Reflecting on the past month, Jeremy Richardson explores:
Technology hyperscalers haven’t lost their enthusiasm for AI, good news for those selling to cloud computing companies.
Mixed news on the industrial scene as positive momentum seems to have dissipated.
The US consumer is feeling the squeeze, and looking to maximize the value they get from their household dollars.
Confidence is rebuilding from the fact that the US Federal Reserve has indicated that we're at the peak of the US interest cycle.
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Transcription
Hello, this is Jeremy Richardson from the RBC Global Equity Team here with another update.
I wanted to share with you some thoughts about what we've been seeing from the reporting season, which is now drawing to a close.
Three observations. The first one is around the technology complex. Here, the news has been generally pretty good. It feels as though companies, particularly the large hyperscalers, so these are the cloud computing companies, don't seem to have lost any of their enthusiasm for artificial intelligence, and they are still spending high levels of CapEx, on research into this area. And this is good news for all of those companies who are selling to these cloud computing companies. So these are the semiconductor chip manufacture areas, the memory chip manufacturers or the equipment makers.
The second thing that's of interest is what we've been seeing on the industrial complex. And here the news has actually been a bit more mixed, consistent with what we've been seeing from the US PMI survey data, which shows that the early, some of the late spring sort of positive momentum seems to have dissipated somewhat. And that much more mixed picture is now being played back to us in terms of the outlook statements from many of these industrial companies, that's worth watching very closely.
And the final thing, the third thing I wanted to mention was what we've been seeing on the consumer side. And this is perhaps, the most interesting and most relevant because the US consumer is still feels as though they're under somewhat a degree of pressure and, they're trying to maximize the value they get from their household dollars. So they're exercising much more choice. They've been much more selectful about, where they want to spend their money. And it means that if you are a retailer or a consumer facing company that is offering exceptional value at really attractive prices, you’ve probably got a business which is doing fairly well. But if you are an average business with an average proposition and average prices, and then you may be struggling, and this is leading to greater dispersion across the consumer group of companies.
Put it all together, and what it's given us is a result season, which on balance looks very similar to previous seasons in terms of the number of companies that have been beating estimates. However, the mix of how they've been able to get there is different, because it's more weighted this results season towards margin rather than to sales. And you might say, well look, it's the earnings per share it's the profits at the end of the day that really matter. And there's a high degree of truth to that, but you can't have margins in the long term unless you also have revenue growth. You need the two things to work hand in hand. Otherwise the margins may prove to be unsustainable in the very long term. And so, this brings us to the outlook for the economy, because it's the economy which is going to be helping the outlook for that revenue growth.
And so, it looks as though the debate about, in particular the US economy and whether it has a hard or a soft landing, the consensus seems to be shifting towards, at worst, a soft landing, maybe, possibly even a no landing. And so, confidence is actually rebuilding from the fact that the US Federal Reserve has, very helpfully indicated at Jackson Hole, that we're at the peak of the US interest cycle and it expects to be cutting from here.
Investors will be very happy to see that because it will help the outlook for the US consumer side of the business, of the market. You think back to those retailers and, you know, consumers exercising more choice and that then will feed through into the industrial side, and to the market as a whole. So hopefully a more constructive outlook for investors and as a, as owners of businesses, we hope, a strong competitive advantage to these companies, we hope, should be even better positioned to benefit from that sort of market construct.
I hope that's been of interest. And I look forward to catching up with you again soon.