US equities slipped overnight, with the S&P500 closing down just 0.2%, which is not a bad result, considering Joe Biden’s comments. With Thursday’s moves, the three major indexes are tracking for losses this week into tonight’s Jobs Report, with profit taking an easy option after a strong three quarters. Weekly jobless claims came in slightly above expectations, which offered a hint of what’s in store from September’s closely watched payrolls report due tonight, although all was quiet in bond markets.
- We are optimistic about US stocks as they continue to test all-time highs, but mounting tensions in the Middle East will provide a stern test into the weekend.
As we discussed earlier, Joe Biden’s comments ignited the oil market overnight, with Brent Crude finishing the session up more than 5%. Financial markets are looking nervous as we head into the long weekend in Australia, with emerging-market stocks and currencies dropping while safe-haven US assets—Treasury bond yields and the greenback—climb. Iran only produces ~3% of global oil production, and OPEC could easily plug the gap but not broader disruption if the situation escalates further.
- There is no end in sight for the Middle East conflict, which creates a bullish backdrop for oil prices into Christmas.
In recent weeks, tech powerhouse Microsoft Corp (MSFT US) has backed two themes which align with MM’s outlook over the coming years:
- They have signed a power deal to help resurrect a unit of the Three Mile Island nuclear plant in Pennsylvania, as big tech recognises the looming surge in U.S. electricity demand for data centres needed to expand technologies like artificial intelligence and cloud computing. Nuclear energy, which is nearly carbon-free and broadly considered more reliable than energy sources like solar and wind, has become a popular option for technology companies with uninterrupted power needs and climate pledges. MM is bullish on the uranium sector.
- OpenAI, the company behind ChatGPT, has raised $6.6 billion from investors, which could value the company at $157 billion and cement its position as one of the most valuable private companies in the world. Microsoft, which had already been a major OpenAI backer, confirmed that it was among the participants of the latest funding round. “We look forward to continuing our partnership with OpenAI,” a Microsoft spokesperson said in an email. MM is bullish on the AI thematic.
In the short term, MSFT shares look a touch heavy, but the risk/reward looks attractive into weakness back under $US400.
- We regard MSFT as a core and long-term overseas holding – MM owns MSFT in our International Equities Portfolio.
