technology sector

After a difficult previous year marked by market volatility and economic difficulties, the US stock market has experienced a strong recovery since the start of the new year. This recovery was driven by several key factors: the resilience of the technology sector, growth in the semiconductor industry driven by the development of AI, the expected pause in Fed rate hikes and the assessment of future rate cuts in late 2023 amid lower inflation.    The technology sector, which includes leading companies in innovation and digital transformation, has played a critical role in the market's resurgence. Industry giants such as Apple, Amazon, Microsoft and Alphabet have achieved significant stock price gains as they continue to innovate and provide products and services that meet changing consumer demands. The development of artificial intelligence technology has been a major catalyst for growth in the technology sector.   The semiconductor sector has also been one of the growth drivers of the markets. Companies such as Nvidia and AMD are experiencing strong demand for their advanced chipsets, which are vital for AI applications. The widespread adoption of AI technology across sectors has made semiconductor companies key drivers of innovation, contributing to their stock prices and overall market recovery.   The market was also supported by the expected decision of the Fed to pause its rate hikes. This pause in monetary policy tightening has helped to maintain the thesis of an end to the tightening cycle as early as H2 2023. 

Prioritise quality companies. If an investor needs to take a defensive stance, it is worth turning to quality stocks, as their robust balance sheets and stable cash flows should insulate them from unforeseen downside risk. With this in mind, many of the largest technology and Internet stocks meet these criteria, while exposure to highly cyclical sectors and companies with excessive leverage should be kept to a minimum. Thus, in order to increase the resilience of your portfolios, you should focus on high quality companies, strong dividend payers and also not forget about regional diversification, as lower valuations and a weaker US dollar can also make global stock markets outside the US attractive.   The general understanding is that the market is likely to come out of the correction this year with expectations of a continued recovery in the second half of the year and a return to a bullish trend. This recovery is expected to help recoup portfolio losses from 2022.   However, there are several factors that pose risks to the market in the near future. These risks include the potential for a bear market, which could be triggered by inflation statistics such as the PCE index and strong labour market conditions. Another risk is the narrow scope of the current rally, where only some sectors have shown growth while others, including cyclical, defensive and growth sectors and assets such as bonds, have remained weak. There is also uncertainty about the timing and severity of a possible recession this year. The market is now looking at the likelihood of a moderate recession, which is already factored into current expectations and prices.   Once there is more clarity on these risk factors, portfolio allocation can be adjusted accordingly, considering both bonds and stocks, with a focus on the second half of the year and recovery of losses incurred in 2022. Two scenarios were considered for such an adjustment:   Scenario No. 1, the positive outlook, sees the market rising and breaking through significant resistance levels of 4200-4300 in the SPX index, which would lead to a rally. In this case, it would be prudent to increase long positions. Risky stocks should be held until they reach the most likely level of local recovery, and then locked in. For positions that still have potential, they should be held. The portfolio as a whole should then be rebalanced, creating a new balanced structure with a 25% allocation to cyclical assets, 35% to growth assets, 10% to protection and 30% to bonds.   Scenario #2, the negative outlook, assumes that the market continues to decline either from the current level or below 4100. In this scenario, protection should be strengthened by using inverse ETFs and reducing long positions (using stop losses) until the target stock is reached. This approach aims to minimise further drawdown until the correction is finally resolved in 2023.   The US stock market has thus experienced a strong recovery since the start of the new year, supported by a resilient technology sector, growth in the semiconductor industry due to AI development, a strong Q1 2023 reporting season, a pause in the Federal Reserve's rate hike, expectations of future rate cuts, lower inflation, a resilient economy, a smooth economic landing and a debt limit increase. While risks are still present, a focus on longer-term investment strategies can help investors benefit from the market's upward trajectory and continued recovery in 2H.  

