Gold Rush in Digital Tech
Investors remain absolutely smitten with artificial intelligence and the digital revolution that is taking place in front of our eyes. The key S&P500 American index has now risen for six straight months which is the longest winning run since 2021. The technology dominated Nasdaq index has now climbed in each of the last six years.
It is not just America, but elsewhere markets have proved exceptional for scoring big gains. South Korea up over 70% so far this year leads the way, although Spain and Poland are next with rises of over 40%.
Two major events in the past week have given new impetus for the continuing investment frenzy. First, US corporate results for the third quarter have comfortably exceeded expectations.
When we went into this result season, forecasts were for growth of around 7% compared with last year. The reality is that with reports in from 83% of S&P500 companies, the number is now a little over 12% year on year.
Major technology names also did not disappoint. Alphabet, which is Google and YouTube’s parent company is performing well thanks to growth in online advertising and Google Cloud, which is driven by demand for artificial intelligence.
Apple guided and exceeded optimistic forecasts for new iPhone 17 sales in the important final holiday quarter of this year. Combined with record Q3 revenues, all time high income from services and excellent engagement of active devices and satisfaction levels, the shares soared to record levels.
Amazon surpassed expectations as Amazon Webb Services (AWS) saw growth in Q3, at a level not seen since 2022. A huge 20% + beat on expected earnings plus solid revenue gains was enough to send Amazon shares to a record high.
The second and even more important event was the weekend news of a US/China Trade agreement. The agreement effectively ‘kicks the can down the road’ for just a year. Nonetheless, the goodwill and pragmatism of both countries to do this is encouraging.
It avoids an embargo on trading between the countries and from a US perspective ensures that China will suspend expansive new export controls on rare earths and related measures announced in early October. China will see the US lower tariffs on imports of Fentanyl by removing 10% of the tariff and suspend reciprocal tariffs until 26 November 2026.
All of this good news has cheered and energised investors. Although November and December are historically strong for equity markets, there are investor concerns about whether equities can keep this form going as valuations rise with the artificial intelligence euphoria. If earnings can keep producing the goods, market direction may stay the same but there is little room for error.
There should be no room for complacency as the US government remains closed as we move into a second month of deadlock. Agreement from the Democrats and Republicans still seem a long way away.
This week we have the UK Monetary Policy Committee meeting on Thursday. Money Markets are suggesting there is only a 30% chance of another 0.25% cut in interest rates. However, Goldman Sachs have gone out on a limb and said they believe that a cut will occur!
Independent of the US government we have the Institute of Supply Management Services data on Wednesday which represent the vast bulk of US activities. The University of Michigan consumer confidence figure on Friday could also influence markets.
Finally, the key US payroll numbers are due on Friday. These will be deferred again because of the government closure – another month where investors are flying blind.
(Cover Image Source: Aslı Yaren Peker)