Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
Access both platforms from your single Saxo account.
London Quick Take – 10 September - Apple down after iPhone launch, Klarna IPO + Markets ignoring jobs data - what sort of rate cut is coming?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Key Points
- All 3 major US indices hit record highs despite weak jobs data, inflation data on deck this week
- Apple shares fall as it unveils new iPhone line-up, leaves pricing alone
- Oracle shares jump 28% on AI cloud backlog despite a miss on earnings
- Anglo American extends gains, ABF slumps
All three major US indices closed at record highs yesterday despite (or because?) jobs data lowered the total payroll gains for the 12 months through to the end of March by 911,000. I said it could be ‘up to a million’, but it was nevertheless well ahead of consensus. It just adds to the sense that the labour market picture is deteriorating, which makes it easier and easier for the Fed to bow down to Trump’s demands for a rate cut. It looks like Trump and Bessent may have been right all along? The question for the Fed is whether it’s further away on inflation or jobs, in terms of its dual mandate. For ages it’s looked like inflation was the greater worry; increasingly, lately, it’s the jobs picture that is the concern. A hot CPI print tomorrow, if it emerges, creates volatility for stocks.
Markets are grinding up because of Fed cut expectations and overall earnings growth expectations in the US are good – but what sort of cut is it?
Panic – like 2020, or the crash of 1987, the market tends to rally after mainly fear-drive trough. In ‘87, the S&P 500 rallied over 16% in the next 12 months, and 26% over the next three years after the cut.
Normalisation – until tariffs appeared this was the playbook for Powell as he sought to pull off a soft landing with a steady series of cuts as predecessor Alan Greenspan did in 1995, which was a slow trimming to prevent overheating. By 1998 the S&P 500 was up 114% three years after the first cut.
Recession – increasingly, the worry is that if the Fed cuts in September it’s a recession cut. (Pedants could argue we are technically still in the easing cycle started last year). In 2001 (dotcom) and 2007 (financial crisis) the market bottomed long after the first rate cuts were made. In the dotcom bust the S&P 500 was down over 12% 12 months after the first cut, while in 2007 the broad market remained 22% down a year later. Three years after the 2001 recession cut the market was 14% down, while three years after the financial crisis cut of 2007 the market was 24% lower. We are seeing signs of a slowdown in the US economy, as the labour market reports indicate.
So, it all depends on where the economy is, I guess. JPMorgan CEO Jamie Dimon said he’s not sure if it’s on the way to recession.
A lot depends on two inflation reports this week from the US – will these show stagflation? PPI numbers are due today, CPI tomorrow. if we there is a hot CPI print it could seriously upset the market - the biggest risk now is higher CPI, weaker jobs, lower front end yields as the Fed cuts, higher long-end yields on inflation/debt expectations...the bear steepening.
But as discussed yesterday, do jobs matter now when a) labour supply is contracting due to immigration policy and b) AI is taking jobs? As per yesterday the theme is ‘if AI is taking my job, I might as well own some of the stocks’... The other theme is whether a stagflation era is good for investing in equities - it's not the greatest, but it's usually better than the alternatives.
Elsewhere...
European stock markets rose early Wednesday, with Paris up about two-thirds of a percent after President Macron appointed a new PM. France's fiscal uncertainty deepens but bonds are not showing it up today. The FTSE 100 rose about 0.25% to 9,270 despite a 9% tumble for Associated British Foods, with Anglo American shares extending gains by a further 2% following yesterday’s leap on the Teck deal.
Poland shot down Russian drones that came into its airspace – a worrying escalation but hopefully more of a navigational accident than deliberate provocation. But it does come ahead of a big Russian military exercise near the Polish border that’s likely to see heightened tensions between Nato and Moscow.
A federal judge ruled President Trump cannot fire Fed governor Lisa Cook, at least while litigation is pending. It’s a setback for Trump but it doesn’t remove longer-term concerns about Fed independence.
Companies
ABF shares were at the bottom of the discount aisle after it said Primark sales would be down 2% on a like-for-like basis, ahead of its final results in November. Total sales are up about 1% despite soft demand. On the plus side, market share in the UK is expanding and good growth in the US is encouraging, posting +24% in Q4. Grocery and Ingredients both flat, while Sugar remains the bitter pill for investors.
Klarna’s IPO priced at $40 a share, valuing the buy-now, pay-never later business at $15bn. The $40 price was above the $35-37 initial range and the offer was 26x oversubscribed. The question is whether this is a subprime lender that lets you pay for a takeaway in three monthly instalments (burrito default swaps anyone?) or whether it’s a financial/payments innovator to replace Visa. Klarna should begin trading today. Another to watch is Gemini – the cryptocurrency exchange – is due later this week.
Apple shares slipped nearly 1.5% in regular trading and another 0.35% in after-hours trading following its product launch event. It unveiled a neat new slim iPhone but held prices steady on its range despite tariff pressures. There were some good incremental improvements but I’m not sure it’s enough to drive a fresh supercycle...plus where is the AI? Will Apple be left behind as a consumer electronics company?