Deflationary spiral risk has negated confidence in China equities. US dollar has continued to hold steady against the yuan despite a broad-based sell-off against other major currencies ex-post US non-farm payrolls. The key intermediate support to watch on the USD/CNH will be at 7.2160. Weak China inflation data offset positive China Big Tech news flow The dreaded fear of a deflationary spiral in China has reached “code red” where the latest consumer inflation rate for June has flattened to 0% year-on-year from a gain of 0.2% year-on-year in May and came in below expectations of an increase of 0.2%. This latest reading in CPI is the weakest rate since February 2021. In addition, producers’ prices (factory gate prices) continued to deteriorate further into contraction mode; it dropped -5.4% year-on-year, faster than a 4.6% fall in May, and worse than expectations of a -5.0% decline. Overall, it has marked the ninth consecutive month of producer deflation and its steepest fall since December 2015. Time is running out for Chinese policymakers to negate the steepening rout in the internal demand environment that can potentially lead to further loss in consumer and business confidence if the deflationary spiral starts to be persistent. It may lead to a liquidity trap scenario in China where monetary policy tools will be less effective to stimulate real economic growth. The forward pricing mechanisms of the stock market seem to have started to take into account some aspects of the negative feedback loop triggered by the liquidity trap scenario, earlier intraday gains of between 1% to 3.2% seen in today’s Asian session on the Hang Seng indices as well as China’s benchmark CSI 300 driven by China Big Tech equities as Chinese regulators have signalled on last Friday after the close of the Asian session to end a two-year plus of crackdown on the technology sector have been reduced by slightly more than half, CSI 300 (0.5%), Hang Seng Index (0.8%), Hang Seng TECH Index (1.25%), and Hang Seng China Enterprises Index (0.7%) at this time of the writing.     China’s yuan remained soft despite the broader USD sell-off       Fig 1:  US dollar rolling 1-month performance as  of 10 Jul 2023 (Source: TradingView, click to enlarge chart) The US dollar sold off last Friday, 7 July reinforced by technical factors after the US Dollar Index cracked below its 50-day moving average that had been acting as a prior minor support since 28 June 2023, also ex-post US non-farm payrolls for June that came in below expectations (209K added vs. 225K consensus). Based on the rolling one-month performances as of today, the USD is weakest against the EUR (-1.89%), GBP (1.81%), and CHF (-1.35%) while holding steady against the offshore yuan, CNH (+1.44%). In addition, the US Treasury 2-year yield premium over an average of key developed nations’ 2-year sovereign yields (Germany, UK, Japan, Canada, Switzerland, Australia, China) has narrowed as well.     USD/CNH short and medium-term uptrend phases remain intact     Fig 2:  USD/CNH short & medium-term trends as of 10 Jul 2023 (Source: TradingView, click to enlarge chart) Since the start of its upside acceleration on 4 May 2023, the USD/CNH has managed to evolve above its 20-day moving average and today’s price action has managed to stage a rebound after a retest on it. If the 20-day moving average now acting as a key intermediate support at 7.2160 is not broken down, the USD/CNH is likely to remain in its short-term bullish trend trajectory which in turn may see further potential weakness in the CSI 300 and Hang Seng indices. The only catalyst for a potential revival of bullish animal spirits in China equities is a clear signal from China’s State Council on the implementation of new fiscal stimulus measures in terms of scope and timing.  

More hints pointing towards the end of regulatory crackdowns for China’s Big Tech In addition, Chinese Premier Li Qiang held a meeting yesterday, 12 July with senior management executives from China’s leading technology companies such as Alibaba Group, Meituan, ByteDance, and Xiaohongshu Technology to discuss how the business operations of the technology sector can help to promote growth in the current lacklustre internal demand environment seen in China. During the meeting, Premier Li urged local governments to provide more support to these technology firms, labelling them as the “trailblazers of the era” and in turn, urged these technology firms to support the real economy through innovation. He added that the government will create a fair environment and reduce compliance costs in order to promote the sound development of the platform economy. Hence, yesterday’s Premier Li meeting has solidified China’s top policymakers’ current stance since last Friday of a more hands-off approach towards China’s Big Tech especially in the e-commerce, fintech, and platform sectors, and an indication the prior three-year of stringent regulatory crackdowns on their business operations have ended.   A weak external environment may still put downside pressure on China’s growth This latest rhetoric from the top man of China’s State Council is likely to boost positive animal spirits in the short-term at least. From a medium-term perspective, the external environment also needs to be taken into consideration when global interest rates are likely to stay at a higher level for at least till the second half of 2024 given the latest hawkish monetary policy guidance from major developed countries’ central banks, the Fed, ECB, and BoE. Therefore, a higher cost of global funding environment is likely to be persistent throughout 2023 and stretch into early 2024 which may continue to put downside pressure on China’s economic growth which is evident in the latest exports data for June which has continued to contract deeper to -12.4% year-on-year from -7.5% recorded in May, its steepest drop since February 2020 and came in below expectations of -9.5%. Hence, the current momentum-driven rally seen in the China Big Tech equities and Hang Seng benchmark stock indices may not oscillate in a smooth trajectory path.  

