The S&ampP 500 index continued its upward surge last week, rising 0.85%. In 2023, the S&ampP 500 index has gained close to 20%, despite a weak macro environment. The equity markets will be impacted by a slew of Q2 earnings which will be reported over the next few days.

Recently, Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) released Q2 earnings. While Microsoft underwhelmed estimates, Alphabet stock surged around 10% following its Q2 results. Let’s see why.

 

Why is Alphabet stock surging post Q2 earnings?

Alphabet shares experienced a roughly 7% surge in extended trading on Tuesday as the companyU+02019s revenue and earnings exceeded anticipations, fueled primarily by its cloud-computing unitU+02019s growth.

 

HereU+02019s the breakdown:

In Q2, Alphabet reported:

  • Earnings: $1.44 per share, surpassing the Refinitiv expectation of $1.34 per share.
  • Revenue: $74.6 billion, exceeding the Refinitiv projection of $72.82 billion.

 

Additionally, Alphabet reported these notable figures:

  • YouTube ads: $7.67 billion, outpacing the Street AccountU+02019s forecast of $7.43 billion.
  • Google Cloud: $8.03 billion, higher than Street AccountU+02019s $7.87 billion prediction.
  • Traffic acquisition costs: $12.54 billion, slightly higher than the Street AccountU+02019s $12.37 billion estimate.

 

Alphabet reported a 7% increase in its second-quarter revenue, from $69.7 billion in the year-earlier period to $74.6 billion.

 

It marks the fourth consecutive quarter that the parent company of Google has posted single-digit growth amidst a contraction in digital advertising expenditure due to economic uncertainties. Analysts predict a return to double-digit growth is likely in the fourth quarter.

 

Despite these challenges, GoogleU+02019s search revenue, the lionU+02019s share of its ad business, maintained steady growth throughout the quarter. This was a welcome sign for investors who have expressed concern about traditional search users migrating towards generative AI chatbots from OpenAI and Microsoft.

 

GoogleU+02019s cloud unit, encompassing infrastructure and productivity apps, saw a revenue increase of 28%. The division, which first turned profitable on an operating basis in the first quarter, posted an operating income of $395 million in the second quarter, reversing a loss of $590 million from a year earlier.

Meanwhile, GoogleU+02019s ad revenue nudged by 3.3% to $58.14 billion from $56.29 billion the previous year. YouTube ads, registering a rise from $7.34 billion the year before to $7.67 billion, surpassed analyst predictions. The video platform, however, continues to face stiff competition in short-form videos from rivals such as TikTok.

Investors will closely watch the earnings of tech giants such as Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) in the upcoming week.

 

Labor market and interest rates

On Tuesday, the Labor Department will release its June Job Openings and Labor Turnover Survey (JOLTS) report. The report details the monthU+02019s data on job openings, hires, resignations, and separations.

Job openings are anticipated to have decreased to 9.5 million in June, down from 9.82 million in May, indicating a slowdown in availability. On Wednesday, ADP, the payroll service provider, will deliver its National Employment Report, which monitors growth in private-sector employment. 

A growth of 210,000 is expected for July, following a half-million increase in June. These updates could establish expectations for FridayU+02019s nonfarm payrolls report. ItU+02019s estimated that US employers added 184,000 jobs in July, a slight decrease from the 209,000 in June, suggesting the FedU+02019s interest rate hikes are tempering the labor market. The unemployment rate is expected to remain steady at 3.6%.

Policymakers at the Bank of England (BoE) will convene for their latest meeting on monetary policy on Thursday. The UKU+02019s central bank is forecast to raise interest rates by a quarter of a percentage point to 5.25%, making it the 14th consecutive rate increase since the tightening efforts began in late 2021 to counteract surging prices. 

The UK is experiencing inflation below 8%, the highest among the G7 nations, and it has not eased as quickly as in other economies. According to a Reuters poll, BoE officials are likely to increase their benchmark rate to a high of 5.75% by the end of the year, setting borrowing costs at their peak since 2007.

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