Markets down on prospect of higher rates for longer, Next and JD Sports coping well in a difficult environment

“Many investors had hoped the Federal Reserve pausing interest rate hikes would be good for markets. Alas, that hasn’t worked out, with equities weaker after the US central bank paused for breath. The prospect of interest rates staying higher for longer has become the new topic of worry,” says Russ Mould, Investment Director at AJ Bell.

“The idea that the Fed’s next move will be big interest cuts can be thrown out the window – this seems unfathomable unless we get a sharp economic downturn, and that won’t be good for anyone.

“Wall Street was firmly in the red last night and markets in Asia and Europe followed suit on Thursday. A rate hike from the Bank of England expected later today is unlikely to change the market’s grumpy mood.”

JD Sports

“It’s a tough place for consumer-facing companies given the uncertain macro backdrop. Consumer confidence remains fragile even though there are signs of a slowdown in the rate of inflation.

“Selling trainers and tracksuits can be big business and many people aspire to own the latest products. That said, these items aren’t cheap and so just because someone wants something doesn’t mean they can always afford it. JD Sports is aware of this situation and rightfully doesn’t assume its goods will continue to fly off the shelf at pace.

“While it is good practice to be cautious, JD Sports’ results still show a business in good health. Sales, profits and dividends are all up, it is investing in the business to support geographic growth, and it is finding new ways to keep customers happy and on its side.

“That includes a loyalty scheme trial in the UK for 10 stores in Manchester which involves customers collecting a virtual JD currency that can be used towards future purchases. These initiatives can be easy wins for retailers.”

Next

“If you have an idea of the challenges on the horizon, it’s possible to put your business in the right shape to survive. That seems to be Next’s approach, as it has benefited from focusing on key cogs in the business to navigate the difficult market environment.

“Broadening its product offering, making sure the online service is as efficient as possible and keeping a sharp eye on costs have all been key focal points and Next has come out on top. These factors and steady demand from customers have enabled it to raise profit expectations.

“There is nothing snazzy about its products, they are merely functional, which gives Next an element of defensiveness when times are hard.

“There are certain items which people continue to need in good and bad times and offering good quality products via a pleasant shopping experience – tidy stores or an easy-to-use website with swift delivery – means Next remains at forefront of people’s minds when they are thinking about where to shop.”

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