FTSE higher as Fed dials back rate hikes, Shell posts record profit and Meta launches buyback after better-than-expected sales

“Investors got a bit of a reality check from the Federal Reserve again,” says AJ Bell Investment Director Russ Mould.

“The headline news was much as expected with the scale of the rate hike dialled back to 25 basis points. However, Fed chair Jerome Powell poured cold water on any potential pivot in the near term as he pointed to at least a couple more increases to come and no reduction in rates until 2024.

“Yet for the time being the market seems minded to concentrate on the positives, with Powell noting the ‘disinflationary process has started’.

“The FTSE 100 moved higher ahead of the Bank of England’s own decision on rates – arguably the policymakers in Threadneedle Street have less margin for error than their counterparts in Washington given the UK has a weaker economy and higher inflation.

“The gains enjoyed by index heavyweight Shell helped, supporting the FTSE 100 as it posted record profits.”

Shell

“Whatever the context this was a truly stunning set of numbers from Shell, way ahead of what forecasts had pencilled in and the highest profit in its entire history.

“When many others are enduring economic hardship the optics aren’t great, and they will do nothing to quieten demands for further windfall taxes to redistribute some of the bounty Shell has enjoyed this year thanks to the Ukraine-inspired disruption to global energy markets.

“Shareholders will be pretty pleased though, given news of a new multi-billion-dollar buyback. It feels somewhat telling that, for all the fine words about the energy transition, Shell has returned more to shareholders than it has spent on renewables this year.

“Also hurting Shell’s ESG credentials is news of a damages claim in the UK High Court from 11,000 Nigerians claiming oil spills resulting from Shell’s operations have contaminated drinking water, harmed air quality and destroyed farmland and fishing stocks. Separately, an activist group has alleged the company is inflating the figures around its spending on green energy.

“Shell needs to be careful, already oil and gas prices have retreated from their 2022 highs and if it pursues profit today at the expense of making the business sustainable for the future it may be judged harshly by the markets.

“Recently appointed CEO Wael Sawan benefits from decisions made by his predecessors to invest heavily in natural gas. Gas, typically less polluting than oil or coal, could be an important energy source as the world continues the gradual process of weaning itself off fossil fuels.”

Meta Platforms

“A less than generous interpretation of Meta’s latest quarterly results would be ‘sorry the numbers aren’t great, here’s a giant share buyback as compensation’.

“However, even judged on the figures themselves, Meta came out looking better than it went in. Yes, revenue declined, but sales were still better than downbeat expectations.

“The market response in after-hours trading reflected just how bombed out the share price has been as a combination of factors – including the departure of Sheryl Sandberg as chief operating officer, the company’s big bet on the metaverse and tightening regulatory pressures – has undermined its credibility with the market.

“Promising that 2023 will be a year of ‘efficiency’ was always likely to go down well with investors concerned about the largesse in spending directed towards the unproven potential of the metaverse.

“What was particularly significant is that the narrative around its social media platforms becoming increasingly irrelevant was countered successfully, as the volume of active users across the likes of Instagram, Whatsapp and Facebook grew materially to more than 3.7 billion.

“As long as Meta is still reaching that number of eyeballs it would be foolish to write the company off entirely.”

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