The mood on the markets is generally positive, and the week’s agenda is busy with the ongoing earnings season, interest rate meetings and trade policy.
In mid-October, the price fluctuations amplified by trade policy have once again moderated. The stock markets are back on the rise, and only slight fluctuations have been seen in the fixed-income markets. The exchange rate between the dollar and the euro has stabilised recently, and the sharp depreciation of the dollar earlier this year has levelled off.
The US government shutdown continues, however. This is currently the second-longest closure in history, which, if it continues, could cause problems, for instance, in the availability of medications.
This is a busy week for the markets, with central bank interest rate meetings scheduled on both sides of the Atlantic. The markets are expecting a quarter-point interest rate cut from the Fed. No changes to the key interest rate are expected from the European Central Bank (ECB).
A key trade policy event is the meeting scheduled for Thursday between US President Donald Trump and Chinese President Xi Jinping in South Korea during the APEC summit. According to official sources, the US and China are close to a trade agreement. If the meeting goes ahead, it will be the first between the presidents since 2019. Recently, Trump has also made positive comments about a possible trade agreement with Brazil.
In the USA, around 30 per cent of companies have now reported their Q3 earnings. Earnings growth of about 15 per cent has clearly exceeded expectations, and net sales have also developed positively, with average growth of around 8 per cent. However, for example, most of the Magnificent 7 companies have not yet reported their earnings, and at this time, earnings can therefore only be considered indicative.
Growth in the technology and finance sectors has been particularly strong. In the consumer sector, economic growth appears to be weaker than before based on the figures reported so far.
In Europe, about a quarter of companies have reported their earnings, so the sample size is still quite small. So far, earnings have increased by an average of around 17 per cent, which is largely explained by the significant earnings improvements of a few individual companies.
However, during the ongoing earnings season, some companies have also reported clearly weaker figures, and companies seem to be more distinctly divided into high performers and low performers. This is due especially to the negative effects of import tariffs and the weakened dollar on certain industries and companies.
The tech sector has been driving strong earnings growth in the USA for some time now, currently accounting for roughly half of total earnings growth. If communication services are included, such as Google and Facebook’s parent company Meta, the share increases even more.
The US stock market is currently exceptionally concentrated. The three largest companies by market value currently account for about 20 per cent of the total market capitalisation. And with the ten largest companies added together, their share rises to 45 per cent of the entire market. The majority of these companies with the largest market value operate in the tech sector.
The great significance of the tech sector is both a strength and a weakness. The strength of the sector is that it is not as sensitive to economic cycles as many other sectors. The US labour market has weakened this year, which in turn negatively affects private consumption and consequently the economy. The decline in private consumption does not, however, have a very strong impact on technology companies.
The challenge is that earnings growth is currently largely dependent on a single factor. According to market estimates, if technology companies’ growth were to slow, there might not currently be any replacements for them.
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