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Magnificent Seven Earnings

Market Update

27.01.2025

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What happened last week?

US

  • The S&P 500 reached new heights, with investors encouraged by the prospect of a business-boosting presidential administration

Europe

  • Europe’s Stoxx 600 index hit a record high

Asia

  • China announced fresh measures to stabilise its stock market
  • The Bank of Japan hiked interest rates to keep the economy and inflation sweet

Why It Matters

The new administration’s first orders of business seemed to bode well for markets. Not only did it hold back on actually implementing its most aggressive tariff plans, but it also rolled out the $500 billion "Stargate" AI project – a bold plan from OpenAI, Oracle, SoftBank, and MGX to build AI data centres and power plants across the US. Throw in Netflix’s stellar earnings, and it’s no surprise the S&P 500 hit an all-time high of 6,100 on Wednesday.

It’s not just the US basking in optimism. Europe’s Stoxx 600 index hit a record high last week too, as investors began betting that US tariffs might not be as harsh as feared. That’s a big shift considering how much European stocks lagged behind their US counterparts last year. With European shares still trading at a hefty discount and many investors underweight on the region, this building momentum could draw in more interest and add oomph to that rally.

Over in China, the government announced fresh measures aimed at attracting steady capital to the stock market, including encouraging pensions to invest more in listed companies and prompting listed companies to buy back more shares. After all, previous stimulus packages have failed to stabilise the wobbling economy, and now the new US government is bringing more geopolitical uncertainty. Investors aren’t expecting immediate fireworks, but it’s another step toward improving the long-term case for Chinese stocks.

The Bank of Japan just raised short-term interest rates to around 0.5%, a level not seen in the country since the global financial crisis. The goal is to keep Japan’s economy on an upward trajectory while ensuring inflation – which has finally come alive after decades of falling and flatlining prices – stays in a welcome range. The central bank made sure this hike was well-telegraphed, burned by the market chaos that followed July's surprise one.

The Focus This Week: Magnificent Seven Earnings

Four of the "Magnificent Seven" – Meta, Microsoft, Tesla, and Apple – drop their results next week. These aren’t just any earnings: they’ll set the tone for markets against a backdrop of Trump’s return to the White House, a bold economic agenda, and shifting global dynamics.

The new administration seems supportive of Big Tech. Besides seating the industry’s head honchos front and centre at the inauguration, the new president has already announced the ambitious Stargate AI Initiative and promised to slash regulations. So now, investors are expecting the biggest tech companies to deliver on AI and other future bets. Though while the opportunities might seem endless, so do the risks: sky-high valuations, sticky inflation, rising interest rates, and a fragile geopolitical landscape mean uncertainty is running just as hot as expectations.

Next week’s results and outlooks – plus investors’ reactions to them – will reveal how Meta, Microsoft, Tesla, and Apple are balancing opportunity and risk. Beyond that, their earnings will offer hints about the US at large: these companies are bellwethers for innovation, demand, and confidence across a range of sectors. A strong showing could solidify hopes of US economic resilience under tech-friendly policies, but any misstep could put the brakes on this year’s tech rally.

The sky-high valuations of US tech stocks have been put in further focus this week after Chinese AI startup DeepSeek yielded results comparable to established AI programs. The notion has long been that Chinese developers were far behind their US counterparts when it comes to Artificial Intelligence, and DeepSeek’s capabilities put a big question mark to that narrative. Furthermore, DeepSeek’s AI model is based on simpler and cheaper and therefore more cost-effective chips than the ones used in US models, worries arise that the dominance and valuation of companies such as Nvidia is not justified.

The Week Ahead

  • Monday: Germany business confidence (January), Earnings: AT&T
  • Tuesday: US durable goods orders (December), Earnings: Boeing, General Motors, Starbucks
  • Wednesday: US interest rate decision, Earnings: IBM, Meta, Microsoft, Tesla
  • Thursday: Eurozone interest rate decision, Eurozone economic growth (Q4), Eurozone unemployment (December), US economic growth (Q4), Japan inflation, China manufacturing activity (January), Earnings: Blackstone, Caterpillar, Mastercard, Thermo Fisher, Apple, Intel, Visa
  • Friday: US PCE inflation (December), France inflation, Germany inflation, Earnings: Exxon Mobil, Chevron, AbbVie, Aon

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