Equities could take a breather ahead of inflation tests

Friday saw both US and European equity markets maintaining their upward trajectories. In the US, positive sentiment prevailed as large-cap shares drove gains despite a slight Nasdaq dip, bolstered by robust corporate earnings and advancements in artificial intelligence. The S&P 500 and Dow Jones hit record highs, propelled by Nvidia’s stellar earnings nearing a $2 trillion market cap. Retailers like Walmart thrived, contributing to the S&P 500’s weekly gain of 1.6%, while the Dow Jones and Nasdaq each added 1.3%. Concurrently, the STOXX 50 surged to a new 23-year peak at 4,873, with a weekly gain of 2.1%, fuelled by positive earnings from BASF offsetting losses from Allianz. 

Summary for 26.02.2024 

• Asian equities, excluding Japanese markets, dipped on Monday as profit-taking in the tech sector offset optimism. Chinese shares retreated from recent highs amid concerns over economic recovery and pending PMI data. Meanwhile, Japanese shares surged to record highs, fuelled by AI-related gains and expectations of prolonged BOJ dovishness ahead of CPI data. 
• European shares are set to inch lower, pulling back from Friday’s all-time high, while US equity futures held steady after last week’s gains driven by strong earnings, despite the Fed’s hawkish tone, with focus on upcoming inflation data and earnings reports. 
• Oil prices fell in Asia this morning, extending losses amid uncertainty over demand and higher US interest rates. Concerns about slowing demand outweighed geopolitical tensions in the Middle East. Focus shifted to key economic data releases and signals from the Fed on interest rates, with traders anticipating no rate cuts soon. 
• Berkshire Hathaway posted its second straight record annual operating profit of $96.2 billion, driven by improved underwriting in its insurance business and gains in its equity portfolio, notably Apple. Despite challenges in its railroad and energy sectors, the conglomerate remains confident in its defensive stance and diversified holdings, with its equity outperforming the market in 2024. 
• Booking Holdings shares plummeted over 10.0% on Friday following its Q4 results, which, while slightly exceeding revenue expectations, revealed a slowdown in vital metrics such as room nights and rental car days sold. The company attributed this decline to elevated cancellation rates amid the Middle East conflict, anticipating a negative impact on future growth. Despite this, Morgan Stanley raised its price target to $3,700, retaining an Equalweight rating, expressing apprehensions regarding Booking Holdings’ growth outlook in contrast to its forecasts, despite initial efficiency improvements from Generative AI. 
• Intuitive Machines’ moon lander, Odysseus, successfully touched down on the lunar surface but tipped over due to a navigation system glitch. Despite the setback, the spacecraft remains operational, with most payloads intact and communications established with mission control. The company’s shares plunged 30% following the announcement after rallying by almost 16% during Friday’s session. 
• Figure AI Inc., a startup focusing on human-like robots, is raising approximately $675 million in funding, with investments from Jeff Bezos, Nvidia, Microsoft, and others. The company aims to develop robots like Figure 01 to address labour shortages and undertake hazardous tasks, reflecting growing interest in AI-powered robotics. 
• Ryanair faces fewer Boeing aircraft deliveries by June than expected due to Boeing’s ongoing crisis, potentially prompting summer schedule cuts. CEO Michael O’Leary criticised Boeing’s communication and hinted at fare increases to offset delays, while expressing willingness to take additional MAX 737 10 planes if available. 
• United Airlines raised checked baggage fees for North American travellers following similar moves by American Airlines and JetBlue Airways. The increases, attributed to rising maintenance and labour costs, aim to offset financial challenges exacerbated by market conditions and pandemic-related losses. Regulatory scrutiny over airline fees persists despite past legislative setbacks. 
• Alcoa proposed a non-binding, conditional buyout of its Australian joint venture partner, Alumina, valued at $2.2 billion in an all-equity offer, aiming to simplify governance and increase exposure to the upstream aluminium business, with Alumina’s CEO intending to recommend shareholders vote in favour of the proposal. 
• Nvidia’s exceptional fourth-quarter earnings and robust revenue guidance prompted Rosenblatt to raise its price target to a Street-high of $1,400, citing strong demand for artificial intelligence and accelerated compute. Despite supply improvements and excluding China sales, Nvidia remains sold out for the fiscal year, with analysts envisioning substantial growth potential. 
• DA Davidson maintains a Buy rating and $220.00 price target for e.l.f. Beauty after its presentation at the CAGNY Conference. The company achieved a milestone with over 20% share at Target, signalling strong growth potential. Analysts foresee potential sales doubling and highlight the company’s impressive track record. 
• Redburn Atlantic analysts upgraded Alphabet to a Buy rating, raising the price target to $170 from $165. They assert that Alphabet’s search resilience is undervalued, highlighting its structural strength and market dominance, foreseeing upside potential in Search, Cloud, and EPS consensus expectations despite negative sentiment. 
• Guggenheim analysts initiated coverage on Pfizer with a Buy rating and a 12-month target price of $36, indicating a 30% upside potential. They