Most corporate results published so far in the US have beaten expectations, but there have been some high-profile misses. Our head of markets analyses latest developments and what's coming up next week.
The pressure on companies to outperform against low expectations in the current reporting season was brought to bear as the technology-heavy Nasdaq slipped by over 2% in a volatile day of trading.
Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA) each contributed to the decline, with share falls of 8% and almost 10% respectively following disappointing updates. Netflix revenues were shy of expectations despite having added a significant number of new subscribers, while Tesla spooked investors by suggesting that lower vehicle production and further price cuts were potentially on its agenda.
For the more traditional Dow Jones index, which has significantly lower exposure to technology, the trading day was more sanguine. Indeed, it rose for the ninth consecutive day following better-than-expected numbers from Johnson & Johnson (NYSE:JNJ), which rose by 6% after upping its full-year guidance after posting strong quarterly growth. Insurance company The Travelers Companies Inc (NYSE:TRV) also rose after beating estimates.
The opening to the reporting season has been positive, with an estimated 75% of companies reporting so far having beaten estimates. The pace of company updates switches into top gear next week, providing further tests of investors’ mettle, with a raft of companies in the spotlight. Technology stocks will be in sharp focus following the strength of gains this year, with the likes of Alphabet Inc Class A (NASDAQ:GOOGL), Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc Class A (NASDAQ:META) and Amazon.com Inc (NASDAQ:AMZN) hoping to please, while elsewhere the updates also come thick and fast, ranging from Exxon Mobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX) to McDonald's Corp (NYSE:MCD).
In the meantime, further economic data pointed to further tightness in the labour market, with weekly jobless claims falling to 228,000, which was not only below the 242,000 forecast, but also far shy of the 280,000 level which many economists are now pitching as the signal for a slowdown in jobs growth.
The health of the labour market is also underpinning the consumer, where spending continues at a clip. Elsewhere, the housing market remained under strain on the basis of a shortage of supply and rising mortgage rates for new buyers. Indeed, with many existing homeowners estimated to have mortgage rates of 5% locked in, there seems little incentive for selling, which provides a further block.
Amid the barrage of news and despite the drop in the technology index, the main indices remain in healthily positive territory for the year, with the Dow Jones having added 6.3%, the S&P500 18% and the Nasdaq 34%.
Asian markets currently have their own fish to fry, with investors concentrating on the differing fortunes of Japan and China. For the latter, the property sector took another hit after warnings from some credit agencies, while the wider problems of the economy were highlighted once more as some small efforts to boost consumption by the authorities left markets unimpressed and looking for larger examples of stimulus.
In Japan, by contrast, inflation growth remained above target, but the Bank of Japan sees the recent price rises as being driven by temporary factors, which is unlikely to alter its highly accommodative monetary policy.
The UK also had some more economic data to digest, with a better-than-expected turnout from retail sales in June, where a rise of 0.7% in June from May outpaced expectations of 0.2% and where volumes declined by 1% as opposed to the forecast 1.5%. However, the economic tightrope is still very much in existence in the UK, with a plunge in the GfK Consumer Confidence Index signalling a potential sign of consumer capitulation in the current environment.
However, the softer than expected inflation reading from earlier in the week has provided a welcome boost to markets, particularly the more domestically-focused FTSE250 which has added almost 4% this week, swinging back into positive territory and now ahead by 2.2% so far this year.
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The premier index had a measured open on Friday after what has been a strong week buoyed by hopes of a soft landing in the US and potentially improving conditions in the UK. The FTSE 100 has now risen by 2.7% in the year to date.
Next week will provide new tests, with a raft of blue chips reporting including the UK banks like Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG), which should provide some colour in their response to the recent banking turmoil, the ongoing effects of a rising interest rate environment, and also whether loan impairment provisions have been raised given the possibility of recessions this year in some of the developed economies.
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