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Client Update - 2nd February 2024

Keeping track of global markets, economic trends and investment opportunities always keeps the investment team busy, but some weeks are busier than most. Headlines on the mega cap tech stocks continue to dominate news flow around the world as the majority of the Magnificent 7 reported earnings. Let us continue to refer to this group as that for now, but really, we know it is down to the Magnificent 6 as Tesla fell by the wayside last week. The bad news just keeps on coming for the founder of Tesla, Elon Musk.  A Delaware judge upheld a lawsuit from a Tesla shareholder that challenged Musk’s $55 billion of stock options he has granted himself over the course of the last decade, declaring it to be excessive. If this ruling stand, then Elon Musk will drop from the wealthiest person in the world, to merely number 3. Microsoft reported extremely solid numbers, but they were only in line with analysts' lofty projections and so the stock fell modestly after its results. Alphabet (the parent company of Google) reported a slowdown in advertisement revenue which triggered an aggressive sell off, with the stock declining 7.5% in one day.

 

Things looked a little rosier at Amazon and Meta (Facebook), both reporting robust sales and earnings for the previous quarter and an upbeat outlook. Interestingly, it was the traditional business lines and significant cost saving through headcount reductions that were the primary drivers of these results. Apple took the shine off Thursday’s earnings by reporting results that disappointed many investors. Sales of iPhones, Mac computers, iPads and services all came in slightly under expectations, with a significant weakness visible in Chinese markets. Apple has long been the king of record earnings but looks to have lost its golden touch of late. For the moment, any profits from AI related activities across all of the tech stocks (except for chipmaker Nvidia) are still conspicuous by their absence, despite the billions being invested by these companies.

 

The US Federal Reserve announced that interest rates would remain unchanged on Wednesday. Even more so than normal, investors scrutinised every word of chairman Jerome Powell's press conference for clues on the path of interest rates over the course of 2024. Powell continue to push back on an early March rate cut, whilst continuing to acknowledge that interest rates had likely peaked and are set to fall later in the year. His comments reflect the continued softer inflation data and a weaker US labour market, that suggests a slowdown in the world's most important economy. It is also important to highlight that the Federal Reserve will have one eye on the downward trend in global liquidity, which could have a significant impact on the capital position of America's small and mid-sized banks. We are watching this keenly as well.

 

The Bank of England left interest rates on hold after the Monetary Policy Committee meeting on Thursday. The governor Andrew Bailey was keen to point out the relative strength of the UK economy and employment markets, cautioning that inflation is still some way from the official 2% target. There had been some speculation that the Bank of England might be the first major central bank to lower interest rates in 2024, but this is now looking less likely after Thursday’s announcements.

 

Yet again economic forecasters and journalists have been overly keen to write off the UK economy, and it is heartening to see such resilience even in the face of such high interest rates and geopolitical challenges. One hopes that UK PLC, much like the heroic performance of the men's cricket team in India, will continue this unexpected comeback. Do have a good weekend.

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