🎙️ Correction Territory

Legendary investor Warren Buffett has extended his mid-year selling spree.

For 12 straight market sessions, he’s offloaded Bank of America shares: a total of 90.4 million shares worth more than $3.8 billion. The selling began on July 17 and is still ongoing — reducing Berkshire Hathaway's ownership position in the institution to 12.1%.

The Oracle of Omaha isn’t the only one selling stocks. U.S. markets slid heavily on Friday as the narrative on Wall Street shifted. Look no further than Intel, which plunged for its worst day in 50 years.

Much more on the sell-off below as the Nasdaq enters correction territory.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Earnings recap: Apple, Microsft, Amazon, Meta

• Hiring slows sharply, sending Nasdaq into correction

This, and more, in just 5 minutes to read.

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In The News

✍️ Earnings Recap: Amazon, Apple, Microsoft

It was a busy week in Big Tech earnings. Let’s get caught up:

Apple: The iPhone maker was a bright spot in the market in an otherwise tough week for tech investors. Apple said its upcoming AI features could drive a jump in iPhone upgrades, revitalizing sales after a downtown, particularly in China. 

• “It will be a very key time for a compelling upgrade cycle," CEO Tim Cook said.

Its third-quarter results showed a 5% revenue increase to $85.8 billion, surpassing analyst expectations of $84.5 billion. But while Apple is picking up market shares in India, its sales in China fell by 6.5% to $14.7 billion, missing the projected $15.3 billion, raising concerns about Apple's position amid intensified competition. Apple attributed much of the drop to currency fluctuations and remains optimistic about its core business health in China.

Meanwhile, Apple’s iPad business surged after new models hit the market. Ahead, all eyes are on the upcoming iPhone 16, which is expected to drive a wave of demand and support Apple Intelligence come October. 

Apple is up ~20% this year. 

Microsoft 

Microsoft Azure cloud-computing service experienced a slowdown in quarterly growth, which has tested investors' patience regarding the company's massive investments in AI. Azure's revenue rose 29% in the fiscal fourth quarter, down from 31% in the previous period.

Key points:

1. CEO Satya Nadella has been integrating AI technologies from OpenAI into Microsoft's products, including digital assistants called Copilots.
   

2. Microsoft’s capital expenditures rose to $19 billion in the fourth quarter, up from $14 billion in the previous quarter, reflecting investments in data centers and servers to support AI and cloud services.
   

3. CFO Amy Hood said Azure growth will continue to slow in the current quarter but expects acceleration from ongoing infrastructure investments.

Although Azure's growth has decelerated, Microsoft's focus on AI and cloud services is expected to drive long-term gains despite short-term investor concerns. Which is the balance Magnificent Seven firms are facing now: They’re asking for patience while they try to monetize their AI investments. 

Microsoft shares have risen just 10% this year after a rough July.

Amazon 

Amazon says it will keep prioritizing heavy spending on artificial intelligence over short-term profits, disappointing investors. 

CEO Andy Jassy is focusing on capitalizing on the generative AI boom, which Amazon believes could become a "multibillion-dollar revenue run rate business." The decision aligns with Amazon's long-standing strategy of investing in long-term growth opportunities at the expense of short-term margins.

Key points include:

1. Amazon Web Services (AWS) showed strength, with 19% sales growth in the second quarter, exceeding analysts' projections.
   

2. The company spent $30.5 billion on capital expenditures in the first half of the year and plans to increase spending in the second half.
   

3. Revenue guidance for the third quarter was conservative, projecting growth between 8% and 11% to up to $158.5 billion.
   

4. The cloud business continued its recovery, with AWS revenue jumping 19% to $26.3 billion.

Amazon shares have fallen about 17% in the past month.

Meta:

Meta reported strong second-quarter results, exceeding expectations with sales of $39.1 billion. 

