The Week That Was, The Week Ahead: Macro & Markets, November 3, 2024

Everything to Know about Macro and Markets

Major U.S. indexes closed the action-packed week with losses, as Friday’s rebound wasn’t enough to offset Thursday’s sea of red. The S&P 500 (SPX) dropped by 1.37% on the week, while the Dow Jones Industrial Average (DJIA) declined by 0.15%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) fell by 1.50% and 1.57%, respectively.

Megacaps’ Halloween Scare

On Thursday, the S&P 500 fell more than 1.5% as the market reacted to Meta Platforms’ (META) and Microsoft’s (MSFT) earnings. Even though the tech giants reported much better-than-expected results, the market’s reaction was influenced by concerns over increased spending and a more conservative outlook on AI growth from both companies.

While both companies have benefited significantly from AI investments over the past couple of years, they are now signaling a slowdown in AI-related growth. This cautious guidance led some investors to worry about slower overall market growth, which could limit stock price increases. However, this worry is not seen as a major threat to the market at large.

On Friday, Amazon (AMZN) helped stock markets to resume their advance, lending a helping hand to Alphabet (GOOGL) against the many forces conspiring to snap the tech rally. The fourth-largest stock in the S&P 500 and the largest Consumer Discretionary sector company bounced up to end the erratic week significantly higher.

All in all, the tech giants again propped up the earnings season, wielding their significant weight in the S&P 500. With about 70% of S&P companies having already reported, Q3 2024 earnings growth for the companies in the index is now standing at 5%, above the expectations for a 4% bottom-line year-on-year increase.

However, there is still a large question mark hanging over further earnings growth, as some tech leaders offered softer-than-expected guidance for the ongoing quarter. Meanwhile, others penciled in a continued AI-capex splurge, which led to investor worries about narrowing profit margins. Still, analysts expect S&P 500 companies’ 2024 earnings growth to jump from 2023’s 1% to about 9.5%, accelerating to double digits next year.

Macro Drives the Markets

Halloween’s tech-driven plunge on Thursday was also driven by the latest Core PCE report, which cast a shadow on the Fed’s rate-cut outlook. The Federal Reserve’s preferred inflation measure posted its biggest monthly gain since April. However, Friday’s sluggish job market report helped maintain the expectations of another interest-rate decrease at the central bank’s policy meeting this week. Traders now unanimously expect a 0.25% rate cut.  

The U.S. economy added just 12,000 jobs in October, well below the already-low estimates of 115,000, posting the worst job-gain result since the decline in December 2020. However, the outcome was strongly impacted by back-to-back hurricanes and a strike at Boeing, making the job report more noisy than useful. Still, given that the actual job growth from the past two months ended up being lower by 112,000 from previous estimates, the latest numbers fit the trend of deceleration in the labor market.      

The report showing that U.S. manufacturing contracted more than expected underscored the sizable blow that high interest rates delivered to the economy, particularly to the more capital-intensive sectors. The preliminary Q3 GDP growth also came in lower than was anticipated by economists. While the annual economic growth rate of 2.8% is still exceptionally strong, it was less than the 3% the market was expecting, and also represented a slowdown from Q2’s 3% expansion. A solid, but weakening economy suggests the further gradual pace of policy rate cuts.

Stocks That Made the News

¤ Last week was a mixed bag for the “Magnificent” group, with all of them but Amazon (AMZN) and Alphabet (GOOGL) finishing in the red following earnings releases. After dealing with the election outcome and the Fed’s interest-rate decision, investors will strongly focus on the earnings results from the AI leader Nvidia (NVDA), expected on November 20^th. Nvidia’s earnings and guidance will strongly influence future performance not only of the Semiconductor industry and the Technology sector but the broad market, as well.  

¤ Nvidia is set to join the blue-chip DJIA index on November 8th, replacing Intel (INTC). The ailing chip veteran has lost over half of its market value year-to-date even after accounting for Friday’s surge of almost 8%. The embattled stock surged after posting better-than-expected earnings (after accounting for a one-time impairment charge), surpassing revenue estimates. Intel has also posted stronger-than-anticipated revenue guidance for the ongoing quarter. Despite the newfound broad analyst excitement, JPMorgan maintained its “Sell” rating on INTC, saying that its 2027 targets, which were laid out in April, “appear to already be unattainable.”

