Wednesday 24 July saw one of the worst stock market sessions in many quarters. The main index, the S&P 500, fell by 2.3 per cent, while the technology index, the Nasdaq 100, slid by as much as 3.6 per cent. Both indices are now 4.3 per cent and 8 per cent below their respective peaks. However, if we look at the financial results of the largest companies for the second quarter of this year, we can see that 56 per cent of them reported higher sales than expectations and as many as 78 per cent achieved better profit than forecast. Hence, the current decline seems more like a realisation of gains in earnings expectations than a cause for deeper concern. Let us therefore take a look at the situation of the most interesting companies that have shown financial statements so far.
Table of contents:
Banking sector
Eight of the largest US banks reported higher net profits and revenues than analysts' expectations. Six of them saw an increase in net profits. Goldman Sachs bank had the largest increase in net profits of 150 per cent, whose shares are nevertheless trading down almost 5 per cent from their peaks.
Source: Conotoxia MT5, GS, Daily
The ratio of large US banks' equity to loans and other liabilities, the so-called CET1, is at relatively high levels and does not go below 10 per cent. By comparison, the average value of this ratio during the 2008 financial crisis was in the range of 5-5.5 per cent. This means that the security of the US banking sector is relatively high.
One of the most important financial releases this year is the financial results of technology giant Alphabet (Google). The figures show significant growth compared to the same period last year. The company's revenue increased by 14 per cent year-on-year. The operating profit margin increased from an already high 29 per cent last year to 32 per cent. Finally, net profit growth was 28 per cent. Google search ad revenue accounted for as much as 64 per cent of the company's service revenue, while YouTube ad revenue was 11.6 per cent of total revenue. Despite this, Alphabet shares fell from their peaks by almost 10 per cent!
Source: Conotoxia MT5, Alphabet, Daily
The company's focus on the development of artificial intelligence (AI) is worth noting. We learned from the report that Alphabet is advancing its AI strategy by consolidating its AI model-building teams. These teams, which were previously part of Google Research in the Google Services segment, have now been integrated into Google DeepMind. The aim is to accelerate progress in AI. Alphabet is using its long-term infrastructure strategy and internal research teams to maintain a strong position as AI technology evolves.
Tesla
Perhaps the biggest surprise was the results of Tesla, whose shares fell 12.3 per cent during Wednesday's trading session following the announcement of its financial results. Tesla's Q2 2024 profit fell more than 40 per cent compared to 2023, reflecting increasing competition in the EV market (particularly from China) and slowing EV sales growth. Tesla's financial results were not in line with analysts' forecasts, which overestimated the profit generated by the company in Q2 2024.
Source: Conotoxia MT5, Tesla, Daily
However, Elom Musk has criticised the quality of competitors' vehicles, saying they are only a short-term problem for the company. He also announced that details of the autonomous robotaxi will be revealed in October instead of the planned August. Musk still believes that full autonomisation of the vehicles is possible by the end of this year or early next year. In doing so, he admitted that his earlier predictions were too optimistic.
Conclusions
No major problems are currently evident in most US companies. The financial sector, which was of great concern as recently as last year, is doing remarkably well. As many as 78 per cent of the largest companies published better financial results than forecast. Consequently, the current market declines may be a reaction to last week's blackout of Microsoft's systems and the realisation of some of the gains by investors after a prolonged rise in the indices.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
The above trade publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/2014 of April 16, 2014. It has been prepared for informational purposes and should not form the basis for investment decisions. Neither the author of the publication nor Conotoxia Ltd. shall be liable for investment decisions made on the basis of the information contained herein. Copying or reproducing this publication without written permission from Conotoxia Ltd. is prohibited. Past performance is not a reliable indicator of future results.
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