Economic Data and Market Highlights
Weakness in the equity markets was of significant focus for investors this past week with the MSCI ACWI and the S&P 500 both plunging over 2.0%. Growing concern from traders in the media suggested that the Fed may have waited too long. Fed Chair Jerome Powell signaled that the central bank is on track for a September rate cut on Wednesday. The FOMC held the Fed funds rate between 5.25% and 5.5%, a level that has been maintained for the last year. Powell note that the US labor market is still relatively strong, but beginning to slow, with hiring moderating and the US unemployment rate hitting 4.1%, the highest level since 2021, but still historically low. The CME Fed Watch group currently has the odds of a 25-bps cut in September at 69.5%, with their FOMC participant dot plot targeting median rate expectations 3.25% in 2026.
Most notably reported, Microsoft reported a $2.95 diluted earnings per share just above analyst forecasts of $2.94 which is also up 10% year over year. Sales beat estimates during the quarter coming in at $64.7 billion versus a $64.4 billion estimate and up 15% year over year. Shares dropped 7% following the announcement as news about their AI business was saw growth 29% in its Azure cloud computing unit which was below the 31% and sales in its AI-heavy intelligent cloud division was $28.5 billion below the $28.7 billion estimate. The 7% slide was the worst day since 2022. The company’s revenue during fiscal year 2024 is roughly on par with Greece and New Zealand’s economy from last year per the countries’ GDP. Microsoft’s capital expenditure hit $19 billion which is nearly 80% higher than a year ago with nearly all of that being on its could and AI related spending per chief financial officer Amy Hood. She said nearly half of that spending went towards land, building, and leases and the other half being on equipment, chips and servers. This trend is seen across big tech names as Google, Amazon, and Meta are also investing billions into data center capacity to support this big wave of AI applications.
Meta also reported earnings this week and its second quarter profits rose by 73%. Meta reported $39.1 billion for Q2 revenue and beat analysts’ forecasts of $38.3 billion. Earnings per share also beat estimates, coming in at $5.16 billion earnings per share versus estimates of $12.3 billion. The company said it expects third quarter revenue somewhere around $39.8 billion and above the forecast of $39.1 billion. The company also expects expenses for the year to be between $96 and $99 billion which is in line with its prior outlook but bumped its range from capital expenditures to $40 billion $40 billion from $35 billion as concerns around its spending around artificial intelligence sits at the forefront. Shares jumped over 5% following the earnings report. Still down just shy of 10% over the last month period. The Reality Labs division, which holds the metaverse, reported a $4.5 billion dollar loss. Despite the loss the company still was able to post an impressive profit. CEO Mark Zuckerberg said the company is in a fortunate position to take advantage of their strong results from their core products and businesses allowing them to make deep investments for the future.
Shipping disruptions caused by the Red Sea conflict will last longer than expected according to comments made by Maersk on Thursday. Due to tight capacity and strong demand, global shipping costs are creeping towards levels last seen during the Covid-19 pandemic. Maersk is set to benefit from the rise with their original earnings forecast, rising from $7B to an estimated $8.76B. Container rates have risen dramatically since the beginning of 2024, with a 77% decrease of travel taking place through the Suez Canal from a year ago. Spot rates have risen dramatically in the past several months while long term rates had remained insulated from the volatility until now. The XSI Far East Export index rose 12.6% in July to $8,532.
Oil prices jumped mid-week after the assassination of a major Hamas leader in Tehran. The Brent Crude Oil index jumped 3.5% while the West Texas Intermediate Crude index jumped 4% on the news. Throughout Thursday and Friday indices traded down, ultimately finishing the week down 4% for their 4th straight weekly decline due to worries of demand.
The Past Week’s notable US data points
The Upcoming Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director, Head of Research
Michael McNamara, Analyst
Sam Morris, Analyst