Weekly recap
What happened in markets
The Australian sharemarket lost ground last week, held back by mostly lower commodity prices and higher bond yields. Lower commodity prices hurt the Materials and Energy sectors, while higher bond yields worked against the Real Estate and Information Technology sectors. Some notable company related news also weighed on the market. Newmont’s weaker-than-expected earnings result led its share price closing 16.2% lower for the week, whilst WiseTech’s (-8.6%) CEO controversy caused some investors to question the company’s future direction.
US sharemarkets were a mixed bag last week, ultimately finishing lower. The decline broke the S&P 500’s six-week winning streak, weighed upon by the downward price pressure of higher bond yields. Offsetting some of the weakness included positive corporate updates, particularly from Tesla (+22.0%), together with stronger-than-expected manufacturing data and lower initial jobless claims. It was also interesting to see varying sector level performance, which some attributed to being politically driven. Recent poll data, whether reliable or not, hinted at a Trump win, which hurt the Health Care sector and supported the Energy and Consumer Discretionary sectors.
European sharemarkets similarly ended their recent streak of weekly gains. In contrast to the US, however, European corporate earnings showed mixed results, with just 35% of companies beating estimates (below historical average). Moreover, the economic landscape continued to look soft in the Eurozone, with Consumer Confidence and production data still weak. The potential impact on trade in the event of a Trump win also heightened uncertainty. This called for some market participants to price-in more severe interest rate cuts from the European Central Bank in the near term.
Stock & sector movements
What caught our eye
US company earnings season for the third quarter of 2024 has kicked-off and… so far so good! According to FactSet, around 37% of companies in the US S&P 500 have reported results, with close to 75% of them beating earnings estimates. Noteworthy beats came from the Financials sector, including Goldman Sachs, Morgan Stanley and American Express. Although, it is still early in the season and we have seen some misses, with aircraft manufacturer Boeing coming to mind, as it reported lower earnings and planned to cut its headcount.
Looking ahead, everyone’s eyes will be drawn to the ‘Magnificent 7’. The group of all-stars includes Apple, Microsoft, Alphabet (Google), Amazon, Meta, NVIDIA and Tesla (most reporting this week). The reason investors are most keenly watching those results is because in aggregate they are expected to have grown earnings by 18.1% year-on-year. Meanwhile, if you strip them out, the remaining 493 companies in the S&P 500 are expected to have only grown earnings by 0.1%. This disparity is a key reason for the strong performance generated by the mega caps and why the US sharemarket has become increasingly concentrated around those companies.
So far, only the most divisive of the Magnificent 7 has reported, Tesla, which surprisingly shot the lights out. The electric vehicle maker’s earnings were stronger-than-expected and vehicle deliveries for FY25 were guided to increase 20-30% year-on-year. Tesla’s stock surged 22.0% following the result and the news boosted market sentiment around corporate earnings.
We should also note, the story is looking much brighter for US firms outside the Magnificent 7 following this earnings season. While times have been tough amid higher prices, supply chain shocks and elevated interest rates, the tide may be beginning to turn for a vast majority of stocks that have since been overlooked. That’s certainly the position taken by most analysts right now, who expect double digit earnings growth from the ‘S&P 493’ after this reporting season. While certainly optimistic, the rationale checks out, with lower inflation and a resilient labour market, supported by the US Federal Reserve cutting interest rates, pointing to favourable conditions for US businesses. That of course assumes inflation returns to target without a sharp or lasting recession, which now forms the most likely outcome for the majority of market participants, including us. Should this prove true, it will provide promising hunting grounds for stock pickers to capture the upside.
The week ahead
Given it's company earnings season, this week investors will be keenly focussed on company results. US corporate earnings will be of particular note, as a number of well-known names are expected to report (see table below).
From an economic perspective, we will get both inflation and GDP data from Australia, the US and Eurozone. These will be critical to the trajectory of the inflation and interest rate story in each region.
Portfolio Company Reports
