(Bloomberg) — Asian stocks fell after the “Magnificent Seven” big technology companies got off to a weak start in earnings reports.
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Stocks in Japan, South Korea and Australia followed U.S. stocks in the past week as traders assessed after-hours earnings from major U.S. companies including Tesla Inc and Alphabet Inc. The Taipei stock exchange will be closed due to a typhoon.
Investors had been banking on tech gains to help sustain the bull market that has driven U.S. and global stocks to record highs. But that didn’t happen as Alphabet Inc.’s stocks tumbled after its CEO suggested patience was needed to see tangible results from its investments in artificial intelligence. Tesla Inc.’s shares tumbled as much as 7% after it reported weaker-than-expected profits and postponed its robotaxi event until October.
“Given the high earnings expectations of the Magnificent Seven, these companies will have a lot to prove,” said Anthony Sagrimbene at Ameriprise. “At the same time, their prospects will likely be heavily scrutinized relative to their inflated valuations.”
In Asia, Typhoon Gami was approaching Taiwan bringing strong winds and heavy rains, forcing Taipei to suspend its $2.4 trillion stock market. No trading of securities, currencies or bonds will take place in Taiwan on Wednesday, the Taiwan exchange said.
Investors are also focusing on China, where economic problems and geopolitical risks have caused markets to lose momentum. On Tuesday, the domestic benchmark CSI300 index closed down 2.1%, its biggest drop in six months, as a lack of major policy support after the Third Plenary Session of the Central Committee intensified bearish sentiment.
In Japan, meanwhile, political frustration is growing over the central bank’s cautious stance. The BOJ’s ultra-low interest rates have kept the yen under downward pressure, and inflation continues to outpace the central bank’s target and wage growth. Speaking a week before the bank meets to decide whether to raise interest rates, ruling party heavyweight Motegi Toshimitsu said the bank should signal more clearly its intention to normalize monetary policy.
Strong results on Wall Street will provide a much-needed boost to stocks after a strong first half of the year. The market is under pressure as it heads into a seasonal slowdown and the U.S. presidential election could add to volatility. But in addition to woes at big technology companies, United Parcel Service Inc. suffered its biggest selloff on record after missing profits.
The story continues
The Big Five U.S. technology companies are facing a tougher earnings cycle than last year’s stellar earnings cycle, with the group’s profits expected to rise 29% in the second quarter from a year earlier, according to data compiled by Bloomberg Intelligence.
While still strong, that’s down from the past three quarters, and how stocks will react to earnings remains one of the biggest uncertainties for investors.
“The fact that these stocks were in a weak spot ahead of their earnings releases isn’t necessarily a bad thing, as it just means the hurdle for stocks to rise in the run-up to the earnings release may be unrealistically high,” Bespoke Investment Group said. “It doesn’t take a gymnast to know that the lower the hurdle, the easier it is to overcome it.”
Investors are worried about a continued sell-off in big U.S. tech shares, but Barclays strategists say strong earnings prospects mean the stocks remain attractive after the recent sell-off.
Venu Krishna’s team raised its year-end target for the S&P 500 index to 5,600 points from 5,300 points, citing strong earnings prospects for big technology companies.
“While our valuation assumptions for large technology companies are high, growth-adjusted multiples are reasonable and we expect the group to deliver earnings commensurate with its valuation,” they said.
Investors may also continue to analyze the impact of President Joe Biden’s suspension of his re-election campaign.
“The impact on sectors associated with Republican or Democratic dominance on these policy issues will likely be different in the future compared to the past,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “For most investors, the most powerful strategy in an election year is simple: continue to diversify rather than chase tactical bets, especially before we know the likelihood of actual policy changes.”
US 2-year Treasury yields fell after a $69 billion auction, confirming market expectations of a rate cut. Treasury futures fell as investors awaited the Treasury auction and US manufacturing PMIs. Crude oil fell on algorithmic selling and a summer liquidity slump.
Company Highlights:
Visa Inc. reported quarterly earnings that fell short of Wall Street expectations, a rare development for the world’s largest payments network.
Soft drinks giant Coca-Cola raised its full-year outlook as higher prices helped improve business performance.
General Motors Co.’s profits rose 60 percent from a year ago, far beating Wall Street expectations as demand for gasoline-powered trucks in the United States strengthened.
LVMH’s sales growth slowed last quarter as the wealthy curbed spending on pricey Louis Vuitton handbags and Christian Dior couture.
Major events this week:
Canada interest rate decision Wednesday
U.S. New Home Sales, S&P Global PMI, Wednesday
IBM, Deutsche Bank Earnings Wednesday
German IFO Business Environment, Thursday
US GDP, initial jobless claims, durable goods, Thursday
US Personal Income, PCE, Consumer Sentiment Friday
Some of the key market developments:
stock
S&P 500 futures were down 0.4% as of 9:07 a.m. Tokyo time.
Japan’s TOPIX falls 0.4%
Australia’s S&P/ASX 200 fell 0.2%
Euro Stoxx 50 futures up 0.3%
currency
The Bloomberg Dollar Spot Index was little changed.
The euro was little changed at $1.0848
The Japanese yen weakened 0.2% to 155.89 yen to the dollar.
The offshore yuan was little changed at 7.2913 per dollar.
Cryptocurrency
Bitcoin rose 0.2% to $66,006.01.
Ether little changed at $3,482.3
Bonds
merchandise
This story was produced with assistance from Bloomberg Automation.
–With assistance from Jason Scott.
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