Earnings Slowdown: End of AI Rally?

Lately, there’s been a lot of chatter about the recent earnings reports and what they mean for the US stock market. It seems two major concerns are making waves:

1. Has the AI hype gone too far?

2. Will consumer spending slow down further?

Even though profits are still solid overall, and banks are doing pretty well, these worries have knocked the stock market rally off its path. The Nasdaq 100 Index dipped 2.6% for its third straight weekly loss, especially after $Alphabet-C(GOOG.US)$’s results fueled doubts about how soon AI investments will pay off. This has raised the stakes for upcoming earnings from big names like $Microsoft(MSFT.US)$, $Meta Platforms(META.US)$, $Amazon(AMZN.US)$, and $Apple(AAPL.US)$.

Here’s a quick rundown of what’s going on:

- Optimism Shifts: Earlier this year, optimism about a soft landing in the economy and the AI boom pushed the S&P 500 to new highs. Now, doubts are creeping in.

- Economic Health: Despite these worries, economic growth remains strong, and inflation is easing. This led to bets on the Fed cutting rates sooner, which boosted small-cap stocks.

- Earnings Bright Spots: About 69% of S&P 500 companies have reported better earnings than last year. Banks did well, and the industrial sector might be seeing the end of its profit squeeze.

- The U.S. PMI flash manufacturing output index fell to 49.5 in July (economists had forecast a reading of 51.5), unexpectedly slipping into contraction territory as new orders, production and inventories declined.

But let’s not ignore the concerns:

- AI Investments: Big tech companies like Alphabet, Microsoft, Meta, and Amazon are heavily investing in AI. However, investors are getting impatient, wanting to see tangible returns from these investments.

- Consumer Spending: Early reports suggest consumers, especially in the low-income bracket, are still feeling the pinch from high interest rates and inflation. Sectors like consumer staples and discretionary are seeing their lowest EPS growth in two years.

What do you all think? Are these concerns justified, or is it just a bump in the road? Share your thoughts and let’s discuss!

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Ziet Invests

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