Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 7 November - Tech sentiment sours, momentum stocks shellacked, AI is taking jobs, Income Tax to rise
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
For more Budget coverage check our first podcast episode with BlondeMoney's Helen Thomas
Key Points
- Tech leads equity market selloff; Palantir -7%, Nvidia extends slide
- ITV jumps as it looks to sell media business to Sky
- Challenger jobs report shows largest number of October layoffs since 2003
- FTSE 100 flat for the week as Rightmove, IAG tumble on trading updates
- Budget submission strongly points towards income tax hike
Stock markets fell as the mood soured on the AI bubble. The Nasdaq fell almost 2% yesterday as tech led the declines amid ongoing nervousness about AI valuations. Palantir fell almost 7%, now about 15% off its recent peak, while Nvidia slid over 3.5% following those comments by CEO Jensen Huang about China winning the AI race. A report showing 22-year high for layoffs last month left small caps similarly in the red. The S&P 500 declined more than 1% and the VIX is pushing the 20 handle.
The FTSE 100 dipped about 0.2% in early trade on Friday, on course for a second day of losses but flat for the week. Rightmove plunged 15% as it outlined plans to invest more in AI. IAG tumbled 8% as it missed on revenues and earnings in its Q3 update. European indices fell back after an initial rally at the open.
Tech selling has really hit the momentum names – headline after headline noting stocks plunging on earnings, whether they beat or not. A couple of the retail/momentum/speculative examples: Archer Aviation –7% despite better-than-expected Q3 loss, Opendoor Technologies –10% on earnings miss. Two GS baskets of stocks for “non-profitable tech” and “high-beta momentum long” have seen volatility spike to levels not seen since May. Check also with POET, IREN, Oklo, Cipher Mining, CoreWeave, Rigetti, Plug Power, Bloom Energy...you know the names. Roundhill’s recently relaunched MEME ETF is down 24% in the last month. Bitcoin, a good proxy for risk sentiment, is down 18% from its recent peak. Tesla fell 3.5% yesterday amid the broad tech selloff shares rose over 1.5% after-hours as shareholders approved CEO Elon Musk’s $1tn pay deal. Investors assume they need Musk at the helm whatever the price.
The US government shutdown is now the longest in history. The lack of data is starting to get a little annoying. But Challenger was out with its job cuts report so everyone is looking at that instead. It reported the highest level of October job cuts in 22 years, citing AI as a reason for the layoffs. Challenger notes that like 2003 a disruptive technology is changing the landscape (back then it was the mobile phone). Year-to-date layoffs are up 44% on last year. That seems to have revived bets on a December rate cut after markets pulled their necks in following Jay Powell’s hawkish comments at the last Fed meeting.
But as discussed previously, the drying up in labour supply means that the overall picture for the economy is different to what this data might have foretold in the past in terms of nonfarm payrolls growth and the so-called breakeven rate – the number of jobs needing to be created each month to keep the labour market balanced. The breakeven rate for employment is drastically lower than it used to be because immigration has slowed and reversed. According to the Dallas Fed, from a peak of roughly 250,000 in mid-2023, it has collapsed to approximately 30,000. It means much more modest payroll gains do not signal weakness but are consistent with a balanced labour market. Or as the St Louis Fed put it: “If the economy only needs to add 50,000 jobs per month to keep unemployment stable, then monthly gains of 75,000 or 100,000 represent meaningful positive news.” When the government reopens we might get a look.
Despite not cutting rates, the Bank of England yesterday was quite dovish overall. The 5/4 split could not have been closer and generally you felt there was a more pronounced easing bias. The statement removed the reference to gradual and careful easing, instead just explicitly stating that so long as there is further progress on disinflation they will continue to cut rates. The BoE also seems pretty confident that inflation has peaked so we should expect more cuts – I stick to my view that ultimately they will go deeper than market expectations currently suggest. Sterling rallied though as the bounce of the $1.30 round number support extended and the lack of an immediate cut saw some short covering.
ITV shares jumped 17% after the broadcaster confirmed it is in talks to sell its media and entertainment business to Sky. It comes just a day after it warned of a sharp slowdown in ad revenues this quarter due to economic uncertainty around the Budget. Faced with the onslaught of US streaming giants, a consolidation has been a long time coming. Chatter about bids for all or parts of the business have done the rounds forever. Sky was bought by Comcast in 2018 – we might see a similarly protracted takeover and the regulator might raise eyebrows at Sky building such a dominance in the UK TV ad market. But needs must.