In a world where economic indicators and market movements can shift with the blink of an eye, staying updated on the latest offerings and promotions within the financial sector is crucial. Today, we delve into one such noteworthy development that has emerged on the horizon, enticing individuals to explore a blend of banking and insurance services. As markets ebb and flow, being vigilant about trends and opportunities can lead to financial benefits. Let's explore this exciting promotion that brings together the worlds of banking and insurance to offer a unique proposition for consumers.     By Michael Hewson (Chief Market Analyst at CMC Markets UK) US non-farm payrolls (Aug) – 01/09 – the July jobs report saw another modest slowdown in jobs growth, as well as providing downward revisions to previous months. 187k jobs were added, just slightly above March's revised 165k, although the unemployment rate fell to 3.5%, from 3.6%. While the official BLS numbers have been showing signs of slowing the ADP report has looked much more resilient, adding 324k in July on top of the 455k in June. This resilience is also coming against a backdrop of sticky wages, which in the private sector are over double headline CPI, while on the BLS measure average hourly earnings remained steady at 4.4%. This week's August payrolls are set to see paint another picture of a resilient but slowing jobs market with expectations of 160k jobs added, with unemployment remaining steady at 3.5%. It's also worth keeping an eye on vacancy rates and the job opening numbers which fell to just below 9.6m in June. These have consistently remained well above the pre-Covid levels of 7.5m and have remained so since the start of 2021. This perhaps explain why the US central bank is keen not to rule out further rate hikes, lest inflation starts to become more embedded.                          US Core PCE Deflator (Jul) – 31/08 – while the odds continue to favour a Fed pause when the central bank meets in September, markets are still concerned that we might still see another rate hike later in the year. The stickiness of core inflation does appear to be causing some concern that we might see US rates go higher with a notable movement in longer term rates, which are now causing the US yield curve to steepen further. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%. This week's July inflation numbers could prompt further concern about sticky inflation if we get sizeable ticks higher in the monthly as well as annual headline numbers. When we got the CPI numbers earlier in August, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. We can expect to see a similar move in this week's numbers with a move to 3.3% in the deflator and to 4.3% in the core deflator.       US Q2 GDP – 30/08 – the second iteration of US Q2 GDP is expected to underline the resilience of the US economy in the second quarter with a modest improvement to 2.5% from 2.4%, despite a slowdown in personal consumption from 4.2% in Q1 to 1.6%. More importantly the core PCE price index saw quarterly prices slow from 4.9% in Q1 to 3.8%. The resilience in the Q2 numbers was driven by a rebuilding of inventory levels which declined in Q1. Private domestic investment also rose 5.7%, while an increase in defence spending saw a rise of 2.5%.             UK Mortgage Approvals/ Consumer Credit (Jul) – 30/08 – while we have started to see evidence of a pickup in mortgage approvals after June approvals rose to 54.7k, this resilience may well be down to a rush to lock in fixed rates before they go even higher. Net consumer credit was also resilient in June, jumping to £1.7bn and a 5 year high, raising concerns that consumers were going further into debt to fund lifestyles more suited to a low interest rate environment. While unemployment remains close to historically low levels this shouldn't be too much of a concern, however if it starts to edge higher, we could start to see slowdown in both, as previous interest rate increases start to bite in earnest.            