Key points from the report include:

1. Meta's revenue grew 22% year-over-year, marking the fourth consecutive quarter of over 20% growth.
   

2. Daily active users across all apps reached 3.27 billion, a 7% increase over last year.
   

3. Meta increases its capital expenditure forecast for the year to $37-40 billion, reflecting ongoing investments in AI and computing power.
   

4. Meta's Reality Labs division, responsible for metaverse and other futuristic tech, reported a loss of nearly $4.5 billion for the quarter. 

But CEO Mark Zuckerberg said not to fret. He’s betting heavily on AI, from large language models to smart glasses and VR headsets, partly because he believes investing too much in it is better than investing too little.

“I think that there’s a meaningful chance that a lot of the companies are over-building now, and that you’ll look back and you’re like, ‘Oh, we maybe all spent some number of billions of dollars more than we had to,’” Zuckerberg said. “On the flip side, I actually think all the companies that are investing are making a rational decision, because the downside of being behind is that you’re out of position for like the most important technology for the next 10 to 15 years.”

Meta is up about 40% this year. 

Read more

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📉 Higher Slows Sharply, Sending Nasdaq Toward Correction

Folks, the unemployment rate is ticking up — it just hit its highest level since the fall of 2021. 

Broadly, the U.S. job market showed significant signs of cooling. Key indicators pointed to a slowdown in employment growth and a rise in unemployment. 

Job growth slowed sharply, with only 114,000 jobs added in July, falling short of the expected 175,000. The unemployment rate rose to 4.3%, marking the fourth consecutive monthly increase.

It all contributed to Friday's market selloff as investors grew more concerned about an economic slowdown. The tech-heavy Nasdaq Composite fell nearly 3%, entering correction territory (down 10% from its recent high).

Also of note: 

• Average hourly earnings increased by 3.6% year-over-year, the smallest gain since May 2021.
  

• Job gains were concentrated in healthcare (55,000 jobs), construction (25,000 jobs), and leisure and hospitality (23,000 jobs), while the information sector lost 20,000 jobs.
  

• The hires rate — the number of hires during the entire month as a percent of employment — fell to 3.4% in June, its lowest level since April 2020.
  

• Layoff activity has been very low: The June layoff rate matched its lowest level on record. 

Why it matters:

The figures suggest a big shift in the U.S. labor market, raising concerns about the economy's health. Wall Street’s fear gauge closed at its highest level of the year. 

• A former Fed economist told The Wall Street Journal that the unemployment rate remains historically low but is trending upward, and the number of jobs added each month remains strong. Yet that is trending downward.
  

• “We are still in a good place, but until we see signs of stabilizing, of leveling out, I’m worried,” the economist said. 

Time to cut: The hiring slowdown has prompted Wall Street banks to call for aggressive interest-rate cuts by the Federal Reserve later this year — starting next month. (This week, chair Jerome Powell said the Fed “is prepared to respond” to unexpected labor-market weakness.)

Powell and Co. aren’t going to overreact to one piece of data. Still, the rising unemployment rate has pushed economists at Bank of America, Barclays, Citigroup, Goldman Sachs, and JPMorgan to call for earlier, bigger, or more rate cuts. 

Read more

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Quick Poll

On Wednesday, we asked: To reduce your energy costs, would you consider installing a heat pump system instead of a traditional HVAC unit?

— A little over half of respondents would opt for a heat pump system rather than a traditional HVAC unit. “I already installed a heat pump. In 2017. Love it! It reduced heating oil consumption by about 65%,” one said. “I tried to use a heat pump on a new build last year but was told it was not an option where I live (it is). When furnace and A/C wears out I expect we will look into a heat pump or something better,” said another.

— Among readers who won’t get a heat pump, responses mostly centered on the upfront cost. Wrote one reader, “I don’t see myself in my house more than 10-15 years so the ROI isn’t there. If I could go back 10 years, I’d install a heat pump and a solar roof.”

See you next time!

That's it for today on We Study Markets!

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