Update Equities: Tariffs, rates and earnings
The announcement of a trade deal between the US and the EU eased fears of a potential trade war. The deal, however, turned out to be more of a framework and the absence of full details muted equity market optimism.
In addition to tariff talks, the July meeting of the US Federal Reserve has also been in focus with investors. The decision to leave benchmark rates unchanged did not cause a lot of volatility. Instead, corporate earnings were the source of the biggest stock market moves over the past few days.
More than 150 companies in the S&P 500 Index reported their quarterly earnings this week. In Europe, the earnings season is also heating up. We focus here on information technology (IT), health care and financial services, three heavyweight sectors in global equity markets.
In the IT sector, several behemoths published figures. Microsoft beat revenue and profit expectations. Its Azure cloud-business sales growth was an impressive 39% in the past quarter, accelerating from 33%-35% in the previous quarters. Meta Platforms, the parent company of Facebook, Instagram and WhatsApp, also exceeded its guidance and provided an upbeat outlook. Its advertising business was strong, and this revenue will enable further investments in artificial intelligence.
In the health care sector, the picture was mixed. EssilorLuxottica exceeded expectations in the past quarter and confirmed its outlook for revenue growth through 2026. Sales of its Ray-Ban Meta smart-glasses grew strongly, as the company increased its efforts to boost this business. Novo Nordisk, on the other hand, took a fierce hit as the company lowered its sales and operational profit outlooks for the full year, due to weak sales of its weight-loss and diabetes drugs. Competition for the company’s Wegovy weight-loss drug has increased in the US, and Novo Nordisk also expects slower market growth in general.
In the European financials sector, Intesa Sanpaolo’s results were boosted by larger than expected lending income. HSBC suffered from an increase in expenses related to restructuring and an unexpected impairment in China. In the US, credit card company Visa reported results that were better than expected but kept its outlook unchanged. Potential tariffs and consumer spending concerns may be creating headwinds.