Stocks steady ahead of US news, EasyJet flying high, Microsoft gloomy on cloud outlook and Wetherspoons flags supermarket threat

“The FTSE 100 edged higher on Wednesday, but it feels like UK stocks are waiting for some direction from across the Atlantic as US earnings season gets into full swing and key economic announcements loom at the end of the week,” says AJ Bell Investment Director Russ Mould.

“A gloomy prognosis on its immediate prospects from Microsoft won’t have helped the market’s mood and neither will Johnson & Johnson’s warnings of a continued impact from inflation. It’s the turn of Tesla later; will its decision to cut prices give a boost to sales and what are the implications for earnings?

“Thursday’s fourth quarter GDP figures for the US could either reinforce or blow-up expectations for a soft landing for the American economy, with core inflation numbers on Friday helping to provide some insight into the Federal Reserve’s decision making ahead of its crunch meeting next week.”

Easyjet

“Even though EasyJet remains loss-making, there is clear evidence it is very much on the road to recovery. Bookings remain strong, the package holidays operation is doing better than expected and it continues to find ways to boost revenue beyond the price of a ticket.

“Many consumers still have the appetite and the means to spend money on experiences, despite the prospect of recession. People work hard and they want to give themselves a treat, meaning a foreign holiday remains high on the list of things people are prepared to pay for. If it means cutting back elsewhere to have the holiday, so be it.

“Last year’s misery at airports seems to have been forgotten by a lot of people judging by the booking trends at EasyJet. Summer 2022 was a miserable experience for many, with queues and cancellations galore. One cannot rule out a repeat of these problems in 2023, but it seems as if consumers are happy to take that risk.”

Microsoft

“Microsoft has proved one of the more durable names in the tech sell-off over the last year so its gloomy outlook will do nothing to improve weak sentiment towards the sector. It also sets an uncomfortable tone ahead of updates from its tech rivals.

“First the good news. The final quarter of 2022 was more robust than anticipated but the bad news is there is a clear sign of deceleration in the Azure cloud computing arm. For all the shiny bells and whistles surrounding the likes of Google-owner Alphabet, Amazon and Microsoft it is cloud computing which has been a real engine of growth.

“If these cloud businesses start to sputter, more attention will be focused on issues facing Microsoft’s PC software arm, Amazon’s e-commerce division and Alphabet’s softer digital advertising revenue.

“Microsoft, like several of its rivals, had already sent a clear message about its view on the immediate outlook by announcing large job cuts – it’s not really a surprise to see earnings guidance trimmed accordingly.”

Wetherspoons

“Naturally, pub chain Wetherspoons did better in the Christmas just gone than the Omicron-marred festive period in 2021 – that’s not really news. It would have been difficult to do worse given restrictions are no longer in place and the fear factor associated with going about normal life has receded.

“What is damaging for Wetherspoons is that trading is still behind where it was pre-pandemic. Wetherspoons has always had a model of prizing volume over margins, so when you consider how fast costs are rising it is not surprising profitability is under pressure.

“Outspoken chair Tim Martin points to the threat posed by supermarkets, with people buying booze in stores and drinking at home – a situation he notes is exacerbated by the disparity in tax treatment.

“Barring some kind of concession by the government, all Wetherspoons can do is redouble its efforts to make its venues appealing places for people to visit, rather than just somewhere to buy relatively inexpensive drinks.

“A pub’s role goes beyond just a venue for drinking – after all there’s not much company to be found sat on your living room sofa.”

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