Weekly Market Update 02/08/2024
It was all eyes on central banks this week, with both the Federal Reserve and the Bank of England meeting to discuss whether to reduce interest rates. The Fed were the first to meet on Wednesday and decided to leave rates unchanged for the eighth meeting in a row, keeping borrowing costs at a 23 year high. However, Fed chair Jay Powell did say that a rate cut could be on the cards in September. On Thursday, the BoE made the decision to lower interest rates by 25 basis points to 5% after inflation remained at the 2% target in June. BoE governor Andrew Bailey said that although rates have been cut now, not to expect a flurry of cuts as inflation has not yet eased enough.
Microsoft was the first of four of The Magnificent Seven to release results this week. Shares in the Silicon Valley giant fell after quarterly earnings came in below analyst expectations and the true extent of spending on artificial intelligence was made clear. Although Microsoft continued to experience strong sales, demand for AI has exceeded their capacity and these limitations are expected to continue into 2025.
On Wednesday, Meta announced that strength in their core advertising business would allow continued spending on AI over the next couple of years. The share price shot higher on Thursday, with shareholders buoyed by the earnings report. The stock is now up 45% year to date at the time of writing.
In the final flurry of Magnificent Seven results this week, Amazon and Apple reported on Thursday. Amazon failed to impress as it reported higher capital spending and shrinking margins, causing the share price to drop 8% in after hours trading. Shareholders are cautious that spending on AI will need to start bearing profitable fruit. At the other end of the scale, Apple’s results impressed with a 5% increase in revenues in the 3 months to the end of June, however, this did not reflect in the share price as it ticked up and down in after-hours trading. They also announced the launch of their AI-enhanced operating system “Apple Intelligence”, which became available to developers this week.
Andrea Wood, Chartered MCSI
Investment Manager
