Making sense of this crazy world
Tech earnings beat estimates
It was a big week for earnings in the technology space, and investors weren’t disappointed as Microsoft and Meta rallied on bullish earnings. This boosted sentiment around US equities, with the Nasdaq Composite rising by 1.61% in early trading. However, despite beating estimates, Amazon fell last night by 7% in after-hours trading on vague forward guidance.
Chinese stocks slumped after outputs from factory activity worsened unexpectedly. It appears as though exports are slowing but, worryingly, domestic demand is weak despite Chinese authorities’ attempts at stimulating the economy.
Today is the deadline for Trump’s tariff arrangements. This didn’t stop him from announcing a series of demands close to the witching hour, which included India and copper. He slapped 25% tariffs on India, antagonised by them buying energy and weapons from Russia. He also announced new tariffs on copper, which led to prices tumbling.
President Trump has certainly got it in for Canada. Yesterday, he waded in with yet another ear-bashing for the neighbours on the back of them supporting the UK and France’s stance of considering recognising Palestine as a State. “Wow!” Trump said on Truth Social, “Canada has just announced that it is backing statehood for Palestine. That will make it very hard for us to make a trade deal with them. Oh Canada!!!”
Meanwhile, the Federal Reserve (Fed) kept interest rates on hold for the fifth time in succession despite sniping from the Republicans and some dissenting voices from within the Fed itself.
Following last week’s comments about some markets reaching all-time highs, I lean into research which suggests this doesn’t mean everyone should take action.
This week’s content:
- Tech stocks beat earnings estimates
- Factory output in China weakens.
- A flurry of trade deals
- Dissenting voices in the Fed
- Interest rate forecasts
- All-time highs don’t mean you should do something!
- Drivers of growth
- Summary
Tech stocks beat earnings estimates
For the second quarter, tech earnings were strong this week, although not all tech stocks rose on the back of the good news.
Microsoft became the second company to exceed a $4 trillion market capitalisation this week (along with Nvidia) as its shares rose in early trading by 9%. Meta’s stock also impressed with an 11% surge due to both companies posting stellar earnings. An article in ft.com highlighted that the worth of these two companies combined is about twice the entire value of the FTSE 100!
In the article, Dec Mullarkey, Managing Director at fund manager SLC Management, said “mega-cap tech is no longer monolithic,” and “the Magnificent 7 [has] shrunk to the AI trinity.”
“The only way to justify current US stock valuations is to get upside surprises on earnings, and that’s exactly what these strong tech results are offering,” said Arun Sai, Senior Multi-Asset Strategist at Pictet Asset Management.
Analysts at BlackRock said they maintained their overweight recommendation on US stocks because of the AI theme, while acknowledging that policy uncertainty is weighing on economic growth. “US equities will regain global leadership as the AI theme keeps providing near-term earnings support,” they said.
The black mark comes from Amazon which reported yesterday, but their vague guidance about future profitability and how AI is giving them a competitive advantage disappointed markets, despite them beating analysts’ expectations.
Continues…
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