Market Update 24th February 2025

A results recap

I strongly feel that reading company results is the best way to get an insight into the goings on of the market. The ONS, IFS, BRC and other TLAs (three letter acronyms) have good insight, but there’s no replacement for hearing what’s going on directly from the horse’s mouth.

Which is a slightly ironic introduction to an article that gives recollections and interpretations of the goings on from the last fortnight or so. But anyway, let’s get straight to it – what has been going on?

Results have been generally positive – but there has been the odd disappointment and cautionary comment. Increased uncertainty around global trade has been a particular cause of the latter. In the UK, perhaps the most notable example was Diageo, which removed its forward guidance citing a lack of visibility. In the US we’ve seen the likes of Walmart bemoan the potential impact of tariffs too.

However, these concerns centre on the future. Both businesses actually delivered reasonable final quarter numbers. They weren’t alone. The most recent summary from FactSet shows a significant majority of large businesses in the US have now released results, with 76% of these ahead of consensus. The average year on year growth in earnings has been 16.9%.

In the UK, most of the banks that have reported have released pretty robust numbers. This is important as they are a helpful barometer for the health of the wider economy. Don’t just take my word for it, IFRS 9 says so. This post-financial crisis change means banks need to take provisions as they arise, and use ‘expected credit losses’, or ECLs. In a sector not known for its transparency, the logic, and naming methodology, is refreshingly simple. Banks now need to account for losses when they are expected, rather than wait until they are inevitable. This gives the results much more of a real time feel.

Lloyds and NatWest, which have a significantly greater domestic focus than the other major UK-listed banks, reported lower than expected ECLs. Standard Chartered and HSBC, the two Asian-focused entities, both delivered better than expected profits, and the former in particular spoke about stimulus in China in an incrementally upbeat way.  So, quite apart from the excess returns the sector is churning off as a result of strong capital generation and well-capitalised balance sheets, there are encouraging signs.

There was also some better commentary around the Asian market from the luxury goods groups. The mining giants were also keen to emphasise China’s prospects. Clearly, they are all talking their own books to a degree, but we also noted more positivity from others around the geography, not least JPMorgan. This is particularly notable, as JPM has a good track record of making macro calls, and with the US its main exposure, one can’t say it has a vested interest in talking up China’s recovery.

I should point out at this stage that banks have a nasty habit of falling over either themselves or the wider macro. The mining groups and luxury goods outfits also require careful consideration, and the investment case for any business is more complex than just thinking about the implications of the most recent trading update.

Another theme that the banks and miners have been part of is a distancing from ESG commitments. Rio Tito said its spend on decarbonisation is likely to be at the lower end of its previous guidance range, and HSBC pushed some of its net zero commitments back 20 years. The change in President is likely a contributing factor, although it should be said that some were rowing back before Trump’s victory. Since then, we’ve seen the likes of Meta and Amazon further wind back initiatives around Diversity, Equality and Inclusion (DEI). That’s enough TLAs for today.

The lack of clarity on several macro issues (the stubbornness of inflation, the pace of rate cuts, and various conflict-related geopolitical hot potatoes to name just three others in addition to the tariff issues) makes it harder for companies looking to plan effectively for the future. It also raises the possibility of the positive sentiment that has surrounded equity markets in the last couple of years dissipating. However, we remain optimistic that there are many businesses out there well-placed to thrive in a range of conditions. As I have spoken about before, I believe that these businesses are the real gems in the market.

George Salmon – Senior Research Analyst

Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority (www.fca.org.uk) with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The editorial content is the personal opinion of George Salmon. Other opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. Currency exchange rates may affect the value of investments. FPC25293