This week ahead || Aug 5th - Aug 9th 2024
Intel stock plummets most in 40 years amid massive restructuring
Intel's (INTC) stock plunged more than 26% on Friday, marking one of its worst trading days in four decades following a disastrous Q2 earnings report. The company announced it would cut 15% of its workforce and suspend dividend payments as part of a major restructuring plan. Intel projected Q3 revenue between $12.5 billion and $13.5 billion, falling short of the $14.3 billion expected by analysts. It reported earnings per share (EPS) of $0.02 on revenue of $12.8 billion, below forecasts of $0.10 EPS and $12.9 billion revenue. Intel, which is struggling to regain market share from rivals like AMD and Nvidia, is also investing heavily in new facilities to compete in the chip manufacturing sector dominated by Taiwan Semiconductor (TSMC). The company's Data Center and AI segment reported $3.05 billion, slightly below expectations, and its Client segment, which includes PC chips, saw revenue of $7.4 billion, missing Wall Street's $7.5 billion estimate. Intel faces increasing competition from Qualcomm’s Snapdragon X Elite PC chip, which offers superior power and battery life. The company is also working to expand its foundry business but remains its own biggest client so far.
Apple investors urged to stay calm after Buffett slashes stake
Berkshire Hathaway Inc.'s decision to cut its stake in Apple Inc. by almost half has raised questions about its confidence in Apple's future growth. The sale, revealed on Saturday, reduced Berkshire's position from about $140 billion to $84 billion. This move comes amid a strong stock market performance for Apple, which saw its shares rise 23% during the period of the sale. Despite the reduction, Apple remains Berkshire's largest single position. Analysts suggest the cut is a matter of risk management rather than a lack of faith in Apple’s long-term prospects. Apple’s recent earnings report showed revenue growth and strong future prospects driven by new AI features. While some see the reduction as a precautionary step, others argue it may reflect broader concerns about a potential economic downturn or a shift in investment strategy.
Morgan Stanley on Markets: Path to a 'Goldilocks' scenario is narrowing
Morgan Stanley has highlighted increasing difficulties in achieving a "Goldilocks" scenario—an ideal economic balance of moderate growth and low inflation. Their latest report notes that the potential for Federal Reserve rate cuts, driven by a slowdown in June inflation, led to significant market movements: a 3% decline in the S&P 500 and a drop of double that amount in the Nasdaq Composite Index, while the Russell 2000 Index saw a gain of over 10%. Despite the overall optimism, Morgan Stanley observes mixed economic surprises and limited positive earnings surprises, with skepticism about returns on generative AI investments. Their Global Investment Committee remains cautious, emphasizing challenges such as reliance on jobs for consumer spending, high expectations for corporate margins, and slowing global growth. They advise diversifying assets, focusing on valuation and growth at a reasonable price, and being wary of chasing small-cap momentum or recent market trends.
Top 5 things to watch in markets in the week ahead
In the week ahead, economic concerns are set to remain prominent as fears grow that the Federal Reserve may have kept interest rates too high, potentially stifling growth. Key data releases include the Institute of Supply Management’s service sector index on Monday, and a weekly update on jobless claims on Thursday. San Francisco Fed President Mary Daly and Richmond Fed President Thomas Barkin will also speak, offering insights into potential rate cuts.
High-profile earnings reports from Caterpillar, Walt Disney, Eli Lilly, and Super Micro Computer will provide further insights into the health of various sectors. U.S. stocks continued to struggle last week, with the Nasdaq Composite entering correction territory amid concerns about a slowing economy and disappointing results from Amazon and Intel.
In China, economic indicators including a services activity survey, trade data, and consumer prices will shed light on the recovery prospects for the world’s second-largest economy. Recent data and surprise rate cuts suggest urgency in Beijing's efforts to stimulate growth.
The Reserve Bank of Australia is expected to keep rates steady in its upcoming policy meeting on Tuesday, with markets anticipating a possible easing later this year if inflation continues to slow.
Oil prices fell to their lowest levels since January due to weak economic data from the U.S. and China. Investors are also monitoring geopolitical tensions in the Middle East and OPEC+ decisions, with the group’s recent meeting leaving production cuts unchanged.