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Weakness on Wall Street haunted European markets on the morning of Halloween and saw the FTSE 100 retreat from its latest record high.
The main culprit was uncertainty about the future policy of the Federal Reserve after its chair Jerome Powell suggested a cut in December, to follow this week’s, was not a foregone conclusion.
The negative response to Meta’s bloated AI spending also contributed to last night’s selling, although US futures paint a brighter picture off the back of a surge in Amazon’s shares, as its own earnings came in ahead of forecasts after the bell.
Yesterday’s ugly update from advertising firm WPP, the first under new CEO Cindy Rose, continued to put pressure on the stock as it raised questions about the group’s long-term future.
Fresnillo was among London’s top risers as it announced a deal to buy a Canadian gold miner – the market clearly liking the prospect of diversification away from its current sole Mexican focus.
Amazon
The e-commerce division may have by far the bigger public profile but it’s the cloud services AWS division which is the real engine of Amazon’s growth and, it’s this which sparked the share price into life overnight.
Demand for computing power linked to AI is showing no signs of letting up and that is driving significant growth for AWS, with third-quarter numbers helping to ease fears that this business was losing ground to rival operators.
It continues the trend seen in Google-owner Alphabet and Microsoft’s results of a very healthy environment for cloud computing. The main challenge for these businesses seems to be keeping up with demand by sourcing the infrastructure, equipment and source of energy required to run advanced AI models.
This is requiring heavy investment – which the market appears prepared to stomach while it is being matched by strong trading. Any signs of this weakening may test investors’ understanding and patience.
The recent announcement of big cuts to Amazon’s corporate workforce is supposed to free up cash to invest in AI. Although, whether a company of Amazon’s scale can really act like ‘the world’s largest start-up’, as CEO Andy Jassy wants it to, is open to question.
Apple
In recent years much of the narrative around Apple has concentrated on the fact that growth in the iPhone was a thing of the past and the company needed to focus instead on ramping up services revenue from its existing base of users.
Services are undoubtedly making an increasing contribution but the recent iPhone launches appear to have reinvigorated that product in a meaningful way.
The iPhone 17, which launched in September, seems to have gone down a storm and pushed people to upgrade and Apple is expecting strong growth in the final quarter of the year off the back of this.
As well as a testament to how well improvements and fresh innovations in Apple’s flagship product have been received, it is also a vindication of Apple’s pricing strategy. The company keeping a lid on prices of its new model despite the pressures from US tariffs.
Tariffs remain a challenge for Apple’s Asia-centred supply chain and China sales were lower in the last quarter thanks to competition from local brands and regulatory hurdles.
The perception that Apple is being left behind in the AI race continues to be reinforced with scheduled upgrades to voice assistant Siri delayed and teething problems with other artificial intelligence led initiatives.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
