Update Equities: No summer break for IT
Turmoil in financial markets at the end of July was followed by a steady recovery of US and European equity markets. This week, US equities ended their longest winning streak of the year: on Tuesday, the S&P 500 Index closed slightly lower, after closing higher for 8 consecutive days.
US consumer spending in July exceeded expectations, reducing the risk of a hard landing of the US economy. Equity markets reacted positively to the data, with technology stocks leading the way. Interest-sensitive sectors, such as utilities and real estate, were lagging after benefitting from declining bond yields in previous weeks. Financial markets are eagerly awaiting the yearly symposium of central bankers in Jackson Hole on Friday. Investors are particularly interested in what Fed Chair Jerome Powell has to say about US monetary policy.
With the quarterly reporting season coming to an end, two technology stocks notably contributed to the positive sentiment in the IT sector. Palo Alto Networks posted a strong set of quarterly results. Looking forward to 2025, the company provided a strong forecast based on margin expansion, increased recurring revenue and tailwinds from artificial intelligence (AI). The company also boosted its share buyback programme. Cisco Systems posted a positive growth guidance for the fiscal year 2025. This year’s acquisition of data collector and analyser Splunk will enable Cisco to grow its cloud business and AI-driven activities. Although Cisco is not seen as a major winner within the field of AI, the company is expected to show growth in this area. A 7% reduction of its workforce – announced by Cisco last week – will give the company more leeway to invest.
This week, notable M&A news (mergers and acquisitions) emerged from the IT sector as well. On Monday, semiconductor company AMD announced it will acquire ZT Systems, a company designing server solutions for cloud and IT infrastructure. Through this acquisition, AMD aims to strengthen its position in AI.
Looking at the health care sector: medical equipment company Medtronic released quarterly results this week. Medtronic’s revenues exceeded expectations. The company is on track to realise its multi-year annual growth target of 5%. Three of the four divisions of Medtronic performed better than expected, with diabetes devices showing the most impressive growth.