Markets up ahead of potential ECB rate cut, Nvidia joins the $3 trillion club, Lululemon trips up and Fevertree on track as it gains market share

“Nvidia’s valuation topping $3 trillion, a storming run for the Nasdaq index in the US last night, and the prospect of interest rate cuts in Europe today have all combined to put investors in a good mood,” says Russ Mould, Investment Director at AJ Bell.

“The ECB is expected to follow the likes of Canada, Sweden and Switzerland by cutting rates later today, bringing the long-awaited pivot in monetary policy and signalling the start of a new era.

“After a long period of rock-bottom rates, the subsequent period shocked markets to the core as interest rates soared amid high levels of inflation. We’re now beginning the next phase in the cycle where inflationary pressures ease and central banks move to a new playbook to help prop up a flagging economy and make life easier for consumers and businesses who have had to stomach sky-high borrowing costs.

“The Bank of England and Federal Reserve might give the impression they aren’t swayed by what the ECB and other countries do, but the greater the number of central banks cutting, the more pressure they will be under to do the same.

“The fact Nvidia is now worth more than Apple is striking. Go back a few years ago and a lot of people will have never even heard of the company. Its ascent is remarkable, particularly as it is now considered to be more valuable than one of the most lauded electronic device makers in the world, and the supplier of laptops and phones in millions of people’s homes and pockets.

“There is a feeling that as long as Nvidia’s share price is rising, investors are happy and everything is fine on the markets. Don’t get caught out next Monday when Nvidia’s share price tanks – that’s simply the result of an imminent stock split. It’s a technical event designed to make the company’s share price more affordable, particularly to investors who can’t afford to spend more than a grand for a single share. The market value of the business won’t change, just its share price.

“European indices were all in positive territory as trading got underway on Thursday, including a 0.2% rise in the FTSE 100 to 8,261. Copper miner Antofagasta led the charge after completing a deal to improve the water supply at a copper project in Chile. Mining is a risky industry and anything a company can do to lower the risks is a positive for investors. Ensuring a smooth supply of water is important, particularly when a mine is in a remote or difficult to access location.”

Lululemon

“Dr Martens has been haunted by stock challenges in the US in recent years and now it’s the turn of Lululemon to follow suit. The purveyor of pricey leggings hasn’t stocked enough of the sizes customers want, which has held the company back. It’s not the same issue as Dr Martens where it shipped too much stock too fast, but it does show the challenges these big brands face in trying to work out exactly what needs to be on the shelf.

“Lululemon’s growth has slowed in the Americas and this would normally be a key worry for the market, given the importance of the region to group earnings. However, its shares are nearly 10% ahead in pre-market trading as quarterly earnings beat expectations and it pulled a new $1 billion share buyback out of the hat. That will keep some investors happy, but as Dr Martens has shown, fail to get it right with the basics of retailing and the problems will come back to haunt you.

“Lululemon’s management might also want to pay closer attention to what people are wearing on the street. You’re increasingly seeing baggier clothes, meaning the halcyon days of the skinny jeans and leggings might finally be over.”

Fevertree Drinks

“With its posh mixers going down well with spirits drinkers who didn’t want to ruin their favourite tipple with a substandard accompaniment, Fevertree enjoyed an enviable start to life as a public company.

“However, in recent years the company has lost some of its fizz as it has looked, with mixed success, to expand the product in markets like the US and into different drinks categories. Its latest trading update goes some way to reassure that the business is back on track ahead of its key summer trading period. Importantly, the company seems to be gaining market share versus rivals, which include the larger consumer goods names seeking to ape Fevertree’s premium offering.

“Some of Fevertree’s problems reflect the growing pains experienced by any rapidly expanding company as it has struggled to get manufacturing and distribution up to the levels required. The pandemic meant restaurant and hotel sales took a hit. More recently, the consumer environment hasn’t helped.

“A longer-term concern for the business may be the shift in attitudes among Gen Z who are less likely to indulge in regular or heavy drinking.”

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