Earnings to take centre stage

On Monday, all three major US equity indices rebounded from their worst week of the year, with the S&P 500 and Nasdaq rising by 0.8% and 1.1% respectively, breaking their 6-day losing streak, while the Dow gained 254 points. Investors found encouragement in easing Middle East tensions and looked ahead to a busy week of corporate earnings reports and economic data. Similarly, in Europe, the STOXX 50 closed up 0.3% at 4,930 as geopolitical tensions eased, directing investors to focus on upcoming earnings reports. 

Summary for 22.04.2024 

• Asian equity markets mostly climbed on Tuesday, following Wall Street’s positive trend and eased concerns over a broader Middle East conflict. Solid PMI figures from Australia and Japan for April fuelled investor optimism, while Indian PMI numbers were awaited. Australia, Japan, South Korea, and Hong Kong shares rose, but Chinese equities fell for a third consecutive session. 
• European markets are expected to open higher today, with investors eyeing earnings reports from Renault and Kering in particular, as well as the release of preliminary manufacturing and services PMI data for the eurozone in April.  Meantime, US equities futures are slightly down after gains in the previous session, with a focus on Tesla results later in the day, alongside new home sales data. 
• Oil prices slightly rebounded on Tuesday after previous losses, as investors gauged geopolitical risks in the Middle East. Brent crude rose to $87.27 a barrel, and WTI to $82.16. Tensions between Israel and Iran eased, but uncertainties persist. US sanctions on Iran’s oil sector and EU’s plans for further sanctions add to the volatility. 
• Renault reported this morning a 1.8% increase in first-quarter revenue, reaching €11.7 billion ($12.47 billion), supported by strong performance in its financing business despite a decline in core automotive sales turnover. The group sold 549,099 units, surpassing expectations, with revenue exceeding the anticipated slight drop to €11.49 billion. 
• SAP reported fiscal first-quarter results below expectations as it embarks on a transformation for the AI revolution. Adjusted earnings were €0.81 per share down from €0.83, on revenue of €8.04B, up from €7.44B. Cloud revenue rose 24% to €3.93B. Despite weaker results, SAP maintained its 2024 outlook and declared a dividend increase for fiscal year 2023. 
• Verizon beat quarterly profit estimates, losing fewer wireless subscribers than expected, thanks to flexible plans and streaming bundles with services like Netflix and Warner Bros Discovery’s Max. The company’s myPlan option and streaming partnerships resonated well with consumers, leading to its best first-quarter performance since 2018, but shares fell due to growth challenges. 
• Cleveland-Cliffs reported Q1 results below analyst expectations due to a buyers’ strike from service centres. Adjusted earnings were $0.18 per share, compared with a loss of $0.11, with revenue at $5.20B, missing estimates of $0.22 per share and $5.35B in revenue. Despite lower sales volumes, higher average selling prices were noted. The company maintained its outlook. 
• Analysts at Jefferies and MoffettNathanson are bullish on Amazon, foreseeing more upside ahead for the equity. Jefferies expects accelerating AWS growth and operational income beat to drive outperformance. MoffettNathanson predicts significant gross profit improvement by 2024 and highlights advertising revenue growth potential. Both firms reiterate Buy ratings, with price targets of $225 and $230, respectively. 
• Despite recent declines in Apple‘s share price, Bank of America remains bullish, naming it a top pick for 2024. BofA expects strong guidance, new iPhone releases, and AI announcements to drive growth. They predict Apple will beat earnings estimates and maintain a Buy rating with a $225 price target. 
• Amidst the recent market downturn affecting chipmakers, Morgan Stanley maintains a bullish stance on Nvidia, reiterating an Outperform rating. They view the recent sell-off as a buying opportunity, expecting strong demand for Nvidia’s GPUs despite concerns about Blackwell transition. The bank believes Nvidia’s setup is favourable and sees no reason to sell the shares. 
• UBS Global Research downgraded the “Big Six TECH+” stocks – Apple, Amazon.com, Alphabet, Meta, Microsoft, and Nvidia – from ‘Overweight’ to ‘Neutral’, citing projected profit growth slowdown to 15.5% by Q1 2025 from 42.2% estimated for the current year. Rising bond yields and economic uncertainties also contributed to the downgrade. 
• JPMorgan downgraded Cisco Systems to Neutral from Overweight, setting a new price target of $53, down from $62. The move reflects caution about Cisco’s medium-term prospects despite a favourable near-term setup. Challenges in the Campus Networking segment and muted earnings growth expectations led to the rating change. 
• Bank of America Securities analysts advocate buying geopolitical shocks, considering them as buying opportunities historically. However, they caution that further escalations in the Middle East could pose a tail risk. They recommend hedging with VIX calls and long-dated SPX puts, recalling historical equity performance during geopolitical events. 
• JPMorgan equity strategists warned of a potential prolonged US equity market sell-off, citing concerns over high valuations, persistent inflation, Fed rate hikes, and overly optimistic profit outlooks. They highlighted rising bond yields, USD strength, and elevated oil prices as factors contributing to market tension. Japan’s consumption-related equities present an interesting opportunity amid wage growth expectations.