US small caps see strong weekly gains

In the US there were a number of policy announcements from Trump that swayed moves. Amongst those was an executive order restricting stock buybacks and dividends, as well as curbing executive pay for defence companies unless they speed up weapons production. This prompted defence stocks to decline on Wednesday, however the following session they bounced back after Trump called for an increase in the military budget to $1.5tn. It was a similar story for homebuilders, whereby there was pressure from news that the administration was moving to ban institutional purchases of single-family homes. Then later in the week it was announced that a $200bn mortgage bond-buying scheme would be launched in a bid to lower mortgage rates.

For the week both the S&P 500 and Dow Jones Industrial Average ended at record highs, rising 1.6% and 2.3% respectively. The tech-heavy Nasdaq Composite added 1.9% but still remains below its October high. Small caps were the best performers of the week, with the Russell 2000 jumping 4.6%. Another focal point of the week was the December jobs report which proved mixed. While the unemployment rate fell to 4.4% from 4.5% a month earlier, the US added a lower-than-expected 50,000 jobs. Shorter-dated US Treasury yields gained, whilst longer-dated yields saw a slight decrease for the week.

European equities also had a positive week overall, although it did see two losing sessions. The STOXX 600 gained 2.3% and ended at a record high and regional indices also logged rises. Defence stocks outperformed, surging nearly 10%, in response to Trump’s push for higher defence spending as well as geopolitics. Technology stocks also saw strong performance, helped by positive earnings from TSMC, plus a stock price upgrade for ASML. Other points of interest included news that Rio Tinto was in early talks to by Glencore, helping to push up the latter’s stock. There was also support from economic data, with headline eurozone inflation cooling in line with the European Central Bank’s 2% target, while industrial production in Germany pointed to strengthening growth.

Equity performance in Japan was also strong, with the Nikkei 225 up 3.2%. Stocks found support from a weaker yen as well as a rally in tech companies. China’s stock markets also benefitted from tech gains, particularly those tied to artificial intelligence trades. On the economic data front, the consumer price index increased in December, however the producer price inflation once again remained in deflationary territory. This reinforced expectations for more stimulus in a bid to shore up soft demand.

The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.