Before the bell: Stock markets give up gains

After the strong performance of last week, US technology giants had to ease off the accelerator. Later today, investors will be able to react for the first time to Apple’s results.

Markets give back gains

After Wednesday’s record session, US equity markets took a breather on Thursday. The technology-heavy Nasdaq (-0.7%) was under pressure mainly from heavyweights such as Microsoft (-10.0%), CrowdStrike Holdings (-5.2%) and Datadog (-8.8%). Slower-than-expected growth at Azure and sharply higher capital expenditure at Microsoft (+66% year on year) prompted investors to hit the sell button.

In Europe, German enterprise software group SAP (-16.1%) dragged the DAX 2.1% lower. The company’s outlook disappointed, weighing on the broader sector. On the positive side, Meta (+10.4%) provided a counterweight after posting far better-than-expected quarterly results. Cruise operators Carnival (+8.5%) and Royal Caribbean Cruises (+14%) also moved higher following strong results from Royal Caribbean. Demand for cruises remains robust, much to investors’ delight.

In Asia this morning, the falling gold price stands out. Gold is down 2.8% following rumours that Trump may nominate Kevin Warsh as the next chair of the Federal Reserve. Among the remaining candidates, Warsh is seen as favouring a tighter monetary policy than others, reducing the likelihood of rate cuts. In South Korea, the Kospi index is up another 0.9% this morning, reaching a new record level. Investors will soon be able to react to Apple’s quarterly results. The company reported record revenue and generated more than 1 million dollar in revenue per minute on average last quarter. SpaceX, meanwhile, is said to be considering a potential merger with Tesla (-3.5%). Later today, results are also due from American Express, Chevron and Exxon Mobil.

SanDisk breaks an unwritten market rule

In the financial world, results that come in far above analyst expectations are rare. This is largely because management teams tend to guide analysts cautiously during earnings calls, steering expectations in a certain direction. A consensus that is a few percent higher or lower is common, but the way memory chip maker SanDisk has surprised the market is highly unusual. Revenue of 3 billion dollar, about 300 million dollar above expectations, was already impressive. But now it appears that the revenue outlook for next quarter is no less than 60% higher than analysts had forecast. Profit is also expected to be roughly double expectations. SanDisk is once again stunning the market after an already blistering rally. Over five months, the stock has gained 1,200% in market value. With results like these, there could well be more upside to come.

Apple beats expectations, but investors remain cool

In yesterday’s after-the-bell analysis, we already calculated that Apple would post record quarterly revenue for the first time, averaging around 1 million dollar per second. We turned out to be somewhat too cautious. With revenue of 143.8 billion dollar (expected: 138.4 billion dollar) and earnings per share of 2.84 dollar (expected: 2.67 dollar), Apple comfortably beat both our own and market expectations. Yet the stock barely benefits in after-hours trading, even after already falling 4.7% this year.

Part of the explanation lies in the success of memory producers such as SanDisk. With memory prices surging, the question arises whether Apple may eventually have to raise iPhone prices. Tim Cook refused to speculate on that during the analyst call. Apple thus joins the list of companies this earnings season that beat expectations but are not rewarded by the market. One striking detail is that half of iPhone and MacBook sales came from new customers, while revenue in China jumped 38% to 25.5 billion dollar. There is little to criticise in the figures themselves.

Did you know…

that Apple now has an active installed base of 2.5 billion iPhones, MacBooks and other Apple devices? Investors track this number closely, as it is a key indicator of the potential market for Apple’s high-margin services business.