Apple, Palantir report; U.S. midterm elections ahead - what’s moving markets

 Futures linked to the main U.S. stock indices are subdued, as investors assessed a fresh batch of technology sector earnings and looked ahead to the much-anticipated American midterm elections. Apple and Palantir shares dip in extended hours trading after the two companies’ latest quarterly reports, while artificial intelligence and affordability are likely to be key issues for American voters. 

1. Futures muted

U.S. stock futures hovered around both sides of the flatline on Tuesday.

By 02:56 ET (06:56 GMT), the S&P 500 futures contract had dropped by 14 points, or 0.2%, and Dow futures had fallen by 260 points, or 0.5%. Nasdaq 100 futures, meanwhile, edged up by 21 points, or 0.1%.

The main averages on Wall Street were mixed in the prior session. Stocks were initially buoyed by a decline in oil prices linked to hopes for a de-escalation in the Iran war, although tech stocks weighed on sentiment in a hangover from a rout last week. The tech-heavy Nasdaq Composite retreated by 1.07%, reflecting ongoing worries over the sustainability of debt- and equity-fueled spending on a rapid artificial intelligence infrastructure build-out.

"[I]f the debt and equity can’t be absorbed, industry capex will inevitably be dialed back," analysts at Vital Knowledge said in a note.

2. Apple unveils disappointing margin guidance

Shares of Apple ticked lower in extended hours trading following underwhelming margin guidance from the iPhone-maker.

Fiscal fourth-quarter earnings per share rose 14% to $2.10, bolstered by a jump in sales to $114.5 billion. Both figures exceeded Wall Street expectations.

However, sales of $17.5 billion in Apple’s key Chinese market came up short of forecasts, as did demand in Japan, while free cash of $26.8 billion was below consensus projections -- despite being high relative to other tech players committing massive investments into their AI ambitions. Apple shares have jumped by more than 24% so far this year, thanks in part to the company’s reputation as a safe haven from AI jitters.

In a note, analysts at Evercore ISI said Apple’s numbers reinforced their view that underlying hardware demand is healthy in spite of recent price increases, although "the debate is increasingly shifting toward margins and [earnings per share] power" as the cost of memory chips soars.

"Structurally, we expect [Apple] to navigate a choppy [gross margin] environment till we start to see memory pricing stabilize (or come down)," they wrote.

Apple told investors in a post-earnings call that gross margins in the current quarter will be between 45% to 46%, below expectations of 47% and potentially presenting a key challenge for new CEO John Ternus.

3. Palantir shares drop despite solid earnings

Palantir shares also dipped after-hours, dragged down by a soft indicator of future revenue that overshadowed otherwise solid third-quarter results.

The AI-focused data analytics group logged earnings per share of $0.44, driven by a 96% surge in sales to $2.31 billion that was powered by robust commercial and government contracts in the United States. The two numbers -- along with a fourth-quarter outlook for sales of $2.649 billion-$2.653 billion and operating income of $1.64 billion-$1.644 billion -- outpaced estimates.

Yet analysts flagged that growth in total contract value -- a tracker of the total dollar amount of all contracts signed during the quarter that helps shed light on possible incoming sales -- slowed to 6% versus a year ago. In the second quarter, the figure stood at 49%.

In a note, analysts at William Blair said Palantir had offered "another spectacular print, but the noisy bookings metric will likely result in a subdued stock reaction."

4. U.S. midterms loom large

As AI plays a central role in quarterly earnings, the nascent technology could be a factor in today’s American midterm elections. At play is control over the two chambers of the U.S. Congress, which is currently dominated by majorities from President Donald Trump’s Republican Party.

Some voters have expressed concerns over the impact of AI on jobs and the proliferation of huge data centers needed to underpin cutting-edge AI systems. Trump has been a champion of the AI industry, arguing that the U.S. must beat rival China in the race to harness the technology.

Along with AI, affordability problems could also be a central issue for Americans heading to the polls. Energy prices have spiked since the beginning of Trump’s war with Iran, fueling an increase in the costs of items like gasoline and diesel, although strong consumer spending and AI investments have helped prop up wider U.S. growth.

5. Oil rises

Oil prices edged higher Tuesday after falling sharply in the previous session, as a reported U.S. strike on Iran’s Qeshm Island revived concerns about Middle East supply disruptions.

The United States attacked Iran’s Qeshm Island on Monday, the Wall Street Journal reported, citing U.S. officials. The strike was part of a series of limited U.S. attacks on Iran in recent weeks, the report said, as Washington sought to avoid signalling a return to a broader military campaign. Qeshm lies in the Strait of Hormuz, a critical waterway for global oil shipments.

The reported attack highlighted the fragile balance between military escalation and diplomatic efforts to end the conflict, keeping traders alert to the risk of further disruption to oil flows through the Gulf.

Crude prices had slumped on Monday after U.S. officials signaled a preference for negotiations, easing concerns that Washington could resume a wider military campaign following the U.S. midterm elections.