Happy Friday from a blustery London. The markets have done their level best to keep us on our toes this week, balancing a slew of corporate earnings against a stubborn macroeconomic backdrop. Here is how the wave broke, and what it means for your portfolio.
The Semiconductor Story: Timing is Everything
This week saw key updates from some of the heavyweights of the AI and semiconductor space.
ASML 0.00%↑ ASML delivered a solid beat on earnings, driven by improved margins and the relentless drumbeat of AI demand. However, they slightly missed revenue estimates. For those familiar with ASML, this is a known quirk: due to the massive size of their systems, revenue is only booked upon delivery. If a shipment slips by a single day at quarter-end, revenue swings disproportionately relative to a typical company. Consequently, despite the strong underlying fundamentals, the stock is trading down 6% since.
TSMC, on the other hand, reported major growth with clean beats on both the top and bottom lines. Yet, just like ASML, the stock fell after the results.
Meanwhile, we await full results from Samsung, which has only provided pre-guidance so far, with their official earnings expected in the coming weeks.
Luxury’s China Problem
Outside of tech, LVMH caught our attention. The luxury conglomerate missed slightly on earnings and posted flat revenue growth. The culprit? Weaker-than-expected demand in China. For years, the Chinese consumer has been the engine of LVMH’s revenue and earnings growth. This slowdown is a notable red flag and something investors should monitor closely as a bellwether for the broader luxury sector.
Financials: A Mixed Bag of Treasuries and Trading
The banking sector delivered a highly mixed bag, heavily influenced by turbulence in the treasury market. Elevated inflation, rising rates, and volatility in fixed-income markets have pressured the fixed-income divisions of major banks.
However, there were bright spots. JPMorgan managed to guide higher on its net interest margin (NIM) outlook, anticipating that elevated inflation and higher rates will continue to support Net Interest Margins. This structural advantage allowed the stock to edge higher.
Goldman Sachs reported a massive, unexpected beat in its equities division. Yet, in a recurring theme for the week, the broader market malaise meant it wasn’t enough to lift the stock, which fell regardless of the strong fundamental performance. Similarly, BlackRock announced a staggering $200 billion in asset inflows, pushing their total AUM to $15 trillion.
The Macro Driver: Inflation Bites Back
Why are companies beating earnings estimates only to see their stock prices flatline or fall? The answer lies in the macroeconomic data.
U.S. inflation data was released this week, with CPI coming in at 3.7% year-over-year, running hotter than the 3.4% anticipated by analysts. Even stripping out energy, core inflation remains higher than the market, and the Federal Reserve, wants to see.
Source: Wall Street Journal
This hotter-than-expected print is the true driver of this week’s price action. It explains the rotation we are witnessing: tech and financial stocks are struggling to catch a bid despite strong earnings, while defensive names like Johnson & Johnson and UnitedHealth ticked updward. Investors are actively shifting into defensive positioning in response to the “higher for longer” interest rate reality.
Podcast Highlights: Masterclasses in Capital Allocation
Finally, if you haven’t already, check out our recent conversations on the podcast:
The Future is Uncertain with Sean Peche: A masterclass in money management and career longevity. The feedback on this episode has been phenomenal, packed with actionable nuggets and insights for investors.
Andrew Hollingworth: A fascinating look at pure business analysis. Andrew’s approach to finding great businesses without getting bogged down in extraneous analysis is refreshing, and his story about a crucial lesson learned from an Apple holding a decade ago is required listening for any investor - set to drop in the coming days.
That’s how the wave broke this week. Keep an eye out for The Coming Wave in the next couple of days. Have a great weekend.
📖 Glossary of Terms
AUM (Assets Under Management): The total market value of the investments that a person or entity (like BlackRock) manages on behalf of clients.
Core Inflation: A measure of inflation that excludes volatile items like food and energy prices, providing a clearer picture of underlying inflation trends.
CPI (Consumer Price Index): A measure that examines the weighted average of prices of a basket of consumer goods and services. It is the primary indicator used to track inflation.
Defensive Stocks: Shares in companies that provide consistent dividends and stable earnings regardless of the state of the overall stock market (e.g., healthcare, utilities, consumer staples like Johnson & Johnson).
Fixed Income: Investments that pay a fixed schedule of interest or dividend payments, such as government or corporate bonds (Treasuries).
Net Interest Margin (NIM): A profitability metric for banks, measuring the difference between the interest income generated by banks and the amount of interest paid out to their lenders (depositors). Higher rates generally improve NIM.
Pre-guidance: Financial estimates provided by a company’s management prior to the official release of their full quarterly or annual earnings report.
Treasuries: Debt obligations issued by the U.S. government. They are highly sensitive to interest rate changes and inflation expectations.
YoY (Year-over-Year): A method of evaluating two or more measured events to compare the results of one time period with those of a comparable time period on an annualized basis.
