Markets hit mid-year point, Nike slips on cost woes, water stocks fall again and Revolution Beauty continues its fight with Boohoo

“As we conclude the first half of 2023, investors are taking stock of markets and what might happen next. Essentially last year’s losers have become this year’s winners, with the US market bouncing back fast. The S&P 500 is on track to record a 15% first-half improvement thanks to a handful of tech stocks which account for most of the gains,” says Russ Mould, Investment Director at AJ Bell.

“In contrast, the UK has not been able to keep its crown following last year’s decent showing. In the first six months of 2023, it’s done zilch for investors’ portfolios excluding dividends.

“One might think this is a confusing turn of events. After all, recession fears have been focussed on the US while the UK has proved to be more robust than previously thought. Yet if you exclude the handful of mega cap winners in the US, performance hasn’t been as good.

“One way of judging the situation is to look at an equal-weighted performance. An equal weighted S&P 500 tracker fund has returned 5% year-to-date, much less than the headline index but still a respectable outturn if you look at historical returns from equities.

“What happens in the second-half period? It might be like racing through mud – plenty will get to the end but the journey will be challenging. The prospect of higher interest rates for longer does not create the easiest environment for consumers and businesses. Expect further corporate cost-saving measures which could lead to job cuts and reduced consumer confidence, yet that could also benefit profit margins.

“As for corporate news, Nike last night reported better than forecast quarterly revenue but worse than expected earnings per share. Its share price fell 4.4% in after-hours trading after the company flagged higher input and logistics costs, more discounting to clear stock and unfavourable foreign exchange rates.

“In the UK, investors continue to flush water utility stocks down the drain for fear that the Thames Water debt crisis has exposed vulnerabilities in the sector. After weakness earlier in the week, Pennon, Severn Trent and United Utilities fell a further 1% or so.”

Boohoo/Revolution Beauty

“The slinging continues in the big pie fight between Boohoo and Revolution Beauty and this feels like a situation where both sides have a point.

“Revolution Beauty thinks Boohoo is trying to take de facto control of the business without having to make a bid, while Boohoo has some legitimate gripes about governance, even if this is an area where it does not exactly have an unblemished record itself.

“Revolution Beauty’s defence of the farcical scenes at its AGM, where Boohoo successfully ousted senior management only for them to be immediately reappointed, is that it would otherwise have prevented the lifting of a suspension of its shares trading on AIM and this seems fairly logical.

“Less convincing is the company’s case for awarding those directors generous share options. Keeping a company solvent and ensuring its shares can be traded, the stated reason for these awards, seem like a bare minimum and not something which should be met with a handsome reward. It’s also not a great look that the share options were not put to an investor vote as would normally be the case.

“With the relationship looking pretty much broken at this point, Boohoo may have to decide if it likes the brand and business enough – and cosmetics is a category which has historically been resilient in an economic downturn – to make a bid or to cut its losses and sell its holding now trading has resumed on AIM.”

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