Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at Q2 earnings results, the LSE’s move toward 24-hour trading, and Wall Street’s pursuit of a Powell hedge. 

But first, our number of the week…

15.39

That was Thursday’s closing level for the VIX, a measure known as Wall Street’s ‘fear gauge.’ This reading is the lowest close since February, showing that traders expect reduced volatility in the near future. 

Sidekick Takeaway: The VIX has calmed noticeably from recent heights on expectations of continued trade deals and reduced tariff uncertainty. This lack of fear helps explain why US indexes continue to soar, but could also pose risks if volatility surges again. 

Only have a minute to read? Here’s the TL;DR:

• Q2 earnings showed strong resilience despite economic uncertainty, with Alphabet exceeding expectations on AI-driven cloud growth. However, Tesla struggled amid declining revenue and weak guidance on EV tax credits, sending shares lower. 
• The LSE is reportedly considering 24-hour trading to attract more investors, especially retail traders. While extended hours may help foster Britain's investment culture, the move could risk promoting overtrading and higher costs due to low overnight liquidity.
• Donald Trump made an unusual visit to the Federal Reserve this week, escalating pressure on Fed chair Jerome Powell. Despite assurances from the Treasury Secretary, Wall Street is searching for trades to hedge the risk that Trump may try to fire Powell.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Earnings Roundup: Tesla Misses, Alphabet Soars

Q2 earnings results have continued to trickle out over the past few weeks, offering investors a glimpse into how economic uncertainty and trade tensions are impacting corporate profitability.

So far, companies largely seem to be weathering the storm. 

In the consumer space, positive results at Pepsi and Netflix underscored resilient spending trends. Meanwhile, financial firms benefited from increased trading revenue amid market volatility. 

What’s more, Google’s parent company Alphabet showed that AI usage and adoption remains robust.

The company eclipsed both revenue and earnings expectations thanks to strong cloud performance, bolstered by a recently announced partnership with OpenAI. 

Despite the generally positive trend, some companies still struggled – including Tesla. 

Tesla offers weak guidance on EV credits

Tesla shares dipped sharply following the firm’s Q2 earnings release, which showed the company continuing to battle significant headwinds:

• Automotive revenue declined 16% as sales fell for the second straight quarter.
• CEO Elon Musk indicated that the firm ‘probably could have a few rough quarters.’
• Recent US legislation is expected to kill EV tax credits that Tesla has relied on to make its vehicles more affordable for consumers.

And recent initiatives have failed to foster a sustainable turnaround. Tesla’s robotaxis are widely seen as lagging competitors like Waymo.

Still, despite blips like Tesla, this earnings season continues to show widespread resilience in a challenging environment. 

Sidekick Takeaway: While strong earnings are encouraging for investors, the market’s recent run-up means that upside potential from these results may be limited. In fact, with earnings growth priced into the market, companies missing estimates are being punished more harshly than usual. 

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Round The Clock: LSE Weighs 24-Hour Trading

In recent months, policymakers and financiers have explored ways of making Britain’s capital markets more attractive.

Reportedly, the LSE is considering a new feature in an effort to draw more investors – 24-hour trading.

Traditionally, stock markets are open during standard business hours. The LSE is currently active between 8AM and 4:30PM.

But with crypto markets making 24-hour trading standard and several major stock exchanges already working on extended hours, the time could be right for a refresh at the LSE.

Expanding trading hours could bring some benefits, particularly for retail investors looking to trade the markets after work. But the idea isn’t without tradeoffs. 

24-hour trading: Is it worth it?

While 24-hour trading can expand market access, it could also risk promoting overtrading and higher costs.

Research indicates that investors who trade more tend to experience lower long-term returns, an argument in favor of buy-and-hold investing.

Moreover, overnight trading hours will almost certainly be periods of low liquidity. This will likely result in higher bid-ask spreads and, therefore, higher trading costs.

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Still, introducing 24-hour trading could help foster the retail investment culture that the Labour government has identified as a key to boosting economic growth.

Sidekick Takeaway: Realistically, with most institutional volume already centered around market close on major exchanges, overnight trading is unlikely to offer much value for professional investors. Nonetheless, with US competitors pursuing the idea, 24-hour trading could help London continue to compete as a global financial centre. 

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Hedging the Unthinkable: Could Powell Be Fired?

The notion that the US president could fire the Federal Reserve chair was once unthinkable. Under Donald Trump, that’s no longer the case.

While the Fed’s independence is enshrined in law, Trump has made increasingly threatening overtures toward Fed chair Jerome Powell. 

Trump’s campaign against Powell continued this week with a visit to the Federal Reserve, a highly unusual move for the sitting president.

In response, traders are searching for ways to hedge the risk of Powell getting sacked. But these trades aren’t so simple to find.

Powell’s termination would be uncharted territory 

Powell has drawn Trump’s ire for refusing to cut interest rates quickly. But replacing him may not bring down rates across the board:

• Short-term US interest rates are determined by the Fed. These rates would likely fall under a Trump-friendly chair.
• However, long-term rates are determined by the market. These rates would likely rise under the same scenario due to added uncertainty and risk.
• As a result, some analysts have argued for the ‘steepener trade’ as a hedge, which involves buying short-term Treasuries and selling long-term ones.

But even this trade doesn’t perfectly hedge Powell’s firing. 

If the Treasury tries to cap long-term bond yields, the steepener trade may not profit as expected.

This uncertainty points to the uncharted territory that markets are wading into. While firing a sitting Fed chair would come with significant financial fallout, it is no longer unthinkable.

Sidekick Takeaway: Investors got some reassurance this week with US Treasury Secretary Scott Bessent assuring markets that Trump wouldn’t fire Powell. Nonetheless, Powell’s term ends next May, so Trump may not have to wait long to install a more compliant Fed chair.

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Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

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