Add value to my day

I have a good friend who, when I occasionally met him at the end of the day and sat down with him, would open with the comment, “Add value to my day,” in a strong South African accent. Well, today I would have struggled. Starmer seems to have survived his premiership, possibly as the party cannot agree on who best to replace him with. Bonds and banks sold off on Monday when he appeared to be at his most vulnerable, but sterling pretty much held its ground, indicating that the currency traders felt confident he would survive, at least in the short term.

With the US earnings season concluding, the rotation from value to growth has continued, suggesting optimism about economic growth in the coming months. John Authers makes some useful points about the broadening of the market performance. Since the end of 2022, the largest 10 companies in the S&P 500 have accounted for about two-thirds of the index’s overall EPS growth. This season, growth has extended beyond the mega-cap tech companies. This season was a strong one for earnings, with year-over-year growth at 14.5%, well above the 8.5% predicted. The number of sectors with positive growth rose again to 8 out of 11, up from 6 in Q3. So there is some logic to the broadening of sector performance.

Alphabet issued new debt this week, some of it in sterling and some of it maturing in 100 years’ time, to help finance its ongoing AI investment. The 100-year sterling tranche raised 1 billion pounds, carries a 6.125% interest rate, and attracted strong demand. It was also notable that the Alphabet bonds have no meaningful restrictive covenants. As one analyst pointed out, “While this may be a low-risk issuer, this is bad market precedent since other ‘tech giants’ do have covenants.” 100-year debt has been issued by countries such as Mexico and Argentina, but Alphabet is not the first corporate entity to issue 100-year bonds; Walt Disney (1993), Coca-Cola, IBM, and Ford Motor Co, having done so at some point in the past.

With earnings season coming to a conclusion, the next couple of days will focus back on the macro data. There is a hatful of stuff coming out from the US in the next couple of days, and quite a bit of data on the current state of the UK economy. Some of which may influence the Bank of England to cut rates in March.