Markets slip ahead of rate decision, Pets at Home enjoys bumper trading and activist investor pushes for THG change

“This week’s US central bank decision on interest rates is incredibly important to the future direction of stock markets. Investors have been feeling quite relaxed of late, with a risk-on mentality when it comes to bidding up equities. Increasingly a lot of people have become confident that US rates are close to their peak in this part of the cycle, hence a strong run for many markets since late 2022,” says Russ Mould, Investment Director at AJ Bell.

“But what if they’re wrong? A sense of nervousness has been creeping into the markets in recent sessions, evident by another bad showing on Wall Street last night. That’s extended to Asian and European stocks on Tuesday, causing a wobble among the main indices.

“With many stocks delivering large gains in the past few months, it’s understandable that some people want to take their money off the table. Locking in profits now means they are not gambling on what the Fed does next.

“If the central bank says rates are going to keep going up for some time, then we could easily see a sea of red on the markets. But if the Fed acknowledges inflation is cooling and notes signs of demand weakness linked to the economy, then the market might take that to mean the scale and pace of rate hikes could become more muted.

“Economically sensitive stocks were among the main fallers on the FTSE 100 on Tuesday, including packaging companies, housebuilders and banks. Sentiment is likely to have been soured by the International Monetary Fund’s latest World Economic Outlook report which flagged ‘subpar’ economic growth in 2023.

“After a spate of executive changes among large cap companies, it’s worth noting a similar trend in the small cap space. Legal firm RBG had some choice words to say about its management change.

“There were none of the usual pleasantries when a CEO departs, such as thanking them for their service. Instead, RBG was crystal clear in saying it had lost confidence in Nicola Foulston and that she had been sacked as chief executive due to ‘cultural concerns and the execution of the group’s strategy’. Given the profession and the fact Foulston owns 12.48% of the business, one might expect the drama to continue. Expect more fireworks in the coming weeks and months if Foulston decides to fight her case.”

Pets at Home

“We weren’t just treating ourselves over Christmas it seems – our furry friends also benefited from surprisingly resilient spending judging by the latest update from specialist retailer Pets at Home.

“The company was boosted by a big increase in the UK’s pet population during lockdown and unlike other pandemic fads this involved a long-term commitment on the part of owners.

“Pets at Home benefited from this trend in three main ways. First through people buying food, treats, bedding and toys for their animals; second as people look to keep their furry friends clean and tidy at its in-store grooming salons; and third by providing veterinary services.

“The valuation of the business previously got ahead of itself, leaving the shares vulnerable to cost of living concerns. However, this is a nation of animal lovers and while some of the little extras people splashed out on for their pets might fall by the wayside after Christmas, spending on the essentials is likely to hold up. This is bolstered by the company’s growing footprint in the vet market and by smart use of loyalty schemes.

“The strong trading shows Lyssa McGowan is doing a good job of stepping into some big shoes to fill in the form of her predecessor Peter Pritchard who led a successful turnaround of the business.

“She still needs to navigate inflationary pressures and stay ahead of the game when it comes to fighting off competition from non-specialists like the supermarkets, but she’s undoubtedly off to a good start.”

The Hut Group

“THG has become the latest company to attract an activist investor. Relatively new outfit Kelso has picked up a 0.4% stake in the e-commerce specialist, saying it is undervalued and offering to help unlock that hidden value.

“THG chief executive Matthew Moulding doesn’t seem the type to welcome interference in his business, but other shareholders may welcome a new party putting pressure on the board to make changes.”

These articles are for information purposes only and are not a personal recommendation or advice.