The Cambridge Weekly- 2nd February

The deal has been labelled as the largest deal either side has ever made and is expected to reduce tariffs on c.95% of all EU exports to India, creating a tariff reduction of c.€4bn. Key sectors such as machinery, textiles, cars and alcohol will all benefit from the deal. Notably, more sensitive sectors such as agriculture were not included in any element of the deal.

US Equity Market:
Earning season for the big technology companies kicked off emphatically last week as both Meta and Apple reporting record quarterly revenues. Despite also reporting strong quarterly revenues, Microsoft saw its shares fell almost 10% last Thursday, equivalent to roughly $360bn dollars of market capitalisation. Investors sold off the stock in response to the revealed surge in spending on data centres by Microsoft over the quarter, a reflection of investors lingering concerns around the profitability of AI-related investments.  Unlike other big tech names, Tesla reported its first ever annual drop in revenue. However, the negative revenue report did not deter investors, as share prices rose following the announcement.

Major US stock indices broadly responded positively to earnings reports enabling them to recover all of the previous week’s losses that were driven by the uncertain Greenland situation. Last Wednesday, the S&P 500 index broke the 7,000 mark for the first time, though some of these gains were given back by close as the index dropped below the record mark. Over the week to Friday, the S&P 500 rose by 0.35% and the Nasdaq fell by 0.19%.

A notable trend in US markets this year has been the relative outperformance of the Russel 2000 index, a broader American stock index consisting of 2000 smaller cap stocks, relative to the large-cap S&P 500 index. The Russel 2000 has risen nearly 10% since the turn of the year, relative to a more modest 1.8% rise observed in the S&P 500. The strong performance reflects investors continued confidence in the US economy, illustrating that this extends beyond the high-flying tech stocks.

UK Equity Market:
In contrast to major US indices, the FTSE 100 tumbled 0.8% last Wednesday morning. The index was weighed down by declines in the bank and health care sectors as investors rotated into US stocks ahead of the Federal Reserve’s interest rate decision. However, by Thursday the index had recouped most of its losses after investors digested the overnight US company earnings reports, and the Federal Reserve’s decision to hold rates steady. The index closed the week to Friday up 0.79%.

Provisional data released recently illustrated encouraging news for UK business activity. The S&P Global UK Composite Purchasing Mangers’ Index rose to 53.9 over the month as services, technology and financial services sectors all contributed positively. The reading exceeded expectations and was up from the 51.4 reading in December, reflecting the improved consumer sentiment following the Autumn Budget, and the broader reduction in economic uncertainty.

The dollar further weakened last week and now trades at around 1.37 against sterling, the highest exchange rate observed between the two currencies in four years.

Inflation, Interest Rates and Bond Markets:
Last Wednesday, in the US the Federal Open Market Committee elected to hold the headline interest rate steady at 3.5% to 3.75%. This decision, which followed three consecutive rate cuts in late-2025, triggered minimal reaction in markets as it was widely anticipated. The Bank of Canada also followed suit, holding rates steady at 2.25%.

In corporate bond markets, credit spreads for both US and UK investment grade credit tightened to on or near historical lows last week. The consistent trend of credit spread tightening over the last few years reflects the confidence investors continue to hold in corporate issuers. As a reminder, credit spreads reflect the additional yield an investor receives on a corporate bond over and above a sovereign bond of similar maturity. This additional yield compensates an investor for the additional credit risk associated with the corporate issuer.

What’s on the horizon
Markets will continue to digest last week’s earnings results from Microsoft, Meta and Tesla, with a particular focus on how investors respond to Microsoft’s slowing cloud growth outlook. Corporate earnings season continues this week as fellow technology mega caps Amazon and Alphabet both report earnings.

This will be another big week for macroeconomic data releases. The US is due to release its latest labour market data, offering insight into the health of the job market in the world’s largest economy. Investors will look for signs of stabilisation following Federal Reserve Chair Jerome Powell’s positive comments regarding improved unemployment trends.

The Cambridge Team

enquiries@cambridgeinvestments.co.uk

Your contact details are securely held within our database either because you have subscribed to The Cambridge Weekly Market Update or your Financial Planner has requested that we send it directly to you. It’s very important to us that any information we send you is relevant and useful.

If anybody wants to be added or removed from the distribution list, please email
enquiries@cambridgeinvestments.co.uk

This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.

Past performance is not a guide to future performance.

The value of your investments can go down as well as up and you may get back less than you originally invested.

Source of financial market data: MorningstarDirect.