Stocks gained for a second consecutive week, buoyed by the quarterly earnings releases from the biggest technology companies. The S&P 500 returned 3.8% and the technology focused Nasdaq gained 5.0%, rounding out its best month (+12.3%) since April 2020.
Shares in Alphabet (+6.7%) and Microsoft (7.7%) rose on Wednesday, despite missing analysts’ forecasts. Google’s parent, Alphabet, reported a 13% year-on-year increase in revenue to $69.7 billion during the second quarter, the slowest rate in two years. Ad revenue from YouTube rose just 5% to $7.4 billion, compared to an 84% increase in the same period a year ago, perhaps reflecting tougher competition from rivals such as TikTok.
However, CFO Ruth Porat stressed that the strength of the US Dollar had taken off almost 4% from revenue growth and the company has committed to sharpening its focus on costs, including slowing new hires after adding 30,000 full-time employees in the past twelve months.
Microsoft reported a similar slowdown in revenue growth in a more challenging macroeconomic environment which hit the personal computer market particularly hard. Revenue from Azure, its public cloud computing platform, grew by 40% and the company expects to add more than $3 billion to operating income this year by extending the depreciation life of its servers and network equipment from 4 to 6 years.
Amazon reported its second straight quarterly loss but its shares jumped more than 10% on Friday as it was not as bad as expected and CEO Andy Jassy provided a more upbeat outlook. Its $2 billion loss was attributable to a $3.9 billion paper loss on its stake in the electric vehicle manufacturer Rivian. Elsewhere, sales at Amazon Web Services climbed 33% to $19.7 billion and the digital retailer expects to generate more than $125 billion of overall revenue in the current quarter, which will include this year’s Prime Day sales.
It wasn’t all good news for big tech and shares in Facebook’s parent, Meta, fell more than 5% after it reported its first decline in revenue since it went public in 2012. The social media platform has been hit by Apple’s privacy change to its iOS operating system and CEO Mark Zuckerberg warned the “economic downturn will have a broad impact on the digital advertising business”. Monthly active users of its apps, which also include Instagram and WhatsApp, increased to 3.65 billion.
Away from tech, oil majors Chevron, ExxonMobil and Shell all announced record profits for the second quarter as energy prices soared in the wake of Russia’s invasion of Ukraine. Shell, Europe’s largest oil company, generated earnings of $11.5 billion and will buy back $6 billion of its own shares by October.
Earnings reports from banks were also in the spotlight and most didn’t disappoint as higher interest rates enabled them to increase lending margins. HSBC shares rose 6% on Monday after it reported a pre-tax profit of $5 billion, more than $1 billion above analysts’ forecasts. Under pressure from its largest shareholder, Chinese insurance group Ping An, it also committed to restoring its dividend to pre-pandemic levels as soon as possible.
The Federal Reserve raised its benchmark interest rate by another 0.75% last week as it strives to curb multi-decade high inflation. There had been some speculation in the run up to the decision that the Fed could hike by a full percent but weaker economic data held policymakers back.
The world’s largest economy shrank at an annualised rate of 0.9% in the second quarter, its second consecutive quarter of contraction, pushing it into a ‘technical recession’. Whilst personal consumption grew 1% in the quarter, business inventories fell sharply as supply chain bottlenecks eased.
Energy prices eased and Brent Crude fell back to $100 a barrel on concerns slowing economic activity will impact demand. China, the world’s largest crude oil importer, also continues to pursue a strict zero-Covid policy and shut down Wuhan, a city of around one million people, last week after 4 new positive cases were reported. (Cover Image Source: Towfiqu Barbhuiya)