Investors shaken by another big drop in the US stock market, Nvidia sees near-10% one-day decline, Barratt Developments profits slump

“A near-10% one-day decline in Nvidia’s shares and a 3.3% drop in the Nasdaq index illustrate the fragility of the market. It goes to show that everything was not back to normal after markets quickly rebounded from their summer wobble, even thought it might have looked fine on the surface,” says Russ Mould, Investment Director at AJ Bell.

“Investors panicked over the summer about a potential US recession, causing markets to go through a rocky period which was compounded by the unwinding of the Yen carry trade where certain investors had borrowed in the low-interest Japanese currency to invest in higher-yielding assets elsewhere, including US tech shares.

“Markets pulled back and we saw a 13% sell-off in the Nasdaq index between late July and early August. Economic data was starting to suggest that interest rates might have to be cut for ‘bad’ reasons such as a weaker labour market and lacklustre consumer and business confidence, rather than cut for ‘good’ reasons like a reduction in the rate of inflation.

“It didn’t take long for investors to change their view and be more optimistic about the prospect of a soft, rather than hard, economic landing for the US. In hindsight, that was a false dawn.

“The latest US manufacturing figures weren’t as good as expected, acting like a gust of wind to topple the house of cards and once again put markets into reverse amid fears about the strength of the economy.

“While it’s always alarming to see share prices flash red, it’s perfectly normal to see further market pullbacks after you get the type of wobble seen over the summer.

“Compounding the latest market sell-off were reports the US Justice Department sent subpoenas to Nvidia and other companies as it steps up antitrust investigations into AI chips.

“Mega cap tech companies have been in the sights of regulators and competition authorities for some time amid fears that the top league of players has become too dominant. Investors have been alert to the threat of big fines and, while certain related events have caused ripples in the market, they haven’t caused any long-lasting troubles so far.

“The latest market sell-off means investors will have a laser-sharp focus on labour market figures scheduled for release on Friday as these could play a key role in the Federal Reserve’s decision-making on interest rates.

“The cost of borrowing is expected to be cut by the US central bank later this month – the key question is by how much. Traders currently see a greater probability of a quarter percentage point cut than a half percentage point reduction.

“There is a feeling that if the Fed cuts by 50 basis points, then it might send a worrying signal to the market that all is not well. In contrast, a smaller cut would show it has started the journey to ease monetary policy but is taking a steady approach rather than a cannonball jump.”

Barratt Developments

“Despite all the talk that the UK property market has shown resilience in the face of high borrowing costs, the backdrop has not created a rich environment for Barratt Developments to prosper.

“A slump in annual profits is the result of lower home completions, weaker average selling prices and reduced margins.

“It’s a waiting game for Barratt’s shareholders. They can see the benefits of a new government with pro-housing policies. Furthermore, the recent acquisition of Redrow should help the enlarged housebuilding group to tackle cost pressures head on, as it will have greater buying power for materials and operational cost synergies as the two groups come together.

“However, interest rates are still relatively high and the Bank of England isn’t expected to slash rates dramatically over the rest of the year, meaning mortgage affordability remains a challenge for many.

“Barratt really needs Number 10 to get its skates on and push through planning reforms so it can get more creative in where to build new homes. Until that happens, and until interest rates come down further, the business doesn’t have a lot of levers to pull to dramatically improve earnings.”

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