The Week Ahead (27 – 31 Oct): Interest Rates, UK House Prices, US Big Tech, Global Payment Networks, NXT, RWS

Most of the major indices have been flat this week, with UK Large & Midcaps being a bright spot as the FTSE100 & FTSE250 rose 2%:

UK Small and Midcaps remain the global laggards year-to-date, suggesting that renewed confidence in UK large caps has yet to trickle down to smaller companies.

It’s been a volatile couple of weeks for gold. Last week, I noted that it had risen strongly, making all-time highs. By mid-week this week, it had given back last week’s gains on dollar strength, testing the psychologically important $4,000/oz level. It ends the week somewhere in the middle and is likely to remain there unless it definitively breaks $4,400/oz on the upside or that $4,000/oz resistance on the downside:

Here's what we can look forward to next week:

Economic Calendar

Interest Rates

Next week, we have three key interest rate decisions: the US, the Euro Area, and Japan.

In the US, market expectations are for a further 25bps cut to 4.0% in October, despite the September inflation print showing mixed signals. The key factor appears to be evidence of labour market weakness:

[All charts in this section: Trading Economics]

In the Euro Area, the market expects no change to the current 2.15% until September next year, so this is unlikely to be a surprise. According to the ECB's meeting minutes from September, policymakers now view the risks to the inflation outlook as more balanced. This suggests less urgency for further rate cuts, as the disinflationary process is considered to be largely complete:

Given the decades of ZIRP (Zero-Interest-Rate-Policy) in Japan, it is interesting to see this major economy bucking global trends for declining interest rates in 2026. Market consensus is for these to rise from 0.5% to 1% by September 2026. However, this remains below the rates in other major economies. While inflation remains above the BoJ's 2% target, recent data has been mixed. Tokyo's core CPI for September was slightly lower than expected. However, there were some price pressures from volatile food and energy costs. This lack of a clear, persistent inflation signal means no change is expected next week:

UK House Prices

In the UK, house price data are the main figures being released next week. BoE Mortgage Approvals are considered a leading indicator for house prices, and here the September figures are expected to come in at around 65k, roughly flat on previous months:

These are expected to dip in the coming months, perhaps due to uncertainty over the upcoming budget impact, before recovering in early 2026. These levels should be broadly supportive of house prices. Reflecting these trends, the Nationwide HPI index is expected to dip going into the end of the year, before recovering to track roughly in line with wider inflation rates into 2026:

Companies Reporting

It's another week where US quarterly reporting will dominate results, and again, I have had to limit the list here to the companies most investors will have heard of. Without the same reporting cadence in the UK, things should be much quieter.

As usual, if any subscribers think I've missed some upcoming news or included a red herring, then feel free to correct this in the comments.

US Big Tech

Five of the Mag 7 will be reporting next week, and given their weighting in the US indices, results here have the ability to move broader market indices. The StockRanks rate all of these as high-quality companies:

However, none of these are cheap, and while their typical mid-teens EPS growth rates may put some struggling UK tech companies to shame, they all have PEG ratios over two:

This means that unless growth can accelerate for all of these in the future, beyond what analysts are currently forecasting, these look materially overvalued.

However, we can't discount that the management of these companies knows the stock market game well, and will have guided brokers conservatively with the intention of beating expectations. Each one of these companies has exceeded quarterly EPS for the last year:

Apple (NSQ:AAPL)

Amazon.com (NSQ:AMZN)

Alphabet (NSQ:GOOGL)

Meta Platforms (NSQ:META)

Microsoft (NSQ:MSFT)

I do question whether the scale of these beats justifies the current forward P/E for these companies. The market presumably now expects these companies to beat expectations, making for an interesting psychological game. If one of these companies misses this quarter, expect it to be severely punished.

It's not just quarterly EPS that has the power to move these mega caps, but the narrative, too. Between mid-2021 and the end of 2022, Meta Platforms (NSQ:META) lost 75% of its value as investors worried that its significant investments in the "metaverse" would never yield a return. When spending in this area was pared back, the stock more than 6-bagged over the following two years, and has gone on to even greater heights:

All of these companies are currently investing heavily in AI. This has the ability to either capture investors' imaginations or worry them that the high investment will never generate an economic return. Expect the narrative around this topic to move market prices as much as sales and EPS.

Global Payment Networks

Both sector giants Visa and Mastercard report Q3 earnings next week. Again, these are high-quality companies, but are not cheap:

PEG ratios of over two for both companies suggest that investors may be paying too much for the high returns on capital these businesses enjoy:

Again, these are companies that know the stock market game well and have a good track record of slightly beating expectations:

Visa (NYQ:V)

MasterCard (NYQ:MA)

However, unlike some of the "Mag 7", this hasn't led to any real upgrades in broker consensus:

Visa (NYQ:V)

MasterCard (NYQ:MA)

Which means the share prices have not really gone anywhere over the last year, despite a strong US market:

Visa (NYQ:V)

MasterCard (NYQ:MA)

The risk is that if the Momentum Ranks start to fall, these will go from being High Flyers to Falling Stars. It could be a long way down if these stars return to Earth.

UK Stocks

Next (LON:NXT)

UK retail darling reports on recent trading on Wedensday next week. The company continues to outperform the sluggish UK retail sector, and EPS has been continually upgraded over the last 18 months:

Most recently, in September, they reported their Half-Year Results to the end of July. These were very strong, given consumer confidence in the UK:

Despite this strength, share price gains have been modest over the last six months:

The shares are presumably starting to reflect that forward growth forecasts are lacklustre:

And this isn't particularly cheap:

2026 EPS estimates are similar to the level the company achieved in 2023, but the share price has more than doubled since then. I wouldn't bet against the company delivering over the long term. However, next week's Q3 results will need to continue showing management's exceptional ability to buck the trends in UK retail for this to maintain its premium rating.

RWS Holdings (LON:RWS)

My personal focus next week will be on RWS's Q3 Trading Statement. This once stock market darling has fallen on hard times. What was once a quality compounder, hold-forever type of stock is now a value "cigar butt":

The most interesting part (at least to me) is that the forecasted EPS has fallen far less than the share price, which has lost over 80% of its value from its peak. It demonstrates the importance of sentiment and the market's forward-looking nature.

The outlook here isn't helped by the TTM EPS being much lower than the forward figure…

… a penchant for aggressive adjustments, and a poor broker forecast trend:

The fear, of course, is that AI will render the need for professional translation obsolete. The focus in the upcoming trading statement is likely to be as much about how their efforts to be an AI winner, rather than a loser, are progressing. Personally, I believe that the productive benefits from AI are as likely to accrue to an adaptable existing player with strong customer relationships as to an unknown start-up. But I may be wrong about this.

Historically, RWS has been a highly cash-generative business, and despite these more recent technological concerns, the dividend record here is unenviable:

If brokers are correct and shareholders will receive a further small increase in dividend payout, then this looks far too cheap, given a yield of over 14%. Conversely, if there are signs that this payout is unsustainable in the future, expect the market to react badly, at least in the short term, as yield-driven investors exit.

[Disclosure: Mark owns shares in RWS Holdings (LON:RWS) ]