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Yahoo
5 days ago
- Business
- Yahoo
Tariffs, Fed, tech results headline jam-packed markets week
By Lewis Krauskopf NEW YORK (Reuters) -A looming U.S. deadline for more severe global tariffs is among a barrage of upcoming events threatening to disrupt an increasingly calm U.S. stock market that has set a string of all-time highs. President Donald Trump has extended a deadline to August 1 for when higher levies will take effect on an array of trading partners unless deals are struck. That could boost market volatility heading into next Friday. Much more is on the calendar that could move markets. Investors will watch the Federal Reserve's monetary policy meeting, the monthly U.S. employment report and earnings reports from megacap companies Apple, Microsoft and Amazon. "There is going to be a lot to digest for markets into next week," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. "Expectations from the markets have gone up relative to several months ago," Miskin said. "So it's just going to be another big week for trying to meet loftier expectations." RECORD HIGHS, FALLING VOLATILITY The benchmark S&P 500 kept tallying new all-time highs during the week. Equities have recovered from a plunge after Trump's April 2 "Liberation Day" tariff announcement set off fears of a recession that have since ebbed. The S&P 500 has surged 28% since its low for the year a week later, while the tech-heavy Nasdaq Composite has jumped 38% in that time. "We just got three years of return in three and a half months," said Chris Galipeau, senior market strategist at the Franklin Templeton Institute. "The equity market needs to consolidate this move." Market volatility measures have eased considerably. The Cboe Volatility Index spiked to 60 in April, but has been below its long-term median of 17.6 for most of July and on Wednesday posted its lowest close in five months. However, pockets of volatility have emerged in the past week. Eye-popping gains in highly shorted stocks such as Kohl's and Opendoor Technologies heralded the possible return of a "meme stock" craze that could signal some over-exuberance in risk appetite, at least among retail investors. Meanwhile, the record-setting rally has lifted valuations to historically expensive levels. The S&P 500 was trading at 22.6 times earnings estimates, well above its long-term average P/E ratio of 15.8, according to LSEG Datastream, which could make the market vulnerable to disappointments in the coming week. Higher tariffs on the European Union and many other countries could take effect on August 1. Trump had paused many of the most severe of his reciprocal tariffs in April, following the bout of extreme market volatility. "There is a particular belief and conviction that the market has that the administration just won't be as aggressive as they've been threatening because of what was experienced in early April," said Kevin Gordon, senior investment strategist at Charles Schwab. "The next hurdle in the trade (situation) is really to see what sticks." FED OFFICIALS AWAIT TARIFF IMPACT The Fed is widely expected to hold interest rates steady in its monetary policy decision on Wednesday, as central bank officials want more data to determine if tariffs are worsening inflation before they ease rates further. But tensions between the White House and the central bank over monetary policy have heightened, with Trump repeatedly denouncing Fed Chair Jerome Powell for not cutting rates. Two of the Fed Board's Trump appointees have articulated reasons for supporting a rate cut this month. A packed week of corporate results includes Apple, Microsoft, Amazon and Facebook parent Meta Platforms, four of the "Magnificent Seven," whose stocks heavily influence benchmark indexes because of the companies' massive market values. With about 30% of S&P 500 companies having reported results, overall second-quarter earnings are on track for a 7.7% increase from a year ago, according to LSEG IBES. That would beat a 5.8% estimated rise on July 1. The week ends with the monthly U.S. employment report on Friday. Employment in July is expected to have increased by 102,000 jobs, according to Reuters data as of Thursday, after rising by 147,000 jobs in June. "We've had relatively strong economic data that almost shows a modest re-acceleration in the economy in June and I think markets are priced to reflect this re-acceleration," Miskin said.
