UK stocks up on GDP figures, Aston Martin’s largest shareholder increases stake and Nike demonstrates pricing power

Markets/ GDP Figures

“While the UK economy bounced back from the pandemic at a faster rate than previously expected, it is important to remember these figures are backwards looking. The market is more interested about what might happen next,” says Russ Mould, Investment Director at AJ Bell.

“The economy is expected to be sluggish going into 2024, particularly if inflation remains sticky and interest rates stay higher for longer. However, markets have been worried about a recession so positive revisions to GDP estimates, even small ones, give hope that we could avoid the economy going into a big downturn.

“This shift in sentiment provided support to UK stocks, with retailers, engineers and housebuilders among the sectors in demand. The key question is how long this positive momentum can last.

“While the Bank of England might have finished its rate-rise cycle, it feels too early to be talking about a rate cut, particularly if the economy is showing signs of resilience. And without confidence over a rate cut, many stocks might end up trading sideways.”

Aston Martin

“When an investor already owning more than 20% of a business increases their stake, it sends a major signal to the market that something big could happen.

“It could mean one of three things: either they intend to make a takeover bid at some point in the future, trading is going very well so they believe the company will soon be worth a lot more, or the shares are stuck in the mud and they see an opportunity to buy more of them while the market isn’t interested.

“The Yew Tree Consortium increasing its stake from 22.96% to 26.23% is a bold move given the share price has more than doubled over the past 12 months. While they’ve drifted back a bit over the summer, you cannot say they’ve been in the doldrums.

“The statement from Yew Tree Consortium representative (and Aston Martin’s executive chairman) Lawrence Stroll implies the stake building has been driven by confidence in the business, declaring a major turnaround since its first investment three years ago. In essence, the turnaround efforts have helped to lower the risks around the investment case, although it is far from being a risk-free investment.

“Aston Martin is loss-making and has substantial debts that need paying off. Strong trading has helped to bring down debt and narrow losses, but the company is still some way from being in top gear.”

Nike

“Nike shares took a big step forward in after-hours trading as it demonstrated pricing power in its first quarter earnings report – hiking prices to offset waning demand and cost pressures.

“The company has endured a troubled time coming out of the pandemic thanks to supply chain issues, rising costs, weaker consumer demand and problems in the key growth market of China. But guidance suggesting the company will see a quarterly improvement in margins in the second quarter, breaking six consecutive quarters of declines, hints at a significant turning point for the business.

“The progress in clearing excess inventory is another major positive and helps allay fears the company would have to sell a lot of unwanted stock at a discount as it heads into the crucial holiday trading season.

“Nike is the dominant party in an effective duopoly made up of itself and Adidas, which bestrides the trainer and sports apparel space, but that doesn’t mean it is free of competition in certain areas.

“In important markets like performance footwear for running it has fallen a bit behind, so efforts to reinvigorate its running shoe offering make sense.

“Refreshing the Jordan brand is also a solid strategic move given evidence of some waning appetite for what is one of its big growth areas and money makers.”

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