For those old enough to remember, TWTWTW
We now know the Fed is not apparently in any hurry to cut interest rates, even bringing into question whether May is too soon to consider easing monetary policy. The economic picture remains a mixed one; there are signs the employment market is weakening; we should see later how much, against the latest ISM Manufacturing report, which the US economy is in pretty good order as orders and prices ticked higher. Traditionally, the Fed does not cut until there are clear signs of an economic slowdown, and this may be the case again this time. The Bank of England likewise left rates where they were. I’m not sure how often this has happened in the past, but there seemed to be a real diversion of opinion as to what was the correct course of action at present, with one member voting for a cut and two voting for another quarter-point rise. Andrew Bailey believes inflation will fall below 2% in the coming months, but as was the case with Powell, he made no promises as to when the Bank of England will lower rates.
Part of me is reminded of the old adage what seems all too good to be true often is. The idea the US economy will hum along nicely, prices will continue to fall, and the Fed will ease accordingly, driving the next leg of economic growth ably assisted by the benefits of the AI revolution may well be the outcome most everyone currently assumes and would be lovely if this is the case. Life never seems that simple, and at some point, that view may well be tested.
We had five of the Magnificent Seven report earnings this week, and no one deeply disappointed, aside from possibly Apple. There were degrees of success. Microsoft continues to generate cash, and its revenue increased 17.6% year over year in the quarter. For a company of the size of Microsoft, that is an amazing achievement as demand for cloud services continues. Alphabet met its targets, but the market was slightly underwhelmed by advertising revenue. To demonstrate the cash generation these big tech names generate, Meta’s announcement that it was returning 50 billion of cash to its shareholders was widely cheered on by investors, and an actual cash dividend was also announced. Could this pave the way for others, such as Apple and Alphabet, to follow suit? Amazon revenues jumped by 14% in the final quarter; again, one can see why these stocks are so loved, and make no mistake, fund managers do love them. Demand for iPhones is apparently not all it once was, as revenues fell during the quarter. Equity markets look like ending the week on a positive note. With earnings reports largely out of the way, Central Bankers can return to their day jobs; portfolio managers may take something of a sigh of relief.