By Craig Hoyda, Senior Quantitative Analyst, Multi-Asset Investing
Technology stocks have long been the darlings of the US stock market, with investors mesmerised by seemingly unstoppable growth. Their popularity is still indisputable: Apple, Amazon and Microsoft frequently battle it out to be the world’s biggest company by market capitalisation, for example. Recently, however, some bugs have appeared in the tech=huge profits code.
Take the record fine faced by social-media platform Facebook for violating its users’ data privacy. The penalty was recently confirmed at $5 billion. Huge as amount this seems, however, it equates to only about a month’s revenue for the company. Meanwhile, regulatory worries over Facebook’s planned cryptocurrency, Libra, are likely to delay its anticipated launch in 2020. Jerome Powell, chair of the Federal Reserve (FED), has said that Libra raises “serious concerns regarding privacy, money laundering, consumer protection and financial stability.”
Elsewhere in the tech sector, Amazon is facing investigation by the European Union over data misuse, and France has confirmed that it will apply a new tax to digital revenues, despite objections from US President Donald Trump. Are we about to see a trade war fought in cyberspace?
Then there’s Netflix, which is facing more competition from Apple, Amazon, Disney and now ITV and the BBC. A significant slowdown in subscriber growth caused the market to punish Netflix shares severely. The tech-heavy NASDAQ Index was down 0.5% over the week to close on Thursday. Its wider counterpart, the S&P 500 Index, fell 0.6%.
Trading blows and woes
Since the commerce quarrel started, investors’ minds have not strayed far from it. A survey of global fund managers, carried out by Bank of America Merrill Lynch, revealed that their biggest worry is still the ongoing dispute. This has been the case in 15 of the past 17 monthly polls.
In Asia, export figures from Singapore appeared to foreshadow the effects that the clash could have on global commerce. As one of the world’s most trade-reliant economies, Singapore’s export numbers are closely followed by analysts as a signpost for trends in trade around the globe. In June, the value of goods that Singapore sold abroad fell by 17.3% compared with the same month in 2018.
Chinese economic data was a little more encouraging, however. Economic growth slowed to 6.2%, as expected. The fixed-asset investment, industrial-production and retail-sales components of growth all came in above consensus. Chinese stocks were down over the week, with the Shanghai 180 Index falling 1.1%. China’s trade adversary, the US, fared a little better: various survey data points provided confirmation that strong retail sales (up 0.4% on the month) figures are not just a data blip. The case for the Fed to ease monetary policy has become a bit cloudier.
Oil slides while gold shines
The price of oil declined sharply this week, with the cost per barrel of Brent crude falling 7.5% to $61.82. A supply glut of shale oil, is for the moment, overpowering news of increased tensions in the Middle East to drive the price down.
Gold, on the other hand, has been enjoying a surge in popularity. Investors are drawn to the precious metal as an alternative to government bonds. Yields for many bonds remain stubbornly low, or, in some cases, negative. Investors are pricing in two rate cuts over the next three months: failure by the Fed to act in July could lead to more market volatility.
In other Bond news, it seems the film franchise could also be shaken and stirred. Reports this week speculated that Captain Marvel actor Lashana Lynch has been cast as a character who takes over the 007 designation when Bond retires.
We’ve been expecting you…
…to come in lower. The US second-quarter earnings season is now under way. Things seem to be off to a good start, with many of the companies that have so far reported their profits beating estimates. Nevertheless, the possibility remains that expectations were set too low in the first place. Of the companies that have reported to date, Bank of America, Citi, Goldman Sachs, Johnson & Johnson, JP Morgan beat expectations. CSX and Wells Fargo disappointed.
In accordance with this week’s other technology and super-spy talking points comes an invention worthy of Q himself. Crowds attending Bastille Day celebrations in Paris were stunned by the sight of a figure soaring over the Champs-Elysees atop an individual “flyboard”. French inventor Franky Zapata clutched a rifle as he manoeuvred the machine as part of an armed forces parade, hinting at its potential military uses. The board was deemed “modern and innovative” by France’s president, Emmanuel Macron. What can we say to all those who said jet packs would never take off? Never say never again…
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