Update Equities: Same drivers, different week
Macroeconomic data, tariffs and earnings continue to be closely monitored market factors. The earnings season is past its peak, and the majority of global companies have published their results by now. The results have been relatively strong, but has this translated into positive share-price reactions?
So far, the ratio of positive earnings surprises versus disappointments has been strong compared with recent history. This performance occurred, however, after the bar for second-quarter results was lowered and, perhaps, even to unrealistically low levels.
As a result, markets were hesitant to reward positive surprises. Instead, results that were relatively in line with expectations or lacked a guidance upgrade, experienced a more negative price reaction than usual. Tolerance for weakness in financial results can therefore be considered low.
We still saw a considerable number of companies opening their books this week. Infineon, a leader in semiconductors, was able to post solid results with better than expected earnings. Furthermore, the impact of tariffs on revenue will be less pronounced according to Infineon’s management. The full year outlook saw a slight increase in gross margins and a more significant profit-target upgrade.
The German insurer Allianz delivered strong results as well. Operating profit was a positive surprise, with especially strong profitability for the property & casualty segment. The solvency II ratio, an important capital ratio, was also better than expected. The company still has the same operating profit guidance in place, which was perhaps a minor disappointment.
In the US, Palantir Technologies continues to deliver. The data-analysis software company saw another quarter in which growth rates accelerated for nearly all key metrics and this came after an already strong start to the year. The revenue growth target for this year was increased and currently sits at +45%. This good news was combined with improving margins.
Vertex Pharmaceuticals reported healthy financial results with earnings for the second quarter comfortably ahead of expectations. Investors, however, focused on some pipeline weakness. An update on the regulatory path for Journavx, a chronic pain drug, showed that the US Food and Drug Administration does not see it being labelled as a treatment for broad peripheral neuropathic pain. This was clearly a setback for Vertex after a quarter of solid execution.
Semiconductor producer AMD had decent results, with strong revenue growth and a relatively small miss of its earnings target. Its next-quarter guidance was strong, but AMD was unable to give a clear view regarding its return to Chinese markets. This uncertainty combined with elevated expectations resulted in some share-price pressure.