22 July 2024
If you are covering the latest news in financial markets, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“President Biden’s decision to take a dignified exit from the election campaign looks set to reignite the presidential race, particularly so with Kamala Harris who represents a continuity with the Biden administration but brings about a different style. Markets have been increasingly pricing in a Trump victory in November, with smaller companies buoyed by expectations for broad import tariffs as well as the growing likelihood of a rate cut as early as September. J.D Vance as Trump’s Vice-Presidential choice has been a divisive one, given he is a man known for wanting to tighten regulation on banks whilst loosening it for cryptocurrency trading. Much will depend on whether the Democrats can unify quickly around a new candidate and whether that candidate can win over the swing states at a time when Trump clearly has the momentum. This news does make a Trump sweep somewhat less of a foregone conclusion and as such we should expect some volatility over the next four months. For now, however, the expectations of rate cuts will remain the driving force for market returns, rather than a noisy election campaign.
“Meanwhile, the earnings season for the second quarter is now getting into full swing, with many big names including Alphabet, Tesla, Amazon, Microsoft and Apple all reporting within the next week or so and Nvidia following suit in late August. Alphabet, which is due to report this week, will see its cloud division come under the scrutiny of investors as to whether it can continue to expand as strongly as it did in the first quarter, as well as on its development of AI tools. Meanwhile at Tesla, there is reasonable optimism ahead of results given we have already learned that the rate of deliveries in Q2 was better than expected, so the focus will shift to profitability and corporate announcements. With the presidential race seemingly back on, the recent rotation out of mega cap tech stocks and into US small companies may fade somewhat, though Trump has been talking about broad import tariffs which would likely support domestic companies first and foremost.
“As you would expect, the Crowdstrike outage has seen its shares suffer considerably, falling 11% on Friday. However, this suggests investors expect the business to eventually rebound and that the company won’t be on the hook for compensation. In fact, in the UK, it was insurers themselves who suffered some of the worst share price declines on the back of the outage – though the experience of the pandemic showed that business interruption insurance doesn’t always pay out when you’d expect it to as it comes down to the specific policy wording. Disruption to financial markets was minimal as a result of this, partly due to the strong IT support that investment firms typically have, as well as the fact the LSE said it was virtually unaffected. It no doubt will have also helped that Crowdstrike quickly said the outage was accidental rather than a cyberattack as had been initially feared. Nonetheless, the outage should be seen as a shot across the bows for companies inherently reliant on IT systems at a time when under-sea cables connecting the world to the internet may well be a new front in future warfare.”
