FTSE nudges higher ahead of Fed decision, Lloyds & Reckitt smash expectations, and Microsoft & Apple not as bad as some feared

“The FTSE 100 was higher on Wednesday morning, buoyed by some positive corporate results and news from the US overnight as Microsoft and Alphabet reported numbers which were not as bad as some may have feared,” says AJ Bell Investment Director Russ Mould.

“US stocks had fallen ahead of the tech giants’ earnings thanks to Walmart’s profit warning. Although Microsoft and Google-owner Alphabet were behind expectations, it turned out to be only modestly so.

“A lot of the headwinds facing Microsoft relate to the strong dollar and production shutdowns in China, these are external factors outside the firm’s control and which don’t say too much about the underlying health of the business.

“However, with Alphabet one of its engines of growth, in the form of ad sales on its Youtube platform, is starting to splutter and this could be a more serious long-term issue.

“All the focus tonight will be on the US Federal Reserve and whether it does or says anything to upset what remains a rather jittery market.”

Lloyds Banking

“Lloyds may have set aside some extra cash to cover the risks associated with bad debts, reflecting a bleaker economic outlook, but on the whole it delivered an excellent set of first half results.

“Its second quarter was materially better than had been expected and it once again raised earnings estimates.

“However, in exchange for these recent gifts Lloyds has received about as much credit from investors as an underappreciated parent does at Christmas.

“There is just too much concern about the impact of a potential recession on the performance of the business. Given the big contribution from its mortgages business to this recent strength those fears may be justified.

“A downturn in the housing market, which has defied gravity for longer than many would have believed possible, feels inevitable at some point.

“However, Lloyds and the other banks have much stronger balance sheets than they did 15 years ago and it still looks well placed to pay out to shareholders through dividends and share buybacks.

“All Lloyds can do it keep plugging away, making the business more efficient, and hope to see the share price rewarded in time for the progress made.”

Reckitt Benckiser

“It’s been a tough few years for former Pepsi man Laxman Narasimhan at consumer goods firm Reckitt Benckiser. However, there were some encouraging signs in its latest results.

“Reckitt got a big boost in the early stages of the pandemic as Covid worries drove strong demand for its portfolio of health and hygiene products.

“Since then though the business has been running through treacle as it looks to make tangible progress and the recent inflationary pressures are just making things harder.

“In that context, today’s second quarter beat was hugely encouraging as the business demonstrated its ability to pass on surging input costs to consumers.

“For now its brands are showing sufficient strength to withstand price increases without sacrificing volume.

“A short-term boost from a shortage of baby formula in the US, after a shutdown at a competitor, has undoubtedly contributed to the impressive results but there were other positive signs too.

“Sales of cold and flu remedies did well as Covid becomes endemic in many populations. And, in any case, demand for cleaning products and medicines should remain pretty resilient whatever the economic backdrop.

“The concern for Reckitt will be that squeezed consumers realise they don’t need to pay a few pounds for a box of Nurofen when they can buy unbranded ibuprofen for a fraction of the cost. Or that supermarket-own bleach can do much the same job of cleaning a toilet as Dettol can.

“This will be a significant test for the business and it will be intriguing to see how it responds in the latter half of the year.”

These articles are for information purposes only and are not a personal recommendation or advice.