WeeklyWatch – It’s report time for the Magnificent Seven
30th July 2024
Stock Take
The first of the reports are in…
Even though there have been recent sell-offs, the big technology names are continuing to drive market gains this year. But this has given rise to concerns regarding the sustainability of their big valuations.
Tesla and Alphabet became the first of the ‘Magnificent Seven’ to reveal their quarterly earnings. Alphabet, Google’s parent company, surpassed revenue and profit predictions – their success was boosted by digital advertising sales for large-scale events such as the Paris Olympics and several national elections. Despite this, investors were unsettled and unconvinced over the large-scale spending on Google’s AI capability and whether it was actually earning a return.
On the other hand, Tesla reported their worst profit margin for five years. EV price cuts were undertaken to revive demand and the large amount of spending on AI had big repercussions and meant that the company missed out on analysts’ earnings forecasts.
Because of the improvement in the US inflation outlook, stocks received a much-needed morale boost and stayed steady by the end of the week. However, Meta, Apple and Microsoft are due to publish their data reports this week, the results of which could cause more volatility in the markets over the next few days.
Indices take a big hit
Early earnings reports were met with disappointment, and stocks fell sharply on a global scale. This was showcased prominently on Wednesday when the US S&P 500 and the Nasdaq indices saw their biggest one-day fall take place for the first time since 2022.
Japan’s Nikkei index also suffered significantly and fell another 3% the next day. When this was added to the tech shakiness at the end of last week, more than £3 trillion was wiped off global stocks in only six trading sessions.
US – the land of (financial) opportunity once again
Any hopes for a quiet summer have been quickly extinguished. After US President Joe Biden’s decision to drop out of the presidential election race, global markets responded positively and started the week feeling optimistic.
Rumination over a tighter contest against Trump focused investors’ attention on an extremely busy week of corporate earnings, alongside key inflation and preliminary growth data from the US.
The Fed are back to discuss interest rates
Another week, another rate-setting committee meeting for the Federal Reserve. September remains the expected month where an interest rate cut will take place; this was decided after preliminary figures revealed that the US economy had grown faster than initially in the second quarter. Data showed the economy has been expanding at an annualised rate of 2.8% in comparison to the first three months of the year where the rate was only at 1.4%.
The Head of Economic Research at St James’s Place, Hetal Mehta, commented:
“US GDP surprised positively thanks to better-than-expected consumer spending. Despite signs of a cooling labour market, the economy is holding up as well as fiscal support remains sizeable. A strong economy is usually helpful for the incumbent going into an election, although current betting odds and favourability data give the Republicans the lead.”
The rate-setting decision is fast approaching, and central bank officials would also have been encouraged by news that the personal consumption expenditures index (PCE) – one of the Fed’s key inflation measures – increased at a rate of 2.5% after swelling to 3.7% in the first quarter.
China takes a surprising course
At the start of the week, the People’s Bank of China made a surprising decision to cut interest rates. The move came about as a result of their data revealing weaker-than-expected growth in the second quarter.
Investors weren’t overly impressed by the bank’s move, emphasising that the economy was too weak for such a measure. This is only the latest in a series of problems for China, which include a prolonged property crisis, high levels of debt, weak business and consumer sentiment plus a large threat of deflation.
And there’s further evidence that Chinese consumers are cutting back continues with the news that LVMH, the world’s largest luxury group and home to brands such as Tiffany & Co., Luis Vuitton and Dior, saw their Asian sales fall by 14% in the second quarter, following a 6% drop in the first three months of the year. However, LVMH aren’t the only big name feeling the pressure from the slowdown in luxury goods demands from China. Burberry and Swatch Group also felt the negative repercussions, revealing that their sales had also fallen in mainland China.
UK hits the ground running
Following the general election earlier in the month, UK business activity has picked up, with manufacturing growth hitting its fastest pace in two years. And the positivity continued with the Bank of England’s inflation news: businesses were able to raise prices at their lowest rate since February 2021.
A mishmash of outcomes across Europe
In the eurozone, there was a downturn among manufacturers, which meant a stalling in business growth in July – unfortunately, another indicator that the region’s recovery is stumbling.
Mehta commented:
“Economic sentiment has deteriorated markedly, driven largely by a slump in Germany, which is being hampered by a lack of digitalisation and China’s transition from being customer to competitor in car manufacturing. However, credit conditions continue to improve modestly so should provide some economic support.”
Europe’s biggest banks got whipped up in the whirlwind week of mixed earnings announcements. After making provision for an investor lawsuit, Deutsche Bank revealed its first quarterly loss in four years. But for the majority of other banks, they beat earnings expectations, with Santander – the eurozone’s second-largest bank – gaining 3% and continuing its strong growth in its main retail business.
Wealth Check
How much will you need in retirement?
Whether you’re 20 years off retiring, or just a few, it’s important to work out how much money you’ll need in order to live comfortably once your regular income stops coming in.
The Pension and Life Savings Association are here to help!
The association makes an approximation on how much both individuals and couples will require for the retirement and pension pot in order to maintain a comfortable, moderate or minimum standard of living when their working life comes to an end.
The main thing to be aware of is how much figures have increased in the past 12 months. The PLSA released their figures in February 2024 and they revealed that a single person requires £14,400 a year in order to achieve the minimum living standard, which was a rise of £1,600. £31,300 would be needed for a moderate living standard and £43,100 for a comfortable living standard. For couples, the price of these living standards is £22,400, £43,100 and £59,000 per annum.1
What do we mean by living standards?
- Minimum living standards – Covers most people’s basic needs. You could take a holiday in the UK, eat out around once a month and be able to spend around £600 on clothes and footwear. But you shouldn’t expect to be able to run a car on these earnings.
- Moderate living standards – Encompasses a minimum living standard but with more financial security and increased flexibility. It would be possible to take a two-week holiday in Europe, eat out a few times a month and run a small car.
- Comfortable living standards – You can enjoy added luxuries, including regular beauty treatments, theatre trips and at least two weeks of European holiday a year.
What guidance can the PLSA provide?
By placing an approximate figure on an individual’s lifestyle choices, the PLSA can help people develop personal savings goals that are based on their circumstances and expectations. If you form a concrete goal that’s centred around the things you enjoy doing, like going on holiday or eating out, it can be a great motivator to keep saving.
Wherever you may be on your saving journey, by having a specific income in mind you can set your sights on the end goal – and feel positive towards it!
Source:
1Retirement Living Standards, Pensions and Lifetime Savings Association, 2024. All figures quoted were developed by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA.
The Last Word
“Everyone told us seven years ago that this was impossible to do. I remember it very well, there were all those experts who said ‘this is criminal madness’ and ‘this will never happen’… But we did it thanks to your work over the last years.”
– Emmanuel Macron, French President, speaking after the Paris Olympics opening ceremony.
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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Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
SJP approved 29/07/2024