Thierry Hasse: All eyes are on Big Five tech company earnings reports this week
U.S. equity markets finally stopped reaching new record highs last week. Anxiety about the looming presidential election generated increased volatility in financial markets, especially for fixed-income investors. Treasury yields jumped 15 to 20 basis points during the week, hitting levels not seen since July 2024. Ten-year Treasury Notes are now yielding 4.25%, which is 0.65% higher than when the Federal Reserve started reducing interest rates on Sept. 17.
Chief Investment Officer Thierry Hasse
- U.S. economic growth continues to be strong. The unemployment rate actually dropped in September. Yields are rising in the bond market to reflect the lower probability of a recession.
- Last week fixed-income market participants realized that the election outcome could bring big shifts in interest rate levels. The possibility of a Republican clean sweep – giving the GOP control of Congress and the White House – could lead to greater budget deficits and a larger supply of Treasury bonds.
- Finally, fixed-income investors are demanding a higher compensation to hold long-dated bonds, the famous “term premium,” to account for the increasing fiscal, economic and geopolitical risks a new administration will bring.
S&P and Dow end win streaks
In the equity markets, both the S&P 500 Index and the Dow Jones had negative performance last week of -1% and -2.75%, respectively, snapping a six-week winning streak. The Nasdaq, however, managed to close the week at an all-time high on Friday. (Source: CNBC.)
Irrational exuberance for Tesla
The highlight of the week in the tech sector was Tesla, which saw its market value jump 26% in two days after reporting earnings that exceeded the expectations of Wall Street analysts. So much for market efficiency: One solid quarterly earnings report and some exuberant comments from the CEO were enough to increase the value of this company by roughly $200 billion in a couple of trading sessions. Nevertheless, the promise of driverless cars is enough to generate renewed fervor from Tesla investors. It’s also a reminder why American exceptionalism in powering innovation is a key factor in the outperformance of U.S. equity markets.
Big Five tech companies report this week
With Election Day rapidly approaching, this week could see more volatility and gyrations in the bond market. In the equity markets, investors will be busy with earning reports from the U.S. mega cap tech companies. Google reports on Tuesday, Microsoft and Facebook on Wednesday, and Apple and Amazon on Thursday. What a line-up! Investors will carefully analyze each earnings report, and day traders will seek to capitalize on daily market fluctuations. The overall trend, however, remains intact: These five giant U.S. companies are highly profitable and continue to innovate to create new market opportunities.
This may one day change, of course, but for the current cycle we continue to include most of them in the Elevage Partners focused equity portfolio.
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