Equity rally fizzles out

Chris Beauchamp IG

Heading into the close, the FTSE 100 is 60 points lower, although Wall Street is doing its best to move higher.

Bounce fails to put a dent in overarching pessimism
Trump trade fades away
Burberry soars, for now

US markets have opened in the green, while those in the UK and Europe have steadily recovered losses from earlier in the session. Such a bounceback was eminently predictable, especially since there have been no further developments in Trumpland. The rally is small, and in no way really changes the bearish picture that was created yesterday – once options expiry and the weekend is out of the way there is a high probability that the selling will resume. Longer-term, this is still a dip, and one that will be bought in due course, but there seems to be an awful lot more downside to come. The bottom line is that faith in the Trump rally has been shaken, if not yet quite destroyed, and it is
unlikely to return any time soon.

Burberry’s performance today comes in stark contrast to the broader market, but it certainly the icing on the cake after what has been a steady recovery from the April lows. Still, it is debatable how long the optimism will last; a buyback will help keep investors happy, but it serves only as a distraction from broader weakness in the business, especially with the brand itself. Burberry remains too expensive, and a reckoning may be on the way.

Author

Chris Beauchamp

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