¤ Amazon (AMZN) climbed over 6% on Friday, presenting the strongest force pushing the S&P 500 higher. The member of the “Magnificent” pack reported strong revenue and much higher-than-expected EPS, with various segments of the company’s business witnessing notable growth over the past year. Importantly, AWS revenue jumped 19% year-on-year. The management released a mixed outlook for Q4, guiding for lower revenue than analysts expected while projecting higher operating income.     

¤ Alphabet (GOOGL) saw its shares rise on the week after reporting strong revenue and earnings growth in Q3. Notably, Alphabet is now also a cloud growth leader, as its Google Cloud revenue surged by 35% year-over-year, surpassing its larger rivals, Amazon’s AWS and Microsoft’s Azure. Alphabet’s results underscored its growing weight in the AI sphere. It is not only integrating AI tools into its products and services but is using the technology to build and expand its offerings. According to the company’s reports, 25% of all new code at Google is now written by AI. However, cutting-edge technology also presents growing challenges for the company, particularly for its Google Search. Thus, OpenAI has launched a new online search feature within ChatGPT, contesting Google’s near-total domination of the global search market.

¤ Microsoft (MSFT) drove the stock markets down on Thursday as jittery markets were spooked by its softer-than-expected guidance. The third-largest S&P 500 member reported an EPS and revenue beat for its fiscal Q1 2025, with the former surpassing the consensus by a wide margin. Azure Cloud Services’ revenue jumped 33% year-on-year, strongly beating analysts’ outlook. However, the tech leader guided for lower revenue growth in the ongoing quarter than analysts expected. The company blamed the muted revenue guidance on outside supplier delays of data center infrastructure inputs, which will impact its ability to meet demand. Microsoft’s AI investments were in focus after the company said that Azure’s growth should pick up speed in FH2 2025. This expected growth acceleration is tied to Microsoft’s ongoing capital investments in expanding its AI infrastructure, which will enable Microsoft to increase its capacity for Azure.

¤ According to a Financial Times report, Microsoft, Alphabet, Amazon, and Meta collectively spent $106 billion on capex in the first six months of 2024, marking a significant increase from previous periods. This surge in spending is primarily driven by investments in AI infrastructure and data centers. Their latest earnings reports suggest a continued trend of increased capital spending among these tech giants, aimed at expanding their AI and cloud infrastructure. Microsoft, for one, said that demand is strongly outpacing its current capacity, which means that the heavy capex outlays are more than justified.

¤ While Microsoft, Amazon, Alphabet, Meta, and Tesla reported strong growth numbers at least in some of their multiple business lines, Apple’s (AAPL) results suggest that it should no longer be considered a growth company, but an established slow-growth blue chip. Apple is also an AI laggard among the “Magnificent” bunch, despite its attempts at incorporating AI features in its latest offerings. The iPhone maker’s shares slid last week despite delivering better-than-expected results for its fiscal Q4, as investors focused on declining sales in China and the tepid outlook for “low to mid-single-digits” revenue in FQ1 2025.

¤ Super Micro Computer (SMCI) was another culprit for the market’s Halloween scare, as its shares dropped by 45% last week alone, sustaining the heaviest loss in the S&P 500. This occurred after one of the top global accounting firms, Ernst & Young (EY), resigned from its role as SMCI’s auditor following months of speculation about the company’s accounting practices, which were put under the magnifying glass by a short-seller Hindenburg Research. EY’s resignation letter was strongly worded, suggesting a deep mistrust in Super Micro’s management and adding significant weight to Hindenburg’s allegations of accounting manipulations at SMCI.

Upcoming Earnings and Dividend Announcements

Over 70% of the S&P constituents have already reported their Q3 2024 earnings, but there are still many newsworthy earnings releases scheduled for this week.

The highlight of this week will be the quarterly reports related to the AI theme from different angles, including Arista Networks (ANET), Palantir Technologies (PLTR), Arm Holdings (ARM), and Super Micro Computer (SMCI).

Other notable earnings releases this week are coming from Berkshire Hathaway ($BRK.B), American International Group (AIG), Microchip (MCHP), Novo Nordisk (NVO), Toyota Motor (TM), Qualcomm (QCOM), Iron Mountain (IRM), Cloudflare (NET), Airbnb (ABNB), Fortinet (FTNT), Datadog (DDOG), Vistra Energy (VST), and other heavyweights from different industries.

Ex-dividend dates are coming this week for Citigroup (C), Baker Hughes Company (BKR), Constellation Brands (STZ), Ford Motor (F), Paychex (PAYX), Energy Transfer (ET), Pfizer (PFE), Apple (AAPL), and other dividend-paying firms.     

For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.