Shares tumble globally on AI concerns

US and European equities plunged on Wednesday amid a broad tech sell-off and disappointing earnings. The S&P 500 fell 2.3%, its worst day since December 2022, while the Nasdaq 100 dropped 3.6%, its worst since October 2022, driven by declines in Alphabet, Tesla, and chip shares. In Europe, the Eurozone’s Stoxx 50 fell 1.2% due to weak earnings from LVMH and concerns over the AI rally, despite some gains in the banking sector.

Summary for 25.07.2024

Asian markets fell sharply on Thursday, driven by a tech sector rout following weak earnings from major US tech companies. Japan's Nikkei 225 and South Korea's KOSPI dropped significantly, while Hong Kong's Hang Seng index also declined. Broader Asian indexes, including Australia’s ASX 200 and India’s Nifty 50, saw profit-taking from recent highs.

The global equity sell-off looks set to extend into Europe on Thursday while US equity index futures rose slightly, suggesting a steady opening as tech shares see bargain buying despite recent disappointing earnings.

Oil prices fell in Asian trade this morning due to weak sentiment towards China and anticipation of upcoming US growth and inflation data. Brent and WTI futures dropped, with prices near two-month lows despite a US inventory drop. Concerns over Chinese demand and potential future oil market surpluses kept traders bearish.

The People’s Bank of China unexpectedly reduced its one-year medium-term lending facility rate by 20 basis points to 2.3%, marking its largest cut since April 2020. This move was part of broader efforts to support the slowing economy. Additionally, the bank injected CNY 200 billion via MLF loans and CNY 235.1 billion through reverse repos, while maintaining the seven-day repo rate at 1.7%.

The S&P Global US Composite PMI rose to 55.0 in July 2024, the highest since April 2022, reflecting ongoing growth. The service sector outperformed manufacturing, which saw its first output decline since January. New work inflows increased but at a slower rate, with employment slowing, business confidence falling, and competitive pressures keeping price increases modest despite rising input costs.

The HCOB Flash Eurozone Composite PMI fell to 50.1 in July 2024, its lowest in five months, indicating near-stagnation in the Eurozone’s private sector. Manufacturing and services both slowed, new orders declined for the second month, and business confidence dropped. Input cost inflation increased, but companies raised prices more slowly. Germany and France both showed reduced business activity.

ServiceNow raised its annual subscription revenue guidance after reporting better-than-expected Q2 results, with adjusted earnings of $3.13 per share and revenue of $2.63 billion. Subscription revenues grew 23%, and the company saw a 26% increase in net new annual contract revenue. Shares rose over 6% in after-hours trading.

KLA Corp reported Q4 EPS of $6.60, exceeding estimates, with revenue at $2.57B. For Q1 2025, it expects EPS of $6.40-$7.60 and revenue of $2.60B-$2.90B, both slightly above consensus. Shares traded 4.1% higher in after-hours.

AT&T exceeded expectations by adding 419,000 wireless subscribers in Q2, driven by attractive unlimited plans and strong 5G and fiber investments. Despite a 0.70% postpaid churn rate and a 9% rise in free cash flow to $4.6 billion, the company missed revenue estimates at $29.8 billion due to slower phone upgrades.

Ford's second-quarter adjusted profit missed expectations due to costly quality issues and EV-related losses, causing shares to drop 11.6%. Despite efforts to transform operations and address structural inefficiencies, Wall Street remains sceptical. The EV segment reported significant losses, while the commercial vehicle business remained profitable.

Renault reported a first-half operating margin of 8.1%, exceeding expectations, driven by strong pricing and new vehicle launches. Sales volume rose 1.9%, with revenue at €26.96 billion. Despite a lower net profit of €1.4 billion, Renault maintains its full-year margin forecast and continues to focus on hybrid models amid slower EV demand.

IBM exceeded second-quarter revenue estimates and raised its annual software growth forecast, driven by increased AI-linked spending. Shares rose about 3% post-results. Software revenue grew 7% to $6.74 billion, while the AI Book of Business hit $2 billion. However, IBM reduced its consulting revenue growth outlook to low-single digits due to clients' spending shifts.

Chipotle Mexican Grill exceeded quarterly sales and profit forecasts, driven by strong demand for its menu items despite price hikes. Shares rose 4.4% as the company announced a $400 million share buyback. Restaurant-level margins improved, though they are expected to face pressure in the coming quarters. The company reported an 11.1% increase in comparable sales and a 17% rise in foot traffic.

Thermo Fisher raised its annual profit forecast to $21.29-$22.07 per share, with shares rallying by 4% during Wednesday’s regular session. The company reported Q2 earnings of $5.37 per share and $5.76 billion in sales from its lab and biopharma services, surpassing analyst estimates.

The recent CrowdStrike outage has led Rosenblatt to adjust FY25 and FY26 revenue projections due to delays and increased support costs but maintains a Buy rating with a $350 target, citing strong fundamentals. The incident is expected to cost U.S. Fortune 500 companies $5.4 billion, with insured losses between $540 million and $1.08 billion, though global insurers should face minimal impact.

Goldman Sachs upgraded Spotify from Neutral to Buy, raising the price target from $320 to $425, citing strong Q2 2024 results, improved margins, and robust free cash flow. They expect continued growth and capital returns, despite potential competitive and macroeconomic challenges. Goldman views Spotify as a leading global audio platform.

Bank of America has increased its quarterly dividend by 8.3% to $0.26 per share, yielding 2.5% annually. The dividend will be paid on 27 September 2024, with an ex-dividend date of 5 September 2024. Additionally, the company has authorised a $25 billion share repurchase programme starting 1 August 2024.

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