Update Equities: New all-time high for Nasdaq
The returns of the major indices for equity markets for this week are mixed. In the US, returns were rather flat for the S&P 500 Index, whereas investors in European stocks were confronted with small losses. The growth- and technology-tilted Nasdaq Index outperformed the more broad-based S&P 500 Index. The Nasdaq closed on Tuesday for the first time above 18,700, a new all-time high.
As we are in the middle of the quarterly reporting season, stock prices are being largely driven by company results and expectations about the quarter and year ahead. Unfortunately, solid operating results are not always rewarded with positive share-price gains after results are published.
Swiss pharmaceutical company Novartis published excellent results, beating market expectations on sales and profitability. And for the third quarter in a row, management increased the profit guidance for the remaining three months of fiscal 2024. But the lack of disclosure about management expectations for 2025 resulted in a 4% loss, as investors are more and more focusing on the year ahead.
Alphabet’s third-quarter results showed that its corporate spending spree on artificial intelligence (AI) is starting to pay off by delivering better-than-expected traction for its cloud computing business and driving more usage for its flagship search engine. Demand for AI-related products and cloud services remains very healthy. At Microsoft, the management team even indicated that it is difficult to increase the supply of data center capacity in line with such strong demand. Microsoft’s Azure is one of the largest cloud services providers. It has a quarterly revenue base of approximately USD 40 billion. Despite its size, Azure cloud revenue growth over the last three months was an impressive 34%. Due to capacity constraints, Microsoft management forecast slower growth for next quarter, namely 31 to 32%, but this was not enough to push the share price higher. In after-market trading on Wednesday, Microsoft’s share price was down by 4%. This is another example of a company publishing better-than-expected quarterly sales and profitability results, but not being rewarded by a positive daily return after their publication.
Jeffrey Vonk
