Stocks lowered the week a little Morning Star US Market Index A US employment report showed unemployment rate fell 0.25% after a sharp decline on Friday as hourly wages rose 4.1% year-on-year . This naturally attenuated expectations of further interest rate cuts. CME’s FedWatch shows that interest rate cuts are 83% likely to be limited to 50 basis points by the end of the year. Read more about employment data here. This view was strengthened by many comments from Federal Reserve officials over the week highlighting the strength of the economy, the risk of higher inflation, and more evidence to ease prices before lowering interest rates further.
Consumer cycle Stocks are the market pioneering, down 3.1% as index heavyweight Amazon amzn and Tesla TSLA There was a decrease of 3.6% and 10.6%, respectively. Despite delivering revenues that exceeded consensus expectations, Amazon’s outlook for future revenues appeared to disappoint investors. Morningstar Amazon analyst Dan Lomonov had more conservative expectations and upgraded Amazon’s fair value following the results. You can read Dan’s notes here.
Fair value of shares is important
Tesla maintains a 44% premium on Morningstar’s fair value estimate, and a sudden drop in the price of the asset does not mean it offers good value, simply not that it does It reminds me that it’s cheaper. The opposite is also true. An undervalued asset price increase does not negate its investment value, and may simply be that the model underlying fair value is accurate.
This is important because the expected returns of an undervalued asset are not only a difference between current price and fair value, but also a probability-weighted return of the range of possible outcomes. A decrease in the gap between price and fair value reduces absolute expected returns, but the resulting increased probability will be more than compensate for that loss, increasing the appeal of the asset.
Seven magnificent revenues continue
Stochastic thinking is always essential for investors, but in a market with polarization with a large gap between polarization and fair value, these gaps are close to each other. , blocks further investments, but expectation returns are more important than usual as they are expected. rise.
These gap movements were also evident in other members of the so-called epic Seven, which announced revenue last week. It’s Apple but aaplalphabet googl and Microsoft msft Everything fell, and the latter brought Apple closer to its fair value. Keep up with all of the recent and upcoming revenue releases on Morningstar’s dedicated revenue page.
Revenue growth will recover
Almost two-thirds of companies reporting results, the year-over-year revenue growth was 16.4%, significantly higher than the expected 11.8% at the start of the quarter, according to Factset. Expectations among analysts are also high in 2025, with revenue growth expected to be at 13%. It is noteworthy that this optimistic rating is to flatten the US market’s positive price/return ratio and remind us of the benefits of using long-term valuation measures.
All eyes to CPI
Inflation is in the spotlight this week, with Core Consumer Price Index (CPI) expected to be slightly lower than 3.1% last month. Following last week’s stronger data, easing interest rate expectations could potentially strengthen expectations that the data will be closely monitored and charges will remain in place for longer. Keep an eye on this for the disappointment among investors directed towards companies with the most optimistic growth assumptions. You can follow all economic and revenue announcements on this calendar.
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