05 May 5th May 2025

Index Movement Last Week

S&P500	+2.9%
Nasdaq	+3.4%
Aussie ASX200	+3.4%

If you happened to go to sleep on on April 2nd and not wake up until May 2nd you would think nothing has happened because the market is at the same price.

Which really is very surprising given the changes to global trade that have been announced since April 2nd. Clearly the market thinks deals will be done, either that or the impact of these tariffs will be net positive for American companies.

Which is all a bit hard to comprehend. But it is probably our natural instinct for self-preservation from the unknown causing this feeling. In reality neither you nor me, really know what the overall impact will be. That goes for all the economists too. I always ignore economist projections. All they have to do is write reports. They don’t have the responsibility of investing real money. That is done by the traders and the traders are telling us there is no problem due to tariffs.

That being said, it does feel like we need some positive news on this front for this rally to continue much higher. Then again we did get a fair amount of other positive news last week.

The US added 177k jobs in April, exceeding expectations and average hourly earnings rose 3.8%m the slowest rate since July 2024.

It is too early to know the impact of the tariffs, so when the Fed meets this week they will keep rates on hold and give the usual forward looking of statement of being data dependent blah blah blah.

According to FactSet’s latest Earnings Insight report we are a fair way through the season and 72% of companies have reported. 76% have so far beaten estimates but that is usual. Companies spend a fair amount of time convincing analysts to lower their expectations so the company has a higher chance of announcing a beat. The 5-year beat average is 77% so this season has been a touch low, but not signficantly so.

What has been impressive is the size of the beats. On average earnings have beaten by 8.6% which is well above the 5-year average of 6.1%.

Now, this of course is before any impact from tariffs but does show that corporate America was thriving and is in a good position to absorb impacts because profit margins are so high. It also justifies the high PE ratio that US companies trade on.

You’ve heard me say several times there is no point looking at PEs today and saying stocks are expensive as to do so you must compare PEs to the past and companies today are very different to companies in the past and so deserve a much higher multiple.

Warren Buffet

I was said to hear the news that Warren Buffet will step down as CEO of Berkshire Hathaway later this year. Greg Abel will replace him. After 55 years at the helm, you cannot hold it against him though.

In his speech he said a few interesting things, but the one I enjoyed the most was this.

“What happened in the last 30, 45 days, it’s really nothing. This is not a very dramatic bear market or anything of the sort … If you get frightened by markets that decline and get excited when stock markets go up … You can have emotions, but you have to check them at the door when you invest.”

Warren is the ultimate long-term investor and the older I get the more I am becoming to appreciate this fact.

Here is an example why. In 2008 Berkshire Hathaway purchased $232million in BYD. That stake soared to $9billion before he starting slowly selling in 2022. His original purchase had increased in value 38 times. But it took 14 years.

The last 4 weeks has highlighted something to me. Long-term investors suddenly become short-term traders during market sell-offs.

Don’t be like everyone else. Be like Warren and hold your stocks for a long-time. The rewards only come then.

Company Earnings

We had a few big names announce last week.

Microsoft delivered a strong Q3 FY25 (March quarter), with revenue up 13% Y/Y to $70.1 billion (a $1.6 billion beat) and EPS rising 18% to $3.46 ($0.24 beat). Growth was broad-based—but Azure led the charge, surging 35% in constant currency, up from 31% in Q2. AI accounted for 16 points of Azure growth, accelerating from 13% in the prior quarter. Microsoft Cloud grew 20% Y/Y to $42.4 billion (a $0.2 billion beat). CapEx came in at $21.4 billion—slightly below last quarter—as expansion moderated after 10 new data centers launched.

It then proceeded to guide higher for next quarter saying things are going to improve from here.

Doesn’t get much better and the stock is up 10% since the announcement

Apple’s Q2 FY25 (March quarter) revenue rose 5% Y/Y to $95.4 billion (a $840 million beat), with EPS up 8% to $1.65 ($0.03 beat). iPhone sales were up 2% at $46.8 billion, while Services jumped 12% to $26.7 billion—marking another quarter of double-digit growth. Mac ($8.0B) and iPad ($6.4B) both beat expectations, though Wearables fell 5% and missed. Gross margin slightly improved to 47%, boosting net income to $24.8 billion. Apple returned $29 billion to shareholders via buybacks and a 4% dividend hike.

2 negative points here. They paid out $29billion to shareholders but only generated $25billion so they dipped into cash to do so. That’s not great. There was also some evidence of US consumers bringing forward purchases before the tariffs hit. On the top line iPhone sales increased but that is only true for the US and Canada. It was negative in every other region.

Before tariffs took effect, Apple reportedly shipped approximately 1.5million iPhones to the US from India, specifically to avoid potential tariffs, as reported by Reuters. This shipment was achieved through five cargo flights, each carrying 600 tons of products. You can expect a backlog of old devices now to be discounted in American stores while the next model is likely to see a significant price jump unless a deal can be done.

The stock dropped 3.5% on this news

Meta posted a strong Q1 FY25, with revenue up 16% Y/Y to $42.3 billion ($950 million beat) and EPS surging 37% to $6.43 ($1.21 beat). Ad growth drove the beat, with a 10% rise in prices and 5% more impressions, despite tariffs and macro pressure.

User engagement remained high across the Family of Apps, with daily active users up 6% to 3.43 billion. Meta AI now has nearly 1 billion monthly users, while Threads has surpassed 350 million. Reality Labs losses persisted, but operating margin expanded to 41%, helping generate $10.3 billion in free cash flow.

But Meta also announced an increase in capex spend from $60-$65billion to $64-$70billion citing hardware costs and data centre investments. Mark Zuckerberg unveiled a new standalone Meta AI app to compete more directly with ChatGPT, while outlining plans to embed AI across the company’s tools and platforms. Q2 revenue is expected at ~$44 billion (midpoint), above consensus. Despite trade war tension and regulatory noise, Meta appears to be winning investor confidence in its long-term AI strategy.

The stock is up 9% on the news.

Lastly this week, a bit of fun highlighting how wrong the media gets things. This grab is from Bespoke Premium. They put together all the headlines from the Wall Street Journal for the last 3 weeks. The S&P500 is up 8% in this time.

Always pays to do the opposite of the headlines you read.

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.