Lets set sail and never leave dry land

Another month draws to a close. This week, the Federal Reserve delivered the 25-basis-point cut that was expected. Jerome Powell added a hint of caution to those who have another cut baked in for December, suggesting they may not be as sure. The reality is that they probably will cut again, despite the justification being hard to find.

Five of the Mag 7 reported this week, Meta, Amazon, Apple, Microsoft and Alphabet and by and large, they met or beat expectations. Amazon and Alphabet shares reacted positively, but overall, there was a sense of travel and arrival, as the Mag 7 “Index” collectively fell around 3% on Thursday, primarily impacted by weakness in Meta’s share price. All companies continue to invest heavily in the growth of AI. Meta’s chief financial officer stated on the earnings call that the company will need to “invest aggressively” in 2026 to meet its computational needs. Between the seven of them, there is already a commitment to spend shy of $500 billion in 2025 alone, and a similar amount is likely to be spent next year. At some point, we will assess whether this investment yields returns that justify the capital expenditure, but that’s for another day.

Finally, Xi and Trump did meet, and the meeting seemed cordial, both recognising that each needs the other, though unlikely to admit it. Trump said he’d rate the meeting in South Korea “12 out of 10”.  For completeness, the ECB met yesterday, and as expected, it left interest rates unchanged, despite a mixed set of economic data from the region yesterday. Stocks fell on Thursday, but overall, there was a general sense of relief that, at the start of the week, any of the above had the potential to cause market volatility, yet none delivered any unpleasant surprises. Also, a bit of profit-taking into the month-end is hardly unusual.

Have we had the Santa rally early this year? Maybe one always gets a little nervous when everything in the garden looks rosy, and many of the bricks in the wall of worry seem to have been removed. Trump and Xi left praising each other. The majority of the US earnings season is over, with another solid quarter seemingly in the bag. Interest rates in America are expected to remain on a downward path, despite some uncertainty about when the next cut will occur. Governments continue to spend despite continued concerns about the level of government debt. One thing is for sure: the world cannot afford a recession. The latest AAII retail investor survey revealed a jump in those retail investors who expect stocks to rise in the coming months. Later today, we get the monthly US PCE inflation data. Enjoy the weekend. I hope for a reversal in Liverpool FC’s fortunes on Saturday night.