Apple extends selloff on second rating downgrade this week

US equities closed mixed on Thursday, with the S&P 500 and Nasdaq slightly lower and the Dow little changed. The subdued trading followed a slow start to the week, and investors awaited today’s Nonfarm Payrolls report for insights into Federal Reserve policy. Technology shares, including Apple, faced continued pressure, impacting the Nasdaq’s fifth consecutive day of decline. Financial services and health care sectors outperformed, reflecting a cautious market sentiment with a potential rotation away from last year’s winners. The 10-year Treasury note yield rose to 3.997%. European equities outperformed yesterday, with the Stoxx 50 up 0.4% at 4,465. Financial companies, including UniCredit, Deutsche Bank, Santander, Generali, and Intesa Sanpaolo, were among the top gainers, each adding more than 2%, driven by positive economic data and expectations of rate cuts this year. 

Summary for 05.01.2024 

• Asian stocks stabilised after a weak start to 2024, with concerns over China’s economy and the Fed’s interest rate cuts lingering. Most regional markets were set to close lower for the week. Chinese shares, the worst performers in 2023, continued their underperformance. Japanese and Australian markets faced losses, impacted by profit-taking and the recent earthquake. South Korea’s KOSPI fell due to losses in technology stocks. Indian stocks remained muted ahead of GDP estimates. 
• European shares are expected to decline following doubts over the timing and extent of Federal Reserve rate cuts, influenced by disappointing US economic data. Meantime, US equity futures edged higher as investors await the monthly jobs report for insights into potential Fed monetary policy changes. 
• Oil prices rose in Asia this morning due to Middle East supply disruptions amid conflicts in the Red Sea and protests in Syria, halting production at its major oilfield. Concerns over supply interruptions supported the recovery, but a substantial build in US oil product inventories, indicating weak demand, limited gains. A dollar rebound, uncertainty about Fed rate cuts, and anticipation of US payrolls data influenced oil prices. US gasoline and distillates inventories showed a significant increase, signalling sluggish demand. 
• In December, US private sector employment surged with 164,000 jobs added, led by the service sector. The West and Northeast experienced growth, while the South and Midwest saw reductions. Wage growth moderated, with a 5.4% median pay rise for job stayers, the lowest since 2021. ADP’s report signals a resilient job market and easing inflation concerns. 
• Exxon Mobil warned of a $2.5 billion Q4 write-down on California assets due to lower energy prices, impacting estimated operating profits of $8.9 billion, down 30% from a year earlier. Chevron also plans a $4 billion asset write-down in California. Despite charges, RBC analyst sees the update as neutral. Full-year results are expected on 2^nd February. Brent prices in Q4 averaged $82.85, down 7% from a year ago and 4% from Q3. 
• Carrefour has removed PepsiCo snacks and soft drinks from its shelves due to recent price increases. The move is a response to what Carrefour deems as “unacceptable” hikes by PepsiCo. This action reflects the ongoing tension between retailers and food companies amid pressure to keep prices low across Europe. 
• Apple’s shares hit an eight-week low after Piper Sandler’s downgrade, the second this week, citing concerns about iPhone demand and potential inventory issues in 1H24. The rating action led to a 1.4% decline, causing a nearly $170 billion drop in market value this week. Apple remains the world’s most valuable company with a market capitalization over $2.8 trillion. Despite recent downgrades, at least 27 analysts still rate the company as “buy” or higher. The ongoing demand slowdown and challenges in China contribute to Apple’s recent struggles. 
• Bernstein named Nike, Burlington Stores, and TJX Cos. as its top US apparel and specialty retail picks for 2024. Nike, with a $134 price target, is seen as the top pick for the next six months, benefiting from a potential short-term beat and positive revisions. Meanwhile, Bernstein downgraded Adidas to Neutral, citing soft wholesale order books and weak global consumer demand. 
• TD Cowen analysts downgraded Pfizer and Illumina to Market Perform due to uncertainties in their outlooks, despite positive factors for Pfizer. For Illumina, the price target remained at $144, acknowledging its recent climb and maintaining optimism for its Nova X cycle. Merck was upgraded to Outperform, with a higher price target of $135, citing greater near-term EPS visibility and positive news flow. 