Speaking of AI, it’s still where the action is. Nebius, a Dutch company that provides GPUs for training AI models, surged 50% yesterday after it announced a multi-year $20bn deal with Microsoft.
And Oracle shares leapt 28% in after-hours trading after a stunning earnings update. Its contracted backlog surged to $455 billion, signalling a structural shift in demand, with management guiding cloud infrastructure revenue to grow from $18 billion this year to $144 billion by 2030. More on this from my colleague Jacob here.
Finally, Novo Nordisk will cut 9,000 jobs (11% of staff) and lower profit guidance for the third time this year to save DKK 8bn by end-2026, sending shares lower.
Normalisation – until tariffs appeared this was the playbook for Powell as he sought to pull off a soft landing with a steady series of cuts as predecessor Alan Greenspan did in 1995, which was a slow trimming to prevent overheating. By 1998 the S&P 500 was up 114% three years after the first cut.
Recession – increasingly, the worry is that if the Fed cuts in September it’s a recession cut. (Pedants could argue we are technically still in the easing cycle started last year). In 2001 (dotcom) and 2007 (financial crisis) the market bottomed long after the first rate cuts were made. In the dotcom bust the S&P 500 was down over 12% 12 months after the first cut, while in 2007 the broad market remained 22% down a year later. Three years after the 2001 recession cut the market was 14% down, while three years after the financial crisis cut of 2007 the market was 24% lower. We are seeing signs of a slowdown in the US economy, as the labour market reports indicate.
So, it all depends on where the economy is, I guess. JPMorgan CEO Jamie Dimon said he’s not sure if it’s on the way to recession.
A lot depends on two inflation reports this week from the US – will these show stagflation? PPI numbers are due today, CPI tomorrow. if we there is a hot CPI print it could seriously upset the market - the biggest risk now is higher CPI, weaker jobs, lower front end yields as the Fed cuts, higher long-end yields on inflation/debt expectations...the bear steepening.
But as discussed yesterday, do jobs matter now when a) labour supply is contracting due to immigration policy and b) AI is taking jobs? As per yesterday the theme is ‘if AI is taking my job, I might as well own some of the stocks’... The other theme is whether a stagflation era is good for investing in equities - it's not the greatest, but it's usually better than the alternatives.
Elsewhere...
European stock markets rose early Wednesday, with Paris up about two-thirds of a percent after President Macron appointed a new PM. France's fiscal uncertainty deepens but bonds are not showing it up today. The FTSE 100 rose about 0.25% to 9,270 despite a 9% tumble for Associated British Foods, with Anglo American shares extending gains by a further 2% following yesterday’s leap on the Teck deal.
Poland shot down Russian drones that came into its airspace – a worrying escalation but hopefully more of a navigational accident than deliberate provocation. But it does come ahead of a big Russian military exercise near the Polish border that’s likely to see heightened tensions between Nato and Moscow.
A federal judge ruled President Trump cannot fire Fed governor Lisa Cook, at least while litigation is pending. It’s a setback for Trump but it doesn’t remove longer-term concerns about Fed independence.
Companies
ABF shares were at the bottom of the discount aisle after it said Primark sales would be down 2% on a like-for-like basis, ahead of its final results in November. Total sales are up about 1% despite soft demand. On the plus side, market share in the UK is expanding and good growth in the US is encouraging, posting +24% in Q4. Grocery and Ingredients both flat, while Sugar remains the bitter pill for investors.
Klarna’s IPO priced at $40 a share, valuing the buy-now, pay-never later business at $15bn. The $40 price was above the $35-37 initial range and the offer was 26x oversubscribed. The question is whether this is a subprime lender that lets you pay for a takeaway in three monthly instalments (burrito default swaps anyone?) or whether it’s a financial/payments innovator to replace Visa. Klarna should begin trading today. Another to watch is Gemini – the cryptocurrency exchange – is due later this week.
Apple shares slipped nearly 1.5% in regular trading and another 0.35% in after-hours trading following its product launch event. It unveiled a neat new slim iPhone but held prices steady on its range despite tariff pressures. There were some good incremental improvements but I’m not sure it’s enough to drive a fresh supercycle...plus where is the AI? Will Apple be left behind as a consumer electronics company?
Speaking of AI, it’s still where the action is. Nebius, a Dutch company that provides GPUs for training AI models, surged 50% yesterday after it announced a multi-year $20bn deal with Microsoft.
And Oracle shares leapt 28% in after-hours trading after a stunning earnings update. Its contracted backlog surged to $455 billion, signalling a structural shift in demand, with management guiding cloud infrastructure revenue to grow from $18 billion this year to $144 billion by 2030. More on this from my colleague Jacob here.
Finally, Novo Nordisk will cut 9,000 jobs (11% of staff) and lower profit guidance for the third time this year to save DKK 8bn by end-2026, sending shares lower.
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