Traders still not entirely convinced on near-term US rate cut, big-name stocks trade without right to next dividend and relief as JD Sports avoids athleisure slump

“The Fed might have given its strongest signal yet that it is ready to start cutting interest rates, but the market isn’t going all-in with its bet on monetary policy,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Traders are still only pricing in a 67.5% probability of a US rate cut at the Fed’s next meeting on 18 September. One could argue that is quite low given weak jobs data strengthens the argument to cut now. In theory, this narrative warrants a much higher percentage probability for a cut in the cost of borrowing.

“It was only a few weeks ago that the market panicked about a potential recession in the US amid suggestions that the Fed had acted too late in cutting rates. However, these fears seemed to have evaporated given how equity markets have quickly recovered most of the territory lost earlier in the summer. Investors have regained their optimism and perhaps they now don’t want to see a rate cut as it would confirm a gloomier backdrop.

“As it stands, the release of the Fed’s latest meeting minutes has only had a mildly positive effect on the markets. Wall Street had a fair session last night, but nothing out of the ordinary. That trend extended to Europe and Asia on Thursday with only marginal gains across most of the major indices.

“On the UK market, consumer-facing stocks got a boost from JD Sports’ reassuring trading update. United Utilities was helped by a broker upgrade, while Legal & General, Imperial Brands, Schroders and Mondi were all weak as they traded without the rights to their next dividend.”

JD Sports

“There was a sense of nervousness in the air in the run-up to JD Sports’ update. Cracks have appeared in the athleisure market this year and several big names in the industry have found life harder, including Nike and Lululemon.

“Consumers realised they either don’t need or they cannot afford the latest trainers and tracksuits. Fashions also evolved. However, there was a glimmer of hope when Adidas upgraded its earnings guidance in July, implying that the sector might still be match fit.

“JD Sports’ latest trading update will be a big relief to investors. It is still growing sales and there was only a small dip in margins, which might surprise given how many retailers have resorted to discounting to shift goods.

“The recent acquisition of Hibbett means JD is increasingly reliant on the US for sales. JD will be hoping the country avoids recession, otherwise the acquisition could look ill-timed. It would be embarrassing if sales fall short of expectations after spending $1 billion on the deal.”

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