Yahoo
5 days ago
- Business
- Yahoo
Tariffs, Fed, tech results headline jam-packed markets week
By Lewis Krauskopf NEW YORK (Reuters) -A looming U.S. deadline for more severe global tariffs is among a barrage of upcoming events threatening to disrupt an increasingly calm U.S. stock market that has set a string of all-time highs. President Donald Trump has extended a deadline to August 1 for when higher levies will take effect on an array of trading partners unless deals are struck. That could boost market volatility heading into next Friday. Much more is on the calendar that could move markets. Investors will watch the Federal Reserve's monetary policy meeting, the monthly U.S. employment report and earnings reports from megacap companies Apple, Microsoft and Amazon. "There is going to be a lot to digest for markets into next week," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. "Expectations from the markets have gone up relative to several months ago," Miskin said. "So it's just going to be another big week for trying to meet loftier expectations." RECORD HIGHS, FALLING VOLATILITY The benchmark S&P 500 kept tallying new all-time highs during the week. Equities have recovered from a plunge after Trump's April 2 "Liberation Day" tariff announcement set off fears of a recession that have since ebbed. The S&P 500 has surged 28% since its low for the year a week later, while the tech-heavy Nasdaq Composite has jumped 38% in that time. "We just got three years of return in three and a half months," said Chris Galipeau, senior market strategist at the Franklin Templeton Institute. "The equity market needs to consolidate this move." Market volatility measures have eased considerably. The Cboe Volatility Index spiked to 60 in April, but has been below its long-term median of 17.6 for most of July and on Wednesday posted its lowest close in five months. However, pockets of volatility have emerged in the past week. Eye-popping gains in highly shorted stocks such as Kohl's and Opendoor Technologies heralded the possible return of a "meme stock" craze that could signal some over-exuberance in risk appetite, at least among retail investors. Meanwhile, the record-setting rally has lifted valuations to historically expensive levels. The S&P 500 was trading at 22.6 times earnings estimates, well above its long-term average P/E ratio of 15.8, according to LSEG Datastream, which could make the market vulnerable to disappointments in the coming week. Higher tariffs on the European Union and many other countries could take effect on August 1. Trump had paused many of the most severe of his reciprocal tariffs in April, following the bout of extreme market volatility. "There is a particular belief and conviction that the market has that the administration just won't be as aggressive as they've been threatening because of what was experienced in early April," said Kevin Gordon, senior investment strategist at Charles Schwab. "The next hurdle in the trade (situation) is really to see what sticks." FED OFFICIALS AWAIT TARIFF IMPACT The Fed is widely expected to hold interest rates steady in its monetary policy decision on Wednesday, as central bank officials want more data to determine if tariffs are worsening inflation before they ease rates further. But tensions between the White House and the central bank over monetary policy have heightened, with Trump repeatedly denouncing Fed Chair Jerome Powell for not cutting rates. Two of the Fed Board's Trump appointees have articulated reasons for supporting a rate cut this month. A packed week of corporate results includes Apple, Microsoft, Amazon and Facebook parent Meta Platforms, four of the "Magnificent Seven," whose stocks heavily influence benchmark indexes because of the companies' massive market values. With about 30% of S&P 500 companies having reported results, overall second-quarter earnings are on track for a 7.7% increase from a year ago, according to LSEG IBES. That would beat a 5.8% estimated rise on July 1. The week ends with the monthly U.S. employment report on Friday. Employment in July is expected to have increased by 102,000 jobs, according to Reuters data as of Thursday, after rising by 147,000 jobs in June. "We've had relatively strong economic data that almost shows a modest re-acceleration in the economy in June and I think markets are priced to reflect this re-acceleration," Miskin said. Sign in to access your portfolio
Mint
17-07-2025
- Business
- Mint
Lofty US stock market valuations bank on earnings strength
NEW YORK, - With Wall Street's surge to record highs, the U.S. stock market looks nearly as expensive as ever, and investors are debating whether the lofty valuations are a bearish signal or justified by the technology-heavy market's profit outlook. Few investors would argue the broad stock market is cheap. Since late last month, the benchmark S&P 500 has traded above 22 times its expected earnings over the next year, according to LSEG Datastream. That's a price-to-earnings level the index has ascended to only about 7% of the time over the past 40 years. Determining appropriate market valuations could help investors understand how expensive stocks could get or how deeply they might fall, especially if there are renewed recession concerns. Whether current valuations are an imminent sell signal remains to be seen. Investors say the U.S. stock market can trade at elevated levels for an extended period of time. Some investors believe a number of structural changes could justify higher stock valuations, including greater representation in indexes from tech companies that generate massive profits. "By pretty much every historical metric is rich," said Keith Lerner, co-chief investment officer at Truist Advisory Services. "The question investors are grappling with is, is it warranted?" The S&P 500 has soared 25% since April, as investors grew less fearful that President Donald Trump's "Liberation Day" tariffs would cause a recession. The index has gained 6% so far in 2025, and over 60% in the past three years. As of Tuesday, the S&P 500's forward P/E ratio was 22.2, according to LSEG Datastream. That level is over 40% above the index's 40-year average of 15.8 and about 20% above its 10-year average of 18.6. A metric comparing price to expected sales shows the