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Meta calmed investors' nerves with its results, Japan bumped up interest rates, and why tinned fish is literally so hot right now |
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Today's big stories

  1. Meta calmed cost-conscious investors’ nerves, showing that its spending spree was an investment rather than an impulse buy
  2. Biotech could be the industry to watch when rates are cut, according to Morgan Stanley – Read Now
  3. Japan’s central bank hiked interest rates for only the second time since 2007

Surf’s Up

Surf’s Up

What’s going on here?

Meta reported stronger-than-expected sales for last quarter, so cue another celebratory photo occasion for the firm’s CEO.

What does this mean?

Meta had a lot to prove. Wall Street’s been critical of Big Tech’s AI spending, and Meta already worried investors in April by hiking its spending forecast higher than expected. But it looks like the investment has been well spent: the company made more profit than predicted last quarter, after bringing in over $39 billion in revenue – 22% more than the same time last year. To top it off, Meta issued a better-than-expected forecast for next quarter, too. And that uptick could have been spurred on by those AI investments. The tech’s been used to fine-tune advertising targeting, making its already most lucrative business more efficient.

Why should I care?

For markets: Ah, the good old days.

Concerned about Big Tech’s lofty valuations and colossal AI spending, investors have been checking out smaller stocks lately – especially as potential rate cuts would make it cheaper for businesses to invest in themselves. That explains how the Russell 2000 index, which tracks small and mid-cap stocks, closed much of the gap between it and the Big-Tech-heavy S&P 500 this month. But with results like Meta’s, that might not last long…

The bigger picture: Time to turn theory into reality.

No analyst who wants to keep their career would actively bet against AI, but more and more are sounding warnings these days. With an anticipated $1 trillion being funneled into related infrastructure over the coming years, Jim Covello – Goldman Sachs' top tech analyst – says the tech has to smarten up to justify the cost. Sure, AI can code lightning fast and save firms some costs, but Covello reckons it’ll need to show off seriously improved applications and complex capabilities soon, or else the market could change its tune.

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Analyst Take

Morgan Stanley Says This Industry Should Win When Rates Fall

Morgan Stanley Says This Industry Should Win When Rates Fall
Photo of Stéphane Renevier, CFA

Stéphane Renevier, CFA, Analyst

The Federal Reserve looks poised to cut rates later this year.

And while the stock market as a whole will likely breathe a sigh of relief, some sectors will feel the effect more than others.

Investors are on the lookout for those that should steal a march when rates are cut, and Morgan Stanley is pushing biotech companies into the conversation.

So that’s today’s Insight: why Morgan Stanley believes biotech companies will get a health boost when rates are cut.

Read or listen to the Insight here

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Land Of The Rising Rates

Land Of The Rising Rates

What’s going on here?

The Bank of Japan (BoJ) raised its benchmark interest rate to the highest point since 2008.

What does this mean?

The BoJ’s new 0.25% interest rate – up from the previous range of between 0% and 0.1% – marks a stark change from years spent in negatives. And remember, the higher the rate, the harder it is for folk and firms to access and spend money, which weighs on an economy. Layer on the fact that the central bank plans to cut its monthly government bond purchases in half by early 2026, and there should be even less cash flooding into the economy. Though even with these changes, the BoJ expects the inflation-adjusted interest rate to stay significantly below zero, so the economy hasn’t exactly been covered with a cold towel just yet.

Why should I care?

Zooming out: Japan wants the sale to end.

Japan has been contending with falling prices for decades, due to a sluggish economy, folk stashing cash, stagnant wages, and an aging population that spends less. Although, this year has marked a turnaround, not least because Japan’s trade union secured the biggest pay bump in 33 years. And of course, higher rates are designed to put a damper on price increases, so the BOJ’s raise shows that it’s confident the country has ditched deflation. In fact, the central bank predicts that inflation – minus food and energy costs – will hang around 2% next year and the one after.

The bigger picture: Tortoise, meet the hare.

The BoJ has kept rates low and steady, while America’s Federal Reserve (Fed) has been on a hiking spree. And because higher rates attract investors to a country’s currency, the US dollar has been basking in glory. But if the Fed decides to cut rates in September, there’s even more reason to expect a stronger yen – so you might want to book those flights to Japan, stat.

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💬 Quote of the day

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– Francis of Assisi (an Italian mystic, poet, and Catholic friar)
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🎯 On Our Radar

1. Sweet dreams. Seven of the best products to help you sleep soundly on holiday.

2. Trading platforms are a dime a dozen. Here's how to find one that's really worth your money.**

3. Lightning in a… tin. Here’s why charred tinned fish is the food of the summer.

4. ESG investing isn’t just a feel-good theory. Here’s how you could put principles into practice.*

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