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Wall Street hits record highs

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

It’s Thanksgiving this week in the US and Wall Street is already in holiday mood. The three major US indices - the Dow Jones, S&P 500 and Nasdaq all hit record highs yesterday.

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Technology shares led the way following positive signs from Beijing on the ongoing US-China trade dispute. The Chinese government on Sunday released a document calling for more protection of intellectual-property rights which gave investors confidence that a “phase one” deal could be struck before 15 December, when new American tariffs on Chinese goods are due to begin.

Most of the gains on the technology-focused Nasdaq were in semiconductor companies who would benefit from an easing in the ongoing trade war. 

Looking beyond technology stocks, a new wave of merger activity also helped fuel the rally. LVMH, the world’s largest luxury goods company, announced it is buying US-based Tiffany & Co for more than $16 billion.

Controlled by Europe’s richest man Bernard Arnault, LVMH boasts a score of iconic, luxury brands such as Louis Vuitton, Moet & Chandon and Christian Dior. The deal, which is the largest ever in the luxury sector, will see LVMH buy Tiffany & Co for $135 per share in cash. 

With Tiffany shares trading at $80 a share as recently as August, the deal represents a major boost for Tiffany shareholders and gives LVMH the opportunity to grow its presence in the US and compete more heavily in the fast-growing jewellery sector. 

The merger shopping spree continued with the announcement that Charles Schwab, the US’s largest online brokerage will take over its biggest competitor TD Ameritrade in a $26 billion deal.

The new company would have combined assets of over $5 trillion and the deal came as a surprise to investors who were expecting its smaller rival ETrade to be more within its sights. This ambitious takeover will give scale to the combined company in the highly competitive US brokerage industry where margins are constantly under pressure.

It appears, at least for now, the US market is shrugging off fears of a recession which has led the Fed to cut interest rates in recent months. Cheaper borrowing in the US should provide a boost for retail as the holiday shopping season officially starts this Friday with Americans hitting the shopping malls over the Thanksgiving weekend, culminating with a host of online deals on Cyber Monday.

An estimated 165million people are expected to shop over the long weekend according to the National Retail Federation, with sales forecast to rise by around 4% in both November and December compared with last year. All eyes will be on the state of the US consumer as consumer spending is responsible for two thirds of US GDP.

This side of the Atlantic, it’s a completely different story with the uncertainty of an election in December and the outcome of the Brexit negotiations weighing on consumers’ minds. 

While Black Friday and Cyber Monday are much smaller affairs in the UK, this weekend will provide some signs on the willingness of British households to loosen their purse strings over the Christmas period.

According to the latest CBI Distributive Trends survey, retailers are cautiously optimistic. Anna Leach, the CBI’s deputy chief economist, said “Retailers are entering the festive season with a bit of hope that sales will head up, with the strongest expectations in half a year. Actual sales have also stabilised and have nudged above average for the time of year.”

The employers’ organisation expects the economy to continue to grow modestly in the event of a “smooth” transition to a new Brexit deal, with a no-deal Brexit likely to hit output and financial markets significantly.

Let’s hope some of the holiday cheer State-side will find its way to our struggling high streets.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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