asian markets: Asian stocks pressured after big tech disappoints: Markets wrap

Stocks in Japan, South Korea and Australia declined, following US shares as traders assessed earnings after the closing bell from Corporate America’s largest businesses including Tesla Inc. and Alphabet Inc. Taipei’s bourse will be closed due to a typhoon.

Investors were looking to tech earnings to maintain a rally that drove US and global stocks to records. That failed to materialize as Alphabet Inc. retreated as the company’s chief signaled patience will be needed to see concrete results from artificial-intelligence investments. Tesla fell as much as 7% after profit fell short of estimates and the electric-vehicle giant delayed its Robotaxi event to October.

“Given that profit expectations are high for the ‘Magnificent Seven,’ these companies will have a lot to prove,” said Anthony Saglimbene at Ameriprise. “At the same time, their outlooks will likely be heavily scrutinized in comparison to elevated valuations.”

Bloomberg

In Asia, Typhoon Gaemi is approaching Taiwan with strong winds and heavy rain, forcing Taipei to suspend its $2.4 trillion stock market. The island will not conduct securities, currency or fixed income trading on Wednesday, according to statements from its exchange.

Investors will also be watching China, where the market that has lost momentum amid economic troubles and geopolitical risks. On Tuesday, the onshore benchmark CSI 300 Index closed 2.1% lower, the biggest decline in six months, as a lack of major policy support following the Third Plenum reinforced bearish sentiment.

Meanwhile in Japan, there’s growing political frustration over the central bank’s cautious stance. Its extremely low rates have kept downward pressure on the yen while inflation continues to outpace the central bank’s target and wage growth. The Bank of Japan should more clearly show its intention to normalize monetary policy, according to ruling party heavyweight Toshimitsu Motegi, in remarks a week before the BOJ meets to decide whether to raise interest rates.

Upbeat earnings on Wall Street would be a much-needed driver for equities after a roaring first half of the year. The market is facing pressure heading into a seasonally weak period, with volatility likely to be heightened by the US presidential election. But in addition to the woes for Big Tech, United Parcel Service Inc. suffered its worst plunge ever on a profit miss.

The five biggest US technology companies are facing tough comparisons with stellar earnings cycles of the past year. Profits for the group are projected to rise 29% in the second quarter from the same period a year earlier, data compiled by Bloomberg Intelligence show.

While still strong, that’s down from the past three quarters and, to investors, the stock reaction to earnings remains one of the biggest wild cards.

“The fact that these stocks have experienced weakness leading up to their earnings reports isn’t necessarily such a bad thing as rallies into earnings would only have the potential to set the bar unrealistically high,” said Bespoke Investment Group. “It doesn’t take a gymnast to know that the lower the bar, the easier it is to get over it.”

Bloomberg

While investors are concerned about a sustained selloff in US technology megacaps, Barclays Plc strategists say a robust earnings outlook means the cohort is still attractive after the recent rout.

The team led by Venu Krishna raised its year-end target for the S&P 500 Index to 5,600 points from 5,300, citing solid profit expectations for big tech.

“While our valuation assumption for big tech is high, growth-adjusted multiples are reasonable and we expect the group to earn into its valuations,” they said.

Investors may also continue to parse the impact of President Joe Biden halting his bid for re-election.

“Sector impacts related to Republican or Democratic control on these policy issues are likely to look different in the future relative to the past,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “For most investors, the most powerful strategy for election years is simple: stay diversified rather than chase tactical bets, especially before the likelihood of real policy change is known.”

US two-year yields fell after a solid $69 billion auction — which underscored market bets on rate cuts. Treasury note futures retreated as investors await debt auctions and US manufacturing PMI. Oil slumped amid algorithmic selling and low summer liquidity.