Nvidia joy fails to spur new market rally, stocks retreat ahead of Powell speech and Watches of Switzerland slumps on Rolex news

Aug 28, 2023

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“So much for Nvidia’s knock-out earnings triggering a new global stock market rally. The celebration was short-lived, with Wall Street ending Thursday on a sour note as the Nasdaq closed the day nearly 2% lower. The negative sentiment extended to Asia and parts of Europe on Friday, including a 2% decline in Japan’s Nikkei 225 index,” says AJ Bell Investment Director Russ Mould.

“There is a saying with investments that it can be better to travel than arrive, and one might conclude that Nvidia’s stellar share price run was susceptible to a bout of profit taking and that’s precisely what we got.

“Despite the good fortunes of Nvidia and positive news flow from the company, there is no getting over the fact that investors remain worried that interest rates will stay higher for longer and that casts a downer on the markets as a whole.

“It would take a brave person to load up on shares just before Federal Reserve chair Jerome Powell makes his speech later today at the Jackson Hole summit. Any comments to suggest the Fed is going to keep raising rates for some time could trigger another risk-off mood for investors.

“August has been generally miserable for markets and a hawkish Powell could easily knock share prices once again before the month is up.”

“Shares in Watches of Switzerland slumped 27% after Rolex bought one of its key rivals, Bucherer.

“Investors seem to fear the tie-up will mean Bucherer gets preferential treatment including better access to the watches that consumers are desperate to buy.

“Watches of Switzerland’s efforts to reassure the market that there will be no change in how Rolex allocates stock have fallen on deaf ears. This is what Rolex might have promised now, but that could easily change in the future.

“There has been a trend among various product manufacturers including the big trainer companies to sell direct to the consumer. In doing so, they learn more about customer preferences and make more margin as they can cut out the middleman for these direct sales.

“Imagine that happening with Rolex. Theoretically, it could use Bucherer as its channel to sell and not have to bother with other authorised dealers such as Watches of Switzerland.

“It’s worth noting that Watches of Switzerland has been a favourite stock among many mid-cap fund managers. They will have to look hard at the Bucherer announcement and decide if it radically changes the investment case.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.