EU flash CPI (Aug) – 31/08 – due to increasing concerns over deflationary pressures, recent thinking on further ECB rate hikes has been shifting to a possible pause when the central bank next meets in September. Since the start of the year the ECB has doubled rates to 4%, however anxiety is growing given the performance of the German economy which is on the cusp of three consecutive negative quarters. On the PPI measure the economy is in deflation, while manufacturing activity has fallen off a cliff. Despite this headline CPI is still at 5.3%, while core prices are higher at 5.5%, just below their record highs of 5.7%. This week's August CPI may well not be the best guide for further weakness in price trends given that Europe tends to vacation during August, however concerns are increasing that the ECB is going too fast and a pause might be a useful exercise.     Best Buy Q2 24 – 29/08 – we generally hear a lot about the strength of otherwise of the US consumer through the prism of Target or Walmart, electronics retailer Best Buy also offers a useful insight into the US consumer's psyche, and since its May Q1 numbers the shares have performed reasonably well. In May the retailer posted Q1 earnings of $1.15c a share, modestly beating forecasts even as revenues fell slightly short at $9.47bn. Despite the revenue miss the retailer reiterated its full year forecast of revenues of $43.8bn and $45.2bn. For Q2 revenues are expected to come in at $9.52bn, with same store sales expected to see a decline of -6.35%, as consumers rein in spending on bigger ticket items like domestic appliances and consumer electronics. The company has been cutting headcount, laying off hundreds in April as it looks to maintain and improve its margins. Profits are expected to come in at $1.08c a share.        HP Q3 23 – 29/08 – when HP reported its Q2 numbers the shares saw some modest selling, however the declines didn't last long, with the shares briefly pushing up to 11-month highs in July. When the company reported in Q1, they projected revenues of $13.03bn, well below the levels of the same period in 2022. Yesterday's numbers saw a 22% decline to $12.91bn with a drop in PC sales accounting for the bulk of the drop, declining 29% to $8.18bn. Profits, on the other hand did beat forecasts, at $0.80c a share, while adjusted operating margins also came in ahead of target. HP went on to narrow its full year EPS profit forecast by 10c either side, to between $3.30c and $3.50c a share. For Q3 revenues are expected to fall to $13.36bn, with PC revenue expected to slip back to $8.79bn. Profits are expected to fall 20% to $0.84c a share.         Salesforce Q2 24 – 30/08 – Salesforce shares have been on a slow road to recovery after hitting their lowest levels since March 2020, back in December last year, with the shares coming close to retracing 60% of the decline from the record highs of 2021. When the company reported back in June, the shares initially slipped back after full year guidance was left unchanged. When the company reported in Q4, the outlook for Q1 revenues was estimated at $8.16bn to $8.18bn, which was comfortably achieved with $8.25bn, while profits also beat, coming in at $1.69c a share. For Q2 the company raised its revenue outlook to $8.51bn to $8.53bn, however they decided to keep full year revenue guidance unchanged at a minimum of $34.5bn. This was a decent increase from 2023's $31.35bn, but was greeted rather underwhelmingly, however got an additional lift in July when the company said it was raising prices. Profits are expected to come in at $1.90c a share. Since June, market consensus on full year revenues has shifted higher to $34.66bn. Under normal circumstances this should prompt a similar upgrade from senior management.   Broadcom Q3 23 – 31/08 – just prior to publishing its Q2 numbers Broadcom shares hit record highs after announcing a multibillion-dollar deal with Apple for 5G radio frequency components for the iPhone. The shares have continued to make progress since that announcement on expectations that it will be able to benefit on the move towards AI. Q2 revenues rose almost 8% to $8.73bn, while profits came in at $10.32c a share, both of which were in line with expectations. For Q3 the company expects to see revenues of $8.85bn, while market consensus on profits is expected to match the numbers for Q2, helping to lift the shares higher on the day. It still has to complete the deal with VMWare which is currently facing regulatory scrutiny, and which has now been approved by the UK's CMA.