Finally, on the Budget, the Chancellor’s submission to the Office for Budget Responsibility strongly hints at a rise in income tax. A 2p rise in IT would be partially offset by a 2p cut in National Insurance Contributions, with the design leaving high earners clobbered. As expected and as set out a couple of weeks back, this will be one of the most consequential budgets in living memory. No one has raised the main rate of income tax in 50 years - Labour is pinning its hopes on market credibility, sure finances, and ending endless chatter about needing to come back for more money. It hopes this means the economy and public services are noticeably better three years from now. But electorates have long memories when it comes to going back on a manifesto pledge.
The FTSE 100 dipped about 0.2% in early trade on Friday, on course for a second day of losses but flat for the week. Rightmove plunged 15% as it outlined plans to invest more in AI. IAG tumbled 8% as it missed on revenues and earnings in its Q3 update. European indices fell back after an initial rally at the open.
Tech selling has really hit the momentum names – headline after headline noting stocks plunging on earnings, whether they beat or not. A couple of the retail/momentum/speculative examples: Archer Aviation –7% despite better-than-expected Q3 loss, Opendoor Technologies –10% on earnings miss. Two GS baskets of stocks for “non-profitable tech” and “high-beta momentum long” have seen volatility spike to levels not seen since May. Check also with POET, IREN, Oklo, Cipher Mining, CoreWeave, Rigetti, Plug Power, Bloom Energy...you know the names. Roundhill’s recently relaunched MEME ETF is down 24% in the last month. Bitcoin, a good proxy for risk sentiment, is down 18% from its recent peak. Tesla fell 3.5% yesterday amid the broad tech selloff shares rose over 1.5% after-hours as shareholders approved CEO Elon Musk’s $1tn pay deal. Investors assume they need Musk at the helm whatever the price.
The US government shutdown is now the longest in history. The lack of data is starting to get a little annoying. But Challenger was out with its job cuts report so everyone is looking at that instead. It reported the highest level of October job cuts in 22 years, citing AI as a reason for the layoffs. Challenger notes that like 2003 a disruptive technology is changing the landscape (back then it was the mobile phone). Year-to-date layoffs are up 44% on last year. That seems to have revived bets on a December rate cut after markets pulled their necks in following Jay Powell’s hawkish comments at the last Fed meeting.
But as discussed previously, the drying up in labour supply means that the overall picture for the economy is different to what this data might have foretold in the past in terms of nonfarm payrolls growth and the so-called breakeven rate – the number of jobs needing to be created each month to keep the labour market balanced. The breakeven rate for employment is drastically lower than it used to be because immigration has slowed and reversed. According to the Dallas Fed, from a peak of roughly 250,000 in mid-2023, it has collapsed to approximately 30,000. It means much more modest payroll gains do not signal weakness but are consistent with a balanced labour market. Or as the St Louis Fed put it: “If the economy only needs to add 50,000 jobs per month to keep unemployment stable, then monthly gains of 75,000 or 100,000 represent meaningful positive news.” When the government reopens we might get a look.
Despite not cutting rates, the Bank of England yesterday was quite dovish overall. The 5/4 split could not have been closer and generally you felt there was a more pronounced easing bias. The statement removed the reference to gradual and careful easing, instead just explicitly stating that so long as there is further progress on disinflation they will continue to cut rates. The BoE also seems pretty confident that inflation has peaked so we should expect more cuts – I stick to my view that ultimately they will go deeper than market expectations currently suggest. Sterling rallied though as the bounce of the $1.30 round number support extended and the lack of an immediate cut saw some short covering.
ITV shares jumped 17% after the broadcaster confirmed it is in talks to sell its media and entertainment business to Sky. It comes just a day after it warned of a sharp slowdown in ad revenues this quarter due to economic uncertainty around the Budget. Faced with the onslaught of US streaming giants, a consolidation has been a long time coming. Chatter about bids for all or parts of the business have done the rounds forever. Sky was bought by Comcast in 2018 – we might see a similarly protracted takeover and the regulator might raise eyebrows at Sky building such a dominance in the UK TV ad market. But needs must.
Finally, on the Budget, the Chancellor’s submission to the Office for Budget Responsibility strongly hints at a rise in income tax. A 2p rise in IT would be partially offset by a 2p cut in National Insurance Contributions, with the design leaving high earners clobbered. As expected and as set out a couple of weeks back, this will be one of the most consequential budgets in living memory. No one has raised the main rate of income tax in 50 years - Labour is pinning its hopes on market credibility, sure finances, and ending endless chatter about needing to come back for more money. It hopes this means the economy and public services are noticeably better three years from now. But electorates have long memories when it comes to going back on a manifesto pledge.
For more Budget coverage check our first podcast episode with BlondeMoney's Helen Thomas
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