FTSE 100 flat despite US gains, Marks & Spencer is on a roll and ITV hit by advertising downturn

“The FTSE 100 may have recovered from the lows seen in late October, as investors react positively to the latest decisions and noises from central banks, but it is stopping short of a full-blown rally for now,” says AJ Bell Investment Director Russ Mould.

“The index is flat, despite more gains in the US overnight, and the debate continues to oscillate between higher rates for longer and the prospect of rate cuts in 2024. Evidence of the continuing lukewarm Covid recovery in China is also not helping sentiment with Asian markets weak.

“Where the market lands on this and what clues they are given by the likes of Federal Reserve chair Jerome Powell and his counterparts at the European Central Bank and Bank of England could dictate whether we have a Santa rally or a festive sell-off before the end of the year.

“Both Powell and Bank of England Governor Andrew Bailey are set to address separate events later today and their words may well be parsed closely.”

Marks & Spencer

“Marks & Spencer has been on a roll over the past year as its food and clothing resonate with the public. It’s no wonder the company’s share price has been soaring, up 160% since October 2022.

“The decision to cut prices on certain food lines has proved wise, making its products appeal to a broader customer type. Clothing has long been the problem child in the business and it now seems to have found the right formula and not have half its shop floor collecting dust with unfashionable items or 75 versions of the same product.

“You only have to walk into one of its stores to see there is a buzz among customers. People are finding plenty of things they want to buy and the tills are ringing.

“Profit growth over the past half-year has been impressive which along with a stronger balance sheet has led to shareholders being promised their first interim dividend in four years.

“Marks & Spencer positions itself as a retailer that provides good value for money. Clothing products and food items are good quality and that status tends to be remembered by shoppers. They want their cash to go a long way and Marks & Spencer has reclaimed its place as one of the first places shoppers go when wanting more products.

“Admittedly the turnaround story has been playing out for a very long time and is far from over. In chief executive Stuart Machin’s own words, ‘lots done, lots to do, lots of opportunity’.

“The joint venture with Ocado is not firing on all cylinders. Machin also indicates that more can be done to make a better return on investment with the digital channel on a group basis. However, most businesses will find their quest for improvement is never complete so it is hard to criticise Marks & Spencer on this front given its achievements elsewhere.”

ITV

“Shares in free-to-air broadcaster are now approaching lows last seen during the initial market sell-off which accompanied the Covid-19 pandemic, as evidence of just how tough the advertising market is continues to feed through.

“Scaling back marketing is often a go-to strategy when businesses are confronted with tough economic times. The company’s linear TV looks a particular victim as the format is less appealing to advertisers and the amounts of eyeballs watching ‘live’ continues to decline.

“ITV has been trying to reduce its reliance on traditional operations by expanding its digital presence, including through the launch of its ITVX platform, and investing in its ITV Studios production arm.

“Advertising revenue in the digital part of the business is holding up better – reflecting an audience which is more engaged and quantifiable – and the Studios arm is also performing well. However, these are not sufficient to make up for the poor performance of old-fashioned TV.

“The decision to trim spending on content makes some sense if the company has less money coming through the door but any short-term benefit could be clouded by a long-term hit to audience numbers if ITV is not producing as many shows which people want to watch.

“Cost cuts can take the business so far but they can also damage the product and the brand – a similar conundrum faces Daily Mirror and Daily Express publisher Reach, which announced further job cuts today.”

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