Investors stay positive despite whirlwind fortnight for major events, ITV knocked for six, Sainsbury’s still searching for perfect recipe, BT struggles and Rolls-Royce faces supply chain issues

“Investors have endured a whirlwind couple of weeks and there is still much to digest before portfolios can be reconfigured with confidence,” says Russ Mould, Investment Director at AJ Bell.

“From Rachel Reeves’ first Budget, drama involving the US election and now interest rate decisions from both the Bank of England and Federal Reserve – it’s a lot to take in over such a short period.

“For now, markets seem content with the news, and investors have ploughed ahead. After losing strength yesterday, European equity indices bounced back, along with a rebound in Chinese stocks.

“Wall Street enjoyed a stellar session yesterday amid Donald Trump’s election victory, with the Dow Jones up 3.6%, the Nasdaq up nearly 3% and the S&P 500 rising by 2.5%. Futures prices suggest it will be a much quieter day today on the US markets, albeit still with some gains. Investors might simply be taking stock of events and waiting to see the scale of a rate cut from the Fed. The consensus is a quarter percentage point reduction to 4.75%.

“A busy day for UK corporate news proved to be a testing period for the FTSE 100 as opposing forces fought to push and pull the index up and down. A rally in miners and utility companies won the day, taking the FTSE 100 0.2% higher to 8,181. However, mixed news flow among mid and large caps did give investors something to ponder while they ate their cornflakes.

“Auto Trader was the biggest faller on the FTSE 100 after a disappointing update. Motorists continue to be reluctant to splash the cash on new cars, leaving parts of the automotive retail sector stuck in the slow lane.

“On the FTSE 250, John Wood’s shares crashed more than 40% to a new all-time low after a disastrous trading update and the launch of an independent review into contracts.

“ITV was hit by lower revenue from its Studios business and hesitant corporates holding back from placing advertising bookings until they’d seen the details of the Budget. That news prompted a big sell-off in its share price, extending a poor run for the stock since late September. ITV’s response was to look deeper into the business for cost savings.”

Sainsbury's

“There are small signs of progress in Sainsbury’s non-food operations after a troublesome first quarter, yet the company is still walking on a tightrope rather than sprinting on the field.

“While Argos, general merchandise and clothing all had a terrible start to Sainsbury’s financial year, the tide is slowly turning. Argos is still the odd one out with negative sales, but the rate of decline has slowed considerably from the previous quarter.

“Propping up Argos was a good old fashioned clear out of old stock by slashing prices to shift products. That’s essentially cleared the decks ahead of Christmas but Sainsbury’s has taken a hit on profit margins in doing so.

“Sainsbury’s now needs to focus on a big push for the festive season, ensuring its supermarkets are the place where shoppers order their Christmas turkey and bubbly, and Argos is where they pick up toys for the children. It’s a highly competitive market but Sainsbury’s is in a much stronger position to compete than five or 10 years ago.

“Initiatives such as fighting Aldi on price in its convenience stores is a bold move, but one that could pay off and help change the public’s perception of how much products cost at Sainsbury’s. In the big stores, Sainsbury’s is successfully capturing extra business at both the value and premium end.

“It can take a long time to perfect a recipe, changing measurements or ingredients along the way. Sainsbury’s is still hard at work in the kitchen getting things right, but the progress so far is encouraging.”

BT

“BT may have kept its profit and cash flow guidance intact but a cut to projected full-year revenue alongside its first-half results is enough to spook the market. This seems fair given the lacklustre and uneven performance delivered by the telecom giant in recent years.

“The company continues its fibre rollout through its Openreach division at pace – with this substantial investment expected to provide an eventual boost to cash flow. However, there is competition and a slowdown in housebuilding is also affecting this part of the business.

“The company’s retail arm faces several competitive threats which are putting pricing on newer contracts under pressure and the company is seeing challenging conditions for its corporate business.

“Chief executive Allison Kirkby faces a difficult task in simplifying and streamlining BT, which with its expensive foray into sports rights in the mid-2010s overextended itself, but she has at least made progress in getting costs and spending under control.

“It’s these factors which have allowed the company to avoid downgrades on profit and cash flow and manage an increase, albeit modest, in the dividend, although the market won’t love the higher level of debt reported.

“All the while Indian billionaire Sunil Mittal Bharti’s 25% stake in the company through his investment vehicle looms over the business.”

Rolls-Royce

“Rolls-Royce may have stuck with its guidance but the market appears to be concerned nonetheless about the impact on the business of a ‘challenging’ supply chain environment.

“Tough-talking CEO Tufan Erginbilgiç’s transformation of the business has already been recognised by the market and that has left very little margin for error, so it’s not a surprise to see the shares take a modest step back today.

“A key metric for the business is engine flying hours as this feeds through to the lucrative spares and repairs revenue streams the company derives from its large installed base of engines, so there will be relief to see these tracking ahead of pre-pandemic levels.

“Assuming the supply chain issues referenced by the company don’t get any worse, today’s modest sell-off may be chalked up as nothing more than mild turbulence rather than anything more concerning.”

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