds of purchasing managers will be watched later today when the S&P Global PMI figures are released for the US. The services sector is expected to show a small improvement, which could add to the positive sentiment in the market.

“However, the mood could easily change as the week progresses given how we’ve got many market giants updating on their quarterly earnings. Disappointment on profits, margins and outlook commentary could easily upset the market and cause equities to reverse.

“Microsoft and Johnson & Johnson will report later today and give insight into both business and consumer demand, followed by Visa and MasterCard on Thursday, and then important names including McDonald’s, Pfizer, UPS, Caterpillar, Meta, Apple and Amazon next week.

“The FTSE 100 slipped back 0.5% to 7,745, dragged down by weakness in miners, oil companies and pharmaceutical groups, all names that have done well at various points in the past year, suggesting that investors might be rejigging their portfolios.

“The top FTSE 100 risers included airlines and housebuilders, two sectors which had previously been beaten up. Investors with a higher appetite for risk might be looking at the shift in the market mood and are more willing to consider stocks with the potential to rebound.”

Associated British Foods / Primark

“Retail and food ingredients business Associated British Foods may not have produced any upgrades in its latest trading update but the mood around the company is one of optimism.

“Talk of resilient consumer demand and inflationary pressures settling is telling and its Primark retail chain had a good Christmas.

“Its reliance on physical stores meant the pandemic was a big issue for Primark and a festive period without restrictions clearly helped get shoppers through the doors. It was notable to see this part of the business perform ahead of expectations.

“The fact this has not resulted in a change in guidance reflects continuing pressures on margins across all parts of the group which may have proved a bit of a disappointment to investors.

“Having avoided any meaningful web-based presence for so long, Primark is stepping up its click and collect trials.

“There’s logic to this approach as it allows Primark to benefit from impulse purchases as customers are still visiting the stores and avoids incurring big costs around delivery and returns of what tend to be very cheaply priced products.

“The budget proposition at Primark could help it secure new customers as cost-of-living pressures bite – particularly in areas like children’s clothes where parents make frequent purchases and the longevity of what they buy might be less of a consideration.

“The company itself certainly scents an opportunity as it continues to roll-out its store estate, encouraged by the fact newly opened stores are performing well.”

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