Before the bell: Magnificent 7 continues to outperform

The Magnificent 7 companies delivered strong results, although heavy investment plans may temper investor enthusiasm. The oil price is rising for the ninth consecutive day.

US markets remained close to the previous day’s closing levels on Wednesday. Both the S&P 500 and the Nasdaq finished less than 0.1% away from their prior close. The focus was mainly on four of the seven Magnificent 7 companies reporting earnings. Meta Platforms saw revenue increase by 33%, but will invest between 125 and 145 billion dollar in growth this year. In after-hours trading, the stock fell 7%. Amazon fared better, with revenue rising by 28% thanks to strong cloud growth. The group beat analyst consensus, sending the stock 2.7% higher in after-hours trading. At Microsoft, revenue rose by 18% to 82.9 billion dollar. The fact that Microsoft, like Meta, plans to invest heavily this year (190 billion dollar) weighed on sentiment in after-hours trading. Finally, Alphabet appeared to be the winner of the group. Strong results from YouTube and Google Cloud pushed the stock 7% higher in after-hours trading. Policymakers at the Federal Reserve also met on Wednesday evening and decided to keep interest rates unchanged. Three of the twelve policymakers opposed a sentence in the statement suggesting that rate cuts may still follow.

In Asia, sentiment is negative this morning. South Korea’s Kospi loses 1.2% and Japan’s Topix falls 1.5%. For the ninth consecutive day, the oil price continues to rise. The price of a barrel of Brent crude oil climbs 7% in Asian trading to 126 dollar per barrel. Today, Apple, memory producer SanDisk, Reddit, ConocoPhillips, Caterpillar, Mastercard and Altria will report their first-quarter results.

Asia under pressure to raise rates

The first signs of inflation are appearing globally. In Belgium, the publication of the inflation figure was delayed yesterday at Statbel. The index committee, which includes employers, failed to reach a consensus on the correct figure. It now appears that inflation for April exceeded 4%. Elsewhere in the world, inflation is also rising. In the Philippines, the central bank had to raise interest rates as inflation surged to between 5.6% and 6.4%. In India, the Ministry of Finance issued a warning about the state of the economy. The problem for many Asian countries is that their currencies are under pressure due to the oil crisis. As a result, they must pay more for oil on international markets, further fueling inflation. To counter this, interest rates need to rise, but that puts additional pressure on economic growth. The expectation is that Asia will experience a significant slowdown this year due to the impact of the crisis in the Strait of Hormuz.

A poisoned gift

Investor Bill Ackman of Pershing Square Capital Management had a poor trading day yesterday. Ackman wanted to raise 25 billion dollar through an IPO for a new closed-end fund. The plan? To use the capital to buy “bargains” such as Uber and Meta Platforms, which he believes are trading at historically low multiples. In the end, Ackman raised only 5 billion dollar, exactly the minimum required to keep 2.8 billion dollar from early investors on board. The IPO was a flop. The closed-end fund Pershing Square USA dropped 18% after listing. Investors also received a limited number of free shares in Pershing Square, but even including these, shareholders are sitting on significant losses. According to Ackman, Pershing Square USA should trade at a premium if it can match the performance of Pershing Square. In our view, however, it is normal for closed-end funds to trade at a discount. For now, the IPO, including the free shares, looks like a poisoned gift.

Did you know…

that as many as four of the twelve policymakers at the Federal Reserve voted against the interest rate decision? It is the highest level of dissent since October 1992, pointing to significant disagreement about future policy.

This article was translated from Dutch and was originally published on Spaarvarkens.be.