WeeklyWatch – Tech giants reveal earnings
30th April 2024
Stock Take
If we were to combine the market values of the big-tech Magnificent Seven, it would form the second-largest stock exchange in the world.
Economic data took a back seat last week, and investors took a greater interest in the earnings announcements from the bellwether US companies – a much-needed break away from geopolitics and a refreshed look at market fundamentals.
Tesla’s challenges increase
In the first three months of the year, Tesla confirmed that their profits had taken a sharp fall, rounding off a challenging time for the EV carmaker. The company has had to let go of more than 10% of its workforce and continues to face steep contest from their lower-cost competitors.
From the start of the year to Monday 22nd April, Tesla’s shares have fallen by 43%. However, CEO Elon Musk announced that the company will fast-track the launch of new models, which aided their efforts to win over Wall Street and rebound their shares by 16% by Friday.
Meta shares and AI investment
Meta shares dropped by more than 15% in after-hours trading on Wednesday, which resulted in nearly $200 billion being knocked off its stock market value.
Although Meta has reported earnings that exceeded expectations, the tech heavyweight has stated that their expenses will be high this year as they utilise more artificial intelligence (AI). Investors expressed concerns surrounding the ever-increasing costs of AI – its benefits don’t correlate to the high prices, which could leave companies paying off the cost for many years.
Microsoft’s partnerships aid soaring success
The world’s largest company continues to make massive strides. Analyst predictions for the first three months of 2024 – the third quarter of the financial year – were beaten by Microsoft.
Microsoft’s extensive investment in AI fuelled their gains and they’ve now become the most valuable company in the world, overtaking Apple in the process. The partnership with OpenAI – the developer of ChatGPT – has been key in enabling this.
The benefit of extensive investment in AI was also evident in Google’s parent company, Alphabet. The company revealed results that met the top of Wall Street’s sales, profits and advertising expectations. They went on to announce their first dividend and a $70 billion share buyback. The only big-tech company not to offer a dividend is Amazon.
As the week came to an end, a third of S&P 500 companies reported their earnings and 80% had surprising results in their favour. With a large increase in valuations in the last few months, it’s important for companies to deliver the earnings and outlooks in order to justify their higher share price. As it stands, they’re doing just that.
US business activity slows
There was a cooldown in April for US business activity, including manufacturing and services, which hit a four-month low. This came as good news for the US Federal Reserve as they await indications that the economy is losing enough momentum in order to bring inflation down more.
On Thursday, figures were released that the Fed’s monetary policy had worked. Its success saw the US economy expand at an annualised rate of 1.6% in the first three months of 2024. This was much lower than initially predicted and a huge drop from the 3.4% that was gained in the final quarter of 2023.
However, the Fed is still not out of the woods just yet. The US Department of Commerce released their own figures, which showed that inflation had gathered pace in the same time frame – it increased by 3.4% compared to 1.8% from the previous quarter. With the consistent issues with stubborn inflation, concern continues to escalate regarding the Fed’s ability to cut interest rates and avoid stoking consumer prices.
The FTSE 100 and markets respond
Markets are predicting that there will be a small decrease in interest rates this year. Currently, this stands at 35 basis points, a significant deviation from the decrease of 150 points that was predicted at the year’s beginning.
The UK’s FTSE 100 Index started the week with a new record high, surpassing February’s levels from the previous year. Factors responsible for the all-time high were the slight easing of tensions in the Middle East and the pound weakening further.
A large number of the UK’s biggest international companies earn their revenue in US dollars, but their profits are reported in sterling. It hit its lowest point against US currency in five months.
The FTSE 100 continued its success throughout the week, hitting further highs, which were enabled by the successes of the US tech giants, and reaching its best weekly gain in seven months.
BHP makes big news in stocks
The mining company BHP pitched a £31.1 billion bid to acquire their rival miner Anglo American. This was rejected by Anglo-America, who felt that this was a significant undervaluation of the company.
The Investment Manager at Artemis Investment Management, Adrian Frost, agreed and added:
“If I was a BHP shareholder and I was still capable of doing cartwheels, I’d do two if I got it at this price.”
Positive news for the eurozone
In April, overall business activity in the region grew at its quickest rate in nearly a year – a good recovery in the area’s dominant service industry was responsible for this boost.
On an individual country level, after months of contraction, Germany unexpectedly made a return to growth. Manufacturing continued to be sluggish, but the rate of decline in factory production improved, resulting in a boost in confidence among goods producers that reached its highest in a year.
Even though the European Central Bank (ECB) are still looking to make cuts to interest rates in June, Chief Investment Officer at RWC BlueBay Asset Management Mark Dowding said:
“We think that were the Fed to stay on hold, then the ECB is unlikely to cut by more than 50 basis points this year. In the UK, the most policy easing that the Bank of England seems able to deliver would be 25 basis points, if any rate cuts at all.”
Artemis Investment Management and RWC BlueBay Asset Management are fund managers for St. James’s Place.
Wealth Check
Food prices and inflation are coming down, which is positive news! However, it’s still important to make the most of your money. Keeping a close eye on your Cash ISAs and Stocks and Shares ISAs throughout the tax year is key to ensuring that you’re optimising your investments.
What’s the difference between Cash ISAs and Stocks and Shares ISAs?
Cash ISAs are incredibly popular as they’re flexible and highly tax efficient. If you find yourself facing an unexpected expense, they also serve as a source of available cash. However, if a large amount of your money is held in Cash ISAs or a savings account, you could be missing out on growth opportunities that can significantly improve your financial security.
Stocks and Shares ISAs stand a better chance at growing your money. With this type of ISA, you can hold a mix of company shares, bonds and other assets and not pay tax on gains or income. However, these investments carry a lot more risk, which is why most people choose to invest in funds rather than individual assets, as these tend to be steadier. The longer you remain invested, the more you will reach an average rate as the market fluctuates.
What are the benefits of a mix?
Combining Cash ISAs and Stocks and Shares ISAs can provide good stability and cash reserves for both the short and medium term – and even create more wealth for you in the long term.
The choice is yours when it comes to splitting your £20,000 annual ISA allowance across a Cash ISA, Stocks and Shares ISA and Lifetime ISA (a maximum of £4,000). By investing it all into a low-risk Cash ISA, you limit your chances of getting returns and growth that a Stocks and Shares ISA can provide.
It’s a good idea to run this by your financial adviser, particularly if there have been or are anticipated big changes to your long-term financial plans or family circumstances. There’s always an opportunity to make tax-smart tweaks to your ISAs and investments.
The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.
The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.
Neither Lifetime ISAs nor Cash ISAs are available through St. James’s Place.
In The Picture
Have you ever wondered what a £10,000 investment from 10 years ago would be worth today? Growth of major global indexes has outpaced UK inflation, showcasing the value of long-term investing and how it improves your wealth over time.
Source: Financial Express. Data as of 31st March 2024. Inflation measured by RPI. Past performance is not a guide to future performance.
It is not possible to invest directly into the indices shown and the figures do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The Last Word
“We’ve updated our future vehicle line-up to accelerate the launch of new models…so we expect it to be more like early 2025, if not late this year.”
– Elon Musk, CEO of Tesla, outlining the company’s plan to introduce a new, more affordable model of electric vehicle, dispelling recent speculation that it had been scrapped.
Schroders is a fund manager for St. James’s Place.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
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SJP approved: 29/04/2024