The financial markets have become very tense ahead of the US election results. A return to normalcy should be swift, yet investor expectations may shift their course.
The US election results day occurs roughly in the middle of the financial reporting season. Companies across the ocean are performing very well, while the situation in Europe is somewhat worse.
“Overall, the image of the American market is such that companies are pleasantly surprising, but not sufficiently so,” says Tymoteusz Turski, a stock market analyst at XTB, in a conversation with MarketNews24. “This is connected with the fact that the American market is currently attracting investors more than the European market.”
Meta and Microsoft’s results have not followed in the footsteps of Tesla and Alphabet, who distinctly thrilled investors with their financial reports for the last quarter. While Google’s parent company saw a noticeable increase in Cloud revenue, improving operating margin, and user-demand driven development of AI tools, Microsoft and Meta generate significant question marks regarding the profitability of their projects in sister sectors. Forecasts for the development of Azure Cloud, Microsoft’s cloud solution, did not follow the Google Cloud scenario and were reduced below analysts’ expectations, while record investments in AI remain without convincing justification. The increased spending on AI also worries investors in Meta’s case, while stagnation is even more apparent in Reality Labs’ (a VR project) which again generated losses for successive quarters.
Alphabet had a very high bar set in terms of expected results. The company presented very strong data for the third quarter, significantly outperforming the market consensus on key financial metrics. The cloud business segment had a very positive surprise, which is becoming a larger part of the company’s business model.
Apple presented fourth fiscal quarter financial results, setting a new revenue record of 94.93 billion dollars, representing a 6% year-on-year increase. The results exceeded analyst expectations, achieving an adjusted profit per share of 1.64 USD (excluding the one-off EU tax charge), above the consensus of 1.60 USD. The flagship iPhone segment showed considerable strength, with sales reaching 46.22 billion dollars, above analyst forecasts of 45.04 billion dollars, and showing a 5.5% increase compared to last year.
“As many as 79% of S&P500 companies, who have so far published their reports, have shown better results than expected,” explains the XTB expert.
The in Europe is significantly worse, a prime example being Volkswagen, whose results turned out to be the worst since the pandemic, although likely not as dire as some were expecting. The company presented an operating profit of only 2.86 billion EUR, with revenues at 78.5 billion EUR. This represents a margin of just 3.6%, the lowest level in 4 years.
A look at individual sectors is interesting. It appears that the technology sector is performing the best, forming the foundation of the American market bull run in 2022. At the same time, due to high expectations, surpassing them will become increasingly difficult. Investors may increasingly worry that disappointments are more frequently ahead. This could subsequently lead to a panic sell-off of shares.
“When it comes to correction of technological companies, we can expect that investors will look for safer sectors, such as the healthcare sector, which still has great prospects,” explains T.Turski from XTB. “At the same time, this is a defensive sector, which in the event of economic turbulence has a tendency to cope somewhat better than the broad index. In this sector, there are segments that have immense potential to continue to grow, and an example are companies related to obesity treatment.”
This is worth remembering, especially as the S&P index is historically overvalued. This index will be very sensitive to potential disappointments.
Source: https://managerplus.pl/przelom-na-rynkach-wybory-w-usa-i-wyniki-spolek-w-centrum-uwagi-66547
