WeekWatch

The wider media interest in Nvidia’s second quarter results last week demonstrated just how important a few large technology companies have become to the US market.

The market reaction also demonstrated just how much is now expected of them.

In this case, Nvidia beat most expectations, reporting second quarter revenue of $30 billion, versus forecasts of $28.7 billion; announced a further $50 billion share buyback; and said it expected to generate $32.5 billion in the current quarter, $10 billion more than was forecast.

Yet this was clearly not enough for some, and the tech giant suffered a notable drop in its share price, with the company ending the week down over 8%.

While Nvidia’s recent volatility has been the most notable, a number of other large companies in the technology and communications sectors have struggled compared to the wider US market since the general slump at the start of August.

This is in contrast to recent history, where many of these same technology companies powered much of the growth in US equities, leading to value being increasingly concentrated in a small group of extremely large companies, such as the so called ‘Magnificent Seven’.

Outside of this, however, US equities have generally performed well in recent weeks. Markets continued to react positively to Federal Reserve Chair Jerome Powell’s indication that interest rates would likely be cut soon.

The sense of momentum was reinforced late last week, as the core Personal Consumption Expenditures price index – a key inflation metric for the Federal Reserve – came in a touch lower than expected, at an annual rate of 2.6%, within sight of the Fed’s 2% target.

Meanwhile, prior fears of a recession faded further into the background, as the US Commerce Department revised up its second quarter GDP figures from 2.8% growth to 3%.

If this painted a reasonably robust picture of the US, there was more challenging news in Europe.

The German economic malaise continues, with Europe’s largest economy shrinking 0.1% in the second quarter. The country has struggled with a number of issues in recent years, including higher energy costs damaging manufacturing output. Figures released last week showed unemployment rose by less than expected, although it remains at 6.0%, and a fall in job openings recorded by the labour office suggest this struggle is far from over.

Regional elections over the weekend saw the far -right Alternative for Germany party make significant gains in the regions of Thuringia and Saxony, although they are unlikely to control either state without other parties agreeing to collaborate with them – something that has so far not happened.

France is also facing a political situation, as President Macron has so far rejected the candidacy of left-wing Lucie Castets from the role of Prime Minister. This has left the French political system in limbo, two months after a left-wing coalition won the most seats in the surprise snap election Macron called.

This deadlock will have to move soon, as under French law, the Government must submit a draft 2025 budget to Parliament by the start of October.

With a general sense of economic malaise across much of the EU, Mark Dowding, Chief Investment Officer at BlueBay suggests the EU needs to spend big in areas such as defence and energy. However, he notes, “it is questionable whether EU leaders will want to cede increased authority to Brussels to spend, at a time when domestic priorities and national interests are dominating the debate. However, we still expect a material increase in spending in the months ahead, we just don’t know by how much – and the extent to which this may offset the need for lower interest rates in the Eurozone.”

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The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

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“A company that refuses to name a legal representative in Brazil cannot operate in Brazilian territory.”

Brazilian Chief Justice Luis Roberto Barroso on the vote to ban X (formerly Twitter) in Brazil.