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Mixed earnings keep markets unsure

Google parent Alphabet beat profit estimates overnight while Tesla missed analysts’ expectations, leaving investors unsure how to interpret the ongoing earnings season and the AI-driven narrative that has dominated this year’s market rally. Tech stocks lost ground, while small-cap stocks shot up again on Tuesday. Asian equity markets were red across the board on Wednesday.

Date
Auteur
Shane Strowmatt, LGT
Temps de lecture
5 minutes

Logos of the Magnificent Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
© istock/MicroStockHub

Alphabet exceeded second-quarter revenue and profit expectations due to increased digital advertising sales and a surge in demand for its cloud services, particularly driven by the uptake of generative AI technology. However, the company warned of sustained high capital expenditures throughout the year. Alphabet shares were roughly flat on Tuesday but dropped 2.2% in after-hour trading as it reported after the bell.

Tesla reported its lowest profit margin in over half a decade and missed the market’s second-quarter earnings estimates, mostly due to price reductions to stimulate demand and increased expenditure on AI projects. Despite a turbulent quarter, marked by workforce reductions and a shift in vehicle development strategy, the company remains on track to produce new, more affordable models by the first half of next year, albeit with less cost reduction than initially anticipated. Along with increased operating costs, that led to a 7.8% decline in after-hours share trading after the stock had already dropped 2% on Tuesday.

Small-cap stocks outpace tech

In New York, stock markets were initially grinding higher on Tuesday, but jitters about the first earnings from Magnificent 7 companies, Alphabet and Tesla, after market close kept the major indices in negative territory. The Dow Jones Industrial lost 0.1% and the S&P 500 fell 0.2%. The tech-heavy Nasdaq-100 ended the session 0.4% lower. The major winners for the day were small-cap stock as investors continued to rotate out of large tech stocks and into smaller and mid-sized companies.

Europe’s second-largest listed company, LVMH, experienced a slowdown in second-quarter sales growth, primarily due to reduced spending on luxury fashion by Chinese consumers, despite a slight uptick in demand from Western markets. The world's largest luxury group reported a modest 1% organic sales growth, a deceleration compared to last quarter’s 3% rise and the robust double-digit growth in 2023, underlining the impact of changing consumer behaviour post-pandemic. France’s CAC 40 closed 0.3% lower on Tuesday, while the Euro Stoxx 50 gained 0.4%.

Mixed PMI data out of Asia

Stock markets were sliding across the Asia-Pacific region, despite mixed Purchasing Managers’ Indices (PMI), with stocks of tech companies and electric vehicle makers leading losses. In Tokyo, the Nikkei 225 dropped 1.1% even as its Flash Composite PMI increased to 52.6 points in July from June’s 49.7 points, crossing the 50-mark, which signals expansion. Australia’s PMI was approaching that level as well from above: Composite PMI fell to 50.2 points in July, down from June’s 50.7 points. Australia’s S&P/ASX 200 was trading with a mild loss of 0.1%. Hong Kong's Hang Seng Index slipped 0.8%, while the CSI 300 was trading 0.5% lower. In South Korea, the Kospi fell 0.4%.

Corporate and macroeconomic calendars

Corporate news in focus: Quarterly figures from SGS, BNP Paribas, Reckitt Benckiser, Deutsche Bank, AT&T, Banco Santander, UniCredit, NextEra Energy, Carrefour, Kering, IBM, ServiceNow, Deutsche Boerse.

Economic data in focus: Purchasing Managers’ Indices from several countries throughout the day, including France, Germany, the euro area, UK and US; Germany’s GfK Consumer Climate, US new residential sales, Bank of Canada interest rate decision.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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