Return of the old economy

Saudi Aramco became the world’s biggest company once again, pushing Apple from the top slot. The petrochemicals group announced Q1 profits up 82%. The recent oil price spike, caused by war in Ukraine, means more money is earned for every barrel pumped. In a similar switch in new and old economy fortunes, Zoom Video Communications peaked during 2020 lockdowns with a market value of $160 billion, at the time eclipsing Exxon. The oil giant’s value now tops $400 billion. And it recently bumped its share buyback target up to $30bn, a figure that could now buy the whole of Zoom outright.

Fully deflated yet?

The Nasdaq index, dominated by US tech giants, has hit a bear market, falling 20% from November’s high. Unease over valuations and profit warnings has brought share prices clattering down. Social media group Snap tumbled 40% after a revenue and profit warning. And Twitter fell 20% after Elon Musk tweeted that his $44 billion takeover was ‘on hold’. So is the tech bubble deflation almost done? Valuations now look more reasonable, lower than the 5 year average. And tech companies are launching record share buybacks, showing confidence in their own value, while usefully inflating their share price.

How hard is that?

US Federal Reserve (Fed) Chair Jay Powell puzzled the markets by promising a ‘softish’ landing for the US economy. It’s not a word that’s often heard in this context. With inflation at a 40 year high, the Fed acknowledges a ‘difficult balancing act’ to choke it off without triggering a recession. And the global backdrop looks tough, with other economies facing major headwinds. China will struggle to record positive growth this quarter, after Covid lockdowns, and German growth could be dragged down by the costs of switching from Russian gas, following the EU ban.