It was a pivotal week for US markets which have had to navigate a slew of big company earnings reports, important macro data and a Federal Reserve meeting, which resulted in a 0.75% increase in interest rates.
The Fed said rates were now effectively at a neutral level and so it removed forward guidance. The problem is that inflation continues to run hot. The Fed's preferred measure of core inflation, personal consumption expenditure came in higher than expected at an annualized rate of 4.8%.
Meanwhile, the economy seems to be slowing sharply and recorded its second consecutive quarterly fall in real terms. Private sector investment was particularly weak.
Although the central bank seems intent on stamping out inflation at almost any cost, markets sense a more dovish tone. The S&P 500 and Nasdaq Composite both gained around 4% over the week. 10-year bond yields dropped by 15 basis points to 2.67%.
APPLE
If you listened carefully, you might have heard the collective sigh of relief from millions of Apple (AAPL:NASDAQ) investors after the Cupertino tech giant beat third quarter expectations and said it predicts even faster growth ahead.
More than $40 billion of iPhone sales in Q3 was a resilient showing given that sales of these expensive bits of high-tech kit might have been among the first things to get axed as household budgets get squeezed. Not so, it seems, to the astonishment of many an analyst.
Yes, there will be foreign exchange hits, around 600 basis points in Q4 (to 30 Sep) the company estimates, as the dollar surges against other currencies, but Apple's latest results came as a huge lift for investors in the world's largest company.
‘This quarter's record results speak to Apple's constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers,’ said Tim Cook, Apple's CEO. After falling nearly 30% at one stage this year, the shares have now clawed about half of those 2022 losses at $161.
AMAZON
Amazon's (AMZN:NASDAQ) retail business seems to be withstanding the pressure on consumer spending better than many anticipated, certainly better than many retail rivals, not least thanks to a record Prime Day in July.
Investors were also pleased with guidance on costs, which have risen sharply in the past two years as the firm invested heavily in staff and warehouse space.
Spending is seen shifting to technology, including the AWS cloud business, which makes up all the company's profits.
AWS revenues climbed by 33% in the second quarter, giving it a leading 35% market share, according to Bloomberg, although its contribution to group earnings was wiped out by non-operating expenses.
These included a big write-down the value of firm's stake in electric vehicle-maker Rivian (RIVN:NASDAQ), which is having to spend vast sums to scale the business, important to Amazon given its 100,00 delivery vehicle order with Rivian as the online platform giant tries to steer a path to a carbon-neutral footprint.
WALMART
Another profit warning from Walmart (WMT:NYSE) weighed on Wall Street retail stocks. The world's biggest retailer cut its profit outlook again (25 Jul) with rampant food and fuel price inflation, forcing cash-strapped American shoppers to cut back on discretionary purchases.
Shares in the groceries-to-general merchandise goliath plunged as it warned that operating profit and adjusted earnings per share (EPS) are expected to drop between 11% and 13% in the year to January 2023 as consumers reduce spending on big ticket items and focus on less profitable groceries.
Just two months ago, Bentonville-based Walmart, which is sitting on a bloated inventory, was guiding that EPS would be down only 1% this year.
Despite continuing to win grocery market share thanks to its value credentials, the retail colossus cut its second quarter-adjusted earnings per share guidance to a decline of around 8% to 9%, a significant downgrade given its previous outlook of flat to slightly up.
Food inflation is double-digits and higher than at the end of Q1, warned CEO Doug McMillon, telling investors what they and millions of consumers already know. How this impacts Walmart's scope to shift products will be closely watched, with significant markdowns already being seen.