S&P 500 trading over 60% above its average of the past 20 years, according to Datastream. "On the broadest basis, the market has clearly got a valuation headwind relative to where it has been in history," said Patrick Ryan, chief investment strategist at Madison Investments. Investors debate the relevance of historical comparisons. The bigger presence in indexes of technology and tech-related companies, which tend to carry higher valuations, drives up the P/E ratio, while the profit strength of the largest companies also means the index could deserve higher valuations, investors said. The S&P 500's operating profit margin stood at 12% at the end of 2024, up from 9% in 2014, according to S&P Dow Jones Indices. Other potential justifications for higher valuations include regular buying of equities from 401 and other retirement plans, and lower fees for index funds easing access to stocks. While studies show elevated valuations suggest diminished returns over the longer term, they are not always the best "timing tools" for determining the market's near-term direction, said Ed Clissold, chief U.S. strategist at Ned Davis Research. Still, Clissold said, "a lot of good news is priced into stocks at these levels." In the April swoon, the S&P 500's P/E ratio sank to 17.9; in 2022's bear-market drop, driven by spiking interest rates, the P/E fell as low as 15.3. Indeed, investors are wary that current valuations make stocks particularly susceptible to disappointments. One worry: Washington could fail to strike deals with trading partners ahead of August 1, when higher U.S. levies on numerous countries are set to start. Another shock could be the early departure of Federal Reserve Chair Jerome Powell, whom Trump has persistently pressured to leave. Corporate results also pose a test. Second-quarter reports are kicking off with S&P 500 earnings expected to have increased 6.5% from the year-earlier period, according to LSEG IBES. Wall Street increasingly is focused on next year's profit potential, with S&P 500 earnings expected to rise 14% in 2026. "Investors seem somewhat convinced that the S&P is going to generate about 10% earnings growth for a few years after this year," said David Bianco, Americas chief investment officer at DWS Group. "The equity market has become fairly dismissive of any kind of significant recession risk." Some investors say that if artificial intelligence adoption broadly benefits the economy, "then maybe the valuations would be justified because the earnings growth the next few years could be substantial," Clissold said. To be sure, some investors are investing more in relatively cheaper areas such as small caps and international stocks. Ryan and others point to higher yields on U.S. government bonds, seen as risk-free if held to term, as one factor dimming the allure of stocks. The benchmark 10-year yield is around 4.5%, well above its level for much of the past 15 years. "There are alternatives out there for you to move your capital to," Ryan said. Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said the firm is recommending clients trim equities in areas including industrials and consumer discretionary sectors, expecting broadly slowing earnings growth in coming months before accelerating. The firm has a year-end S&P 500 target of 6,000, about 4% below current levels. "Valuation-wise, stocks are pretty lofty," Wren said. Still, he added, determining a fair valuation is trickier than it has been. "Where is the line in the sand between expensive and not expensive?" Wren said. "It's harder to determine that." This article was generated from an automated news agency feed without modifications to text.
Mint
15-06-2025
- Business
- Mint
It's a scary world, but investing abroad has new attractions
The ECB, headed by Christine Lagarde, has cut rates, though higher energy costs from Mideast hostilities might give it pause. It's easy to think of Europe as the investment that time forgot. Even after this year's strong performance, European investments have lagged far behind the U.S. for the past decade and more. But it would be wrong to regard Europe as having been a disaster forever: Look backward, and it matched American stock returns for decades before the euro crisis and the rise of Big Tech in the U.S. Investors might question the current mania for investing outside the U.S., when stocks in the rest of the world gained 14% this year against the U.S.'s 2% (about half of the rest of the world's gain was due to the plunging greenback—all figures in dollar terms). And Israel's strikes on Iran, with the potential economic hit to Europe from higher oil prices and disrupted shipping lanes, highlight the geopolitical risks in investing abroad. But too many people focus on the dismal returns since 2010, when the Greek crisis began, and forget that once Europe was a viable investment alternative. The scary stat: Since 2010 the S&P 500 is up more than 500%. European stocks are up less than 150%. The reminder: In the previous 15 years, from 1995, the S&P made only 130% while Europe gained 220%. The important question is what changed in the past decade and a half to make investors believe in U.S. exceptionalism—and might it change back? The simplest answer is the rise of the so-called Magnificent Seven, part of a dominance of new technology by the U.S. that swept the world. The original seven-largest U.S. stocks—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla (the carmaker has since been overtaken by chip maker Broadcom)—spent heavily on research and development and now dominate several highly profitable emerging industries. That propelled them to end last year collectively worth more than all listed European companies, as measured by LSEG Datastream. R&D is a strong predictor of future earnings and last year, for the first time, today's Mag7 companies (including Broadcom, rather than Tesla) spent more on R&D than all European listed companies combined, according to Michel Lerner, head of UBS HOLT research. The result is that U.S. corporate R&D spending soared from 1.3 times as much as in Europe in 2007 to three times as much last year. 