A more positive tone to global markets has been evident this week. US equities were higher on Monday night, the S&P500 up 1.9 per cent, extending a turnaround after dipping into bear market territory intraday on Friday.
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Comments by President Joe Biden that removal of China tariffs were under consideration as a potential driver of more positive sentiment, but overall the broader news flow appears very much mixed. European Central Bank President Christine Lagarde signalled an end to negative rates in the third quarter.
The positive start to the week for equity markets comes after seven consecutive weeks of declines. Financials led gains, the sector gaining 3.2pc, helped by 7.3pc gain for JP Morgan Chase on the back of updated guidance that painted a more positive picture for the near term credit outlook.
Gains were seen across industries. The Dow added 2pc and the Nasdaq was 1.6pc higher. European equities were also higher, the Euro Stoxx 50 up 1.4pc. Over the past weeks, some of the heaviest falls have occurred among US technology stocks. This pull back has been attributed to the sharp rise in bond yields.
Despite this, many stocks in the sector have reported acceptable earnings. Microsoft's earnings recently beat expectations with revenue increasing by 18pc, although this was a relatively minor increase over analysts' expectations.
The two main areas of weakness cited by the company were the suspension of new sales in Russia and COVID-related factory delays in China.
The Microsoft Cloud platform, Azure, produced results that indicated less disruption to the business from macro factors than had been feared. Microsoft's business would appear to have a level of pricing power which is useful in the current inflationary environment. The stock price has fallen from a 52 week high of $349.67 to the last traded price of $260.65.
Microsoft's business would appear to have a level of pricing power which is useful in the current inflationary environment.
Another technology stock, Alphabet, reported results that missed analysts' estimates, but revenue from Google Cloud grew 43.3pc. The share price has fallen from a high of $3042 to $2233 at the last traded price. YouTube revenue was lower while overall search revenue was broadly in line. Despite a mixed set of results, the nature of the business would suggest that overall earnings disappointment had been factored into the share price.
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser.
- Christopher Hindmarsh is an adviser at JBWere Limited.