• Walgreens Boots Alliance nearly halved its dividend payout as it seeks to conserve cash amid low consumer spending and intense competition. The move follows a $1 billion cost-cutting program announced in October. The company, facing challenges like waning demand for COVID vaccines, reported a loss of $67 million for the quarter but beat profit estimates. Walgreens expects a low-single digit decline in same-store sales at its US retail business. The 48% dividend cut aims to save about $800 million annually and strengthen the balance sheet. 
• Conagra Brands cut its annual organic net sales growth and profit forecasts, citing a slower recovery in demand for packaged meals and snacks. The company recorded its 10th consecutive quarter of volume declines, prompting increased marketing efforts. Conagra plans to reduce prices in some categories to stimulate demand. The revised annual adjusted earnings per share range is $2.60 to $2.65, down from the previous $2.70 to $2.75 projection. Annual organic net sales are expected to decrease 1-2%, compared to the earlier forecast of about 1% growth. 
• Amazon strengthened its dominance in online retail, capturing 29% of global order volume in the weeks leading up to Christmas, up from 21% during Thanksgiving. The surge is attributed to Amazon’s investments in delivery speed, appealing to last-minute shoppers. Chinese competitors like Temu and Shein, while offering discounts, struggle to match Amazon’s efficiency. 
• Mobileye, an Israeli technology company acquired by Intel in 2017, slashed its 2024 revenue forecast to $1.83-1.96 billion, down from the consensus estimate of $2.59 billion. The company expects an operating loss of $468-378 million for the year. Mobileye attributes the decline to lower-than-expected volumes in its EyeQ SoC business and excess inventory at customers. Shares plummeted 25% in response. 
• Novo Nordisk partnered with Omega Therapeutics and Cellarity Inc. in research collaborations for obesity and metabolic-associated fatty liver disease treatments. The agreements, part of a 2022 framework with Flagship Pioneering, could lead to payments up to $532 million. Novo emphasizes parallel innovation alongside clinical collaborations and acquisitions in its strategic approach. 
• Home Depot received positive attention from analysts as Barclays upgraded its rating to Overweight, anticipating exposure to housing and strengthening home prices as interest rates reverse. Wells Fargo named the company as their Top Pick for 2024, citing growth, margin recapture, and Pro opportunity. They set a price target of $385 per share. 
• Bernstein analysts see Uber as a quality compounder with increased EBITDA estimates and potential Free Cash Flow (FCF) upside. DoorDash (DASH) is introduced as a new Top Pick, dubbed “UBER 2.0,” citing improved EBITDA, enhanced earnings quality, and potential to exceed consensus expectations. 
• JPMorgan expects Taiwan Semiconductor to experience strong growth in 2024, with a Buy rating and a raised price target of NT$750. The bank anticipates ~20% revenue growth driven by inventory restocking, AI demand, and the expansion in N3. Concerns about Intel competition are deemed overstated, with TSMC likely to benefit from Intel outsourcing. 
• Wolfe Research upgraded Verizon Communications to Outperform, citing optimism for the industry and a bullish case. The positive assessment aligns with the industry’s overall optimistic outlook, suggesting favourable conditions for Verizon to capitalize on subscriber growth and market dynamics. Analysts have set a $46 per share price target on Verison shares. 
• Peloton partnered with TikTok to bring its workout content to the short-form video platform, signalling a shift toward a software-focused model. The exclusive collaboration aims to leverage Peloton’s content, including live classes and celebrity collaborations, on TikTok’s dedicated hub. Peloton’s move follows challenges in hardware sales and a push to enhance accessibility through rebranding. 
• Qualcomm announces that Samsung Electronics and Google intend to use its new Snapdragon XR2+ Gen 2 chip for mixed and virtual reality headsets. The chip is equipped to manage data feeds from a dozen cameras inside the headset. The move comes ahead of anticipated competition in the mixed-reality headset market, with Apple’s Vision Pro headset expected to launch soon. 
• Microsoft introduced a “Copilot key” on Windows keyboards, marking the first significant change in almost three decades. The addition highlights Microsoft’s emphasis on integrating AI, with Copilot being a part of the company’s efforts to incorporate AI technology in its products. The move aligns with the trend of AI-enabled PCs, contributing to the expected revival of the personal computer market.