'It's somewhat sobering for Europe, since there is a lot of evidence that R&D spend typically creates barriers to entry that support higher [return on investment] and growth for longer," he said. Europe's failure to keep up with emerging tech shows up in big U.S. companies having far higher profit margins than big European ones. Among smaller companies, though, profit margins are about the same. Strip out the skew toward the biggest by putting equal weight on each S&P stock—rather than putting more weight on the more valuable, as the basic index does—and U.S. and European returns were roughly the same from the end of 2021 until the November election. It isn't so much U.S. exceptionalism, as Mag7 exceptionalism. Yet, the difference isn't all about Big Tech. Europe's economy has been sluggish ever since its currency crisis of the early 2010s, while inflexible labor law combined in some cases with political pressure meant companies were slow to cut back on capacity. The result is less intense use of factories and other assets, meaning an even bigger advantage for U.S. return on investment than the gap in margins implies. These differences were compounded from 2017 onward by a sharp rise in U.S. valuations that wasn't matched in Europe. Again, this was about the biggest companies; U.S. smaller companies trade at a premium to Europe, but about the same as they always have. So, back to what's changed. On R&D the signs are that European governments have realized they have an issue, but have yet to do anything about it. At least they accept they have a problem, however, both with R&D and with the stultifying effects of too much regulation. On the economy, Europe has decided for the first time since the euro crisis that it needs to let rip with government spending. Germany is leading the way, plowing money into defense and infrastructure, which ought to reflate its economy—and help lift corporate capacity utilization and profits. The European Central Bank has been cutting rates, too, though higher energy costs after Israel's strike on Iran might give it pause. 'There's a rotation going on," says Jim Caron, chief investment officer of the portfolio solutions group at Morgan Stanley Investment Management. 'Europe's got monetary policy stimulus, and it's got fiscal policy stimulus. It has a currency tailwind." The trade-off confronting investors: The U.S.'s biggest stocks are more innovative and profitable but also far more expensive, while Europe's are much less interesting but are cheap and have stimulus, plus an appeal to investors looking to diversify away from their highly concentrated U.S. holdings. Europe just has to close the performance gap with the U.S. a little to make it an interesting investment—again. Write to James Mackintosh at
Yahoo
16-03-2025
- Business
- Yahoo
£25,000 invested in Rolls-Royce shares 3 years ago is now worth…
£25,000 invested in Rolls-Royce (LSE:RR) shares three years ago would now be worth around £210,000. Hurts to say that because I did have a sizeable Rolls-Royce holding, which was reduce for a house purchase. Nonetheless, I'm thankful for having some exposure to this 738% rally. The remarkable bounce in Rolls-Royce shares stems from a combination of strategic leadership, operational improvements, and favourable market conditions. CEO Tufan Erginbilgiç, who took the helm in 2023, spearheaded a transformative era for the company, focusing on aggressive cost-cutting, efficiency gains, and strategic investments. In 2023, Erginbilgiç launched a comprehensive restructuring programme, streamlining operations and optimising procurement. These efforts paid off in 2024, with Rolls-Royce reporting a 16% revenue increase to £17.8bn and a 57% jump in operating profit to £2.5bn, surpassing expectations. The company also reduced its net debt significantly. Net cash stood at £475m at the end of 2024. This compares to a £2bn net debt position at the end of 2023. The post-pandemic recovery of the aerospace sector played a pivotal role, with large engine flying hours reaching 80-90% of 2019 levels by 2024. Rolls-Royce also secured major defence contracts, including a £9bn deal with the UK Ministry of Defence, further boosting investor confidence. Defence stocks have surged since Donald Trump's return to office. His demands for NATO members to raise defence spending have created a favourable environment for European defence companies, with the Datastream euro area defence index climbing 25% since his inauguration. What's more, in February, Rolls-Royce announced a £1bn share buyback and reinstated dividends, marking its first payouts since the pandemic. These moves, combined with a strong outlook for 2025, have cemented its position as a top-performing FTSE 100 stock. Things are undoubtedly looking up for Rolls-Royce, with business booming across all sectors. The company has seen a remarkable post-pandemic recovery, driven by strong performance in civil aviation, defence, and power systems. In light of the above, its defence revenue is projected to grow at an 11% compound annual growth rate (CAGR) through 2029. Meanwhile, its operating margins are expected to rise from 14.2% to 15.9%. Additionally, Rolls-Royce's small modular reactor (SMR) initiative has generated significant excitement. Developments have positioned the company as a leader in next-generation nuclear technology. However, the stock's forward price-to-earnings (P/E) ratio of 31.9 times suggests it may appear expensive. That's especially compared to the broader market, particularly as it exceeds the FTSE 100 average. But General Electric, a key competitor, trades at a higher forward P/E of 35.8 times. This suggests Rolls-Royce's valuation isn't an outlier in its niche sector. One risk to consider is the company's reliance on civil aviation earnings, which were acutely highlighted during the pandemic. Any future disruptions in the aerospace sector could impact Rolls-Royce's performance, despite its current momentum. Investors should weigh these factors carefully as the stock continues its upward trajectory. Personally, I'm a little hesitant to add to my position at this elevated level. Nonetheless, I think it's an excellent company. I wouldn't be surprised to see more catalysts. The post £25,000 invested in Rolls-Royce shares 3 years ago is now worth… appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool James Fox has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Sign in to access your portfolio
