Before the Bell: Markets Cruise Higher

U.S. equity markets continue to cruise higher, driven in part by the cruise sector. Oracle tumbled on higher-than-expected data center costs.

In the United States, stock markets keep setting new records. The Dow Jones (+1.3%) reached a new closing high at 48,704 points. Attention also shifted yesterday to the cruise sector. Royal Caribbean Cruises (+7.4%) announced a new 2 billion dollar share buyback program for shareholders. A Bank of America analyst report lifted the entire sector after credit card data showed consumers are increasingly spending on cruises. Peers Carnival (+5.9%) and Norwegian Cruise Line Holdings (+6.8%) benefited from the upbeat sentiment. Oracle (-10.8%) lost ground after it became clear that data center spending was running 50% above analysts’ expectations.

Asian markets are extending Wall Street’s positive momentum this morning. At the same time, the Chinese government indicated that property giant China Vanke can no longer rely on unlimited financial support. Its dollar-denominated bonds are currently trading at around 20 cents on the dollar. Immobel sold an office building in Paris’s Le Marais district, marking its largest office transaction in the past three years. Attention now also turns to the share price reaction of Argenx. Biopharmaceutical company Amgen received approval to bring its drug Uplizna to the U.S. market. The treatment targets the muscle disease myasthenia gravis, making it a competitor to Argenx.

Priced for Perfection

Imagine this scenario. As the CEO of a listed company, you deliver an impeccable quarterly report with nothing to fault. Quarterly revenue comes in half a billion dollar above expectations at 18 billion dollar, while earnings per share of 1.95 dollar beat analyst estimates by 8 cents. The stock rises in after-hours trading and you jump on an analyst call. By the time you exit that call, the share price is suddenly 8% lower than when the call began. That is exactly what happened to Broadcom’s CEO on Thursday evening. The reason: Bernstein analyst Stacy Rasgon pressed explicitly on margin pressure linked to the growth of AI systems. The CEO and CFO confirmed that gross margins are currently declining, whereas the market had been counting on stable or even rising margins. Our take? Nothing is wrong under the hood, but after a 75% rally this year and with a price-to-earnings ratio above 100, investors have little tolerance for even the smallest disappointment. In finance, we call that being priced for perfection.

Joe Sixpack Is Doing Fine

Want to know how the American middle class is holding up? Then it pays to look at the quarterly results of heavyweights like Walmart and Costco. Both retailers offer valuable insight into the health of the U.S. consumer. Of the two, Costco has more of a reputation for catering to price-conscious shoppers. And with rising prices in stores, it seems Joe Sixpack is increasingly hunting for bargains at Costco. Revenue came in at 67.3 billion dollar, some 150 million dollar above expectations. Earnings per share of 4.50 dollar exceeded forecasts by a full 0.22 dollar. The numbers are excellent, and for years Costco has grown earnings per share by more than 10% annually. Still, the stock is not on my buy list today. Costco and Walmart are outstanding businesses, but thanks to their stellar reputations, investors are currently paying a hefty 43.5 times expected 2026 earnings. For a discount retailer, that is far from cheap.

Did you know…

if Chinese property developer China Vanke were to collapse, it would become the largest restructuring story in Chinese history? The group carries 50 billion dollar in debt, of which 7 billion dollar is held by foreign investors.

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