American investment funds appear to be quite divided in their outlook for a bull market on Wall Street. This divergence is evident as BlackRock recently shifted its stance from neutral to 'overweight' unexpectedly. However, JP Morgan analysts caution about the risk of concentration affecting Nasdaq100. The question arises: Are we on the verge of a stock market retreat?
According to JP Morgan's projected scenarios, such a retreat would be driven by declining shares of U.S. companies. The latest results on Wall Street suggest that it might be prudent to withhold judgment until tomorrow, as a bearish gap in the quotes following reports does not augur well.
Geopolitical developments continue to play a significant role in influencing stock market dynamics. Recent reports indicate that Saudi Arabia is resuming talks with the U.S. defense sector after a hiatus due to the war with Hamas.
Additionally, the Iraqi armed group Hezbollah has declared a suspension of military and security operations against U.S. forces. Despite these positive developments, uncertainties persist. While progress in negotiations with Hamas regarding hostages has been reported, caution is advised until more information emerges. Now, let's return to the financial results.
Microsoft's recent performance has exceeded expectations, with nearly $1 billion in positive revenue surprises. Notably, the robust growth of Azure Cloud, outperforming Google Cloud, reinforces the perception that Microsoft, under the leadership of Nadella, remains a genuine market force despite a recent speculative rally.
The company has achieved record sales for the fifth consecutive quarter, largely propelled by the advancements in artificial intelligence (AI). Furthermore, during the CEO's conference, it was revealed that corporate utilization of AI services, such as Copilot, has surged by 80%. This signals a positive trajectory for Microsoft in the AI domain.
Microsoft is not resting on its laurels; it aims to increase its exposure to niche technologies. Collaborating with OpenAI, discussions are underway for another round of funding for the startup Figure AI. Market speculation suggests that Figure AI, a robotics startup, is proposing a business valuation exceeding $2 billion and is seeking an additional $500 million in funding.
Microsoft's involvement, alongside Sama Altman's self-funded company, indicates a strategic move. However, even this collaboration did not prevent a surprising drop of almost 1% in Microsoft's shares during after-hours trading on Wall Street.
A significant disappointment is noted in the case of AMD, which, for Q4 2023, reported profits that were 'only' in line with expectations and slightly higher revenues. Despite experiencing an unprecedented rally in its stock value (from $65 to $190 per share in a year), the company anticipates flat quarterly sales in the data segment.
Moreover, AMD did not provide any forecasts, even cautiously optimistic ones, for the highly anticipated AI chips expected to compete with Nvidia in 2024. If the company miscalculates or confirms previous narratives, a substantial sell-off may be anticipated.
Turning attention to Google, the overall results are positive, surpassing revenue consensus and delivering higher earnings per share. However, there is a caveat: the advertising business did not perform as well as analysts had anticipated, accounting for over half of the company's profits.
Advertising revenues fell approximately $300 million short of forecasts, amounting to $65.52 billion. On the flip side, cloud revenues exceeded predictions by nearly $200 million, and services continued to perform well, with an additional surprise of around $300 million compared to expectations.
Revenue from advertising on YouTube narrowly surpassed the forecast, reaching $9.2 billion against an expected $9.16 billion. At this point, there is insufficient information about AI to make definitive predictions regarding the market's reaction to Google's report. Free cash flow amounted to only $8 billion, falling significantly short of the forecasted $15.8 billion (a 51% year-on-year drop).
However, this decline might be closely linked to investments in AI, and it is not necessarily negative news. Despite a weak Search segment and a slightly stronger YouTube, Google's cloud computing dynamics (26.5% YoY growth) lagged behind the competitive Azure (30% YoY).
Starbucks' recent financial results failed to impress, showing a 5% annual growth in comparable sales compared to an expected 6.4%. Sales in China increased by only 10%, falling short of Wall Street's expectation of at least a 16% growth in the region. This suggests a decline in consumption in China, and globally, lower inflation expectations do not support the idea of overpaying for coffee.
In the recent market session, Apple led declines among the so-called mega-cap companies.
Investors reacted to the results of United Parcel Service, which saw a decline following a disappointing forecast. The courier company announced plans to eliminate 12,000 jobs. Despite reports of a growing wave of layoffs overseas, the profitability of two-year Treasury bonds increased by four basis points to 4.36%, and ten-year bonds increased by two basis points to 4.05%.
Swap contracts related to the March Fed meeting have now fallen by about one-third of a point.
As the market adjusts, expectations of a 25 basis point interest rate cut in March were fully priced in at the end of last year. However, the anticipated cooling of the job market has not materialized despite a wave of layoffs. The American JOLTS report revealed a still solid number of job openings, signaling that those laid off may find new opportunities. December unexpectedly saw an increase in job vacancies in the USA to the highest level in three months.
With ADP expected to indicate lower employment costs on Wednesday and the government's NFP report on Friday expected to show the addition of around 185,000 new jobs in January, the scenario of higher Fed rates for a more extended period gains traction. This may not bode well for all stocks, especially for heavily indebted firms.
31.01.2024
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