In the fast-paced world of technology and e-commerce, the looming battle between the Federal Trade Commission (FTC) and tech behemoth Amazon has captured the spotlight. The stage is set for a high-stakes legal showdown as the FTC prepares to take Amazon to court later this month, igniting a fiery debate about the power and influence wielded by big tech companies. The FTC's Antitrust Suit The FTC's antitrust suit against Amazon is scheduled to unfold in the coming weeks. This legal dispute comes on the heels of a failed attempt to resolve the impasse through negotiations, setting the stage for what promises to be a pivotal moment in the ongoing scrutiny of big tech. Allegations of Anti-Competitive Behavior At the heart of the lawsuit are allegations of anti-competitive behavior and unfair business practices by Amazon. The FTC contends that Amazon's dominant position in the e-commerce landscape has allowed it to engage in practices that stifle competition and harm consumers. The Amazon Marketplace Amazon's sprawling online marketplace, known as the Amazon Marketplace, has faced accusations of favoring its own products and services over those of third-party sellers. Critics argue that this preferential treatment gives Amazon an unfair advantage and limits consumer choice. The Broader Implications The outcome of this legal battle could have far-reaching implications, not only for Amazon but for the entire tech industry. The case has the potential to reshape the future regulatory landscape for big tech companies, paving the way for more stringent oversight and antitrust actions. A Watershed Moment This antitrust battle between the FTC and Amazon is a watershed moment that underscores the growing concerns about the immense power and influence wielded by tech giants. As governments and regulatory bodies worldwide grapple with how to rein in these corporate titans, the legal battle between Amazon and the FTC takes center stage. The tech industry and the world at large will be closely watching as the FTC's antitrust lawsuit against Amazon unfolds. The outcome of this legal showdown could set important precedents for the regulation of big tech, shaping the future landscape of e-commerce and digital innovation.

Adobe's recent dip before earnings release creates opportunities and risks for investors, and options strategies can help navigate the turbulent waters. In this article we take a look at those opportunities and how you could profit or control risk using various options techniques/strategies.   Investing with options - Adobe earnings In the technology sector, Adobe is a notable company working diligently to showcase the profitability and success achievable through AI business ventures. The question on everyone's mind is whether the AI sector is a goldmine or just a marketplace for shovels (NVDA GPU's), a query that seems more pertinent as we approach Adobe's earnings release.     With a recent dip of 3.95% just two days before the earnings announcement, a swirl of opportunities and risks arise, beckoning investors with varying appetites. As we delve into potential strategies leveraging options, we carry forward the insights shared in our previous "From zero to hero" series, aiming to guide you in navigating these turbulent waters with informed decisions.   Investor's Note Implementing the strategies illustrated below before the earnings release can potentially amplify your returns; however, it significantly elevates the risk. The choice hinges on your risk appetite, encouraging a path of prudence and strategic foresight.  

  DocuSign Q3 24 – 07/12 – slipped below $40 a share at the end of October and the lowest levels since November 2018, as despite an improving revenue and profits outlook, the shares have continued to struggle. We've seen a modest rebound since then, however the shares have remained well below their September peaks of $53. In September when the company reported its Q2 numbers the shares fell sharply despite seeing an 11% increase in revenues to $687.7m, comfortably beating its Q1 guidance, with profits coming in at 72c a share. Just like they did in Q2, management upgraded their guidance projecting Q3 revenues of $687m to $691m, as well as raising their full year forecast to between $2.73bn and $2.74bn. Q3 profits are forecast to come in at 63c a share, up from 57c a share.       GameStop Q3 24 – 06/12 – it's been a slow drift lower for GameStop shares over the past 6 months, after hitting a 7-month high back in June. The summer positivity came about after the gaming company posted a surprise quarterly profit at the end of last year, helped by a $4.5m boost from the sale of some digital assets. There has been success in cutting costs as well as withdrawing from non-core markets, however they have been hampered by some poor decisions, the partnership with failed crypto exchange FTX, as well as experimenting with NFT at around the same time the bottom fell out of that market. The company returned to a loss of 14c a share in Q1, or $50.5m, while net sales fell short at $1.24bn. For Q2 there was a slight improvement on last year with revenues rising to $1.16bn, while losses narrowed to 0.03c a share. Over the last few days we've seen the share price surge after option traders bought a load of cheap call options with $20 and above strike prices, in anticipation of a decent set of Q3 numbers. For Q3 expectations are for revenues to come in unchanged at $1.18bn while losses are expected to come in at 0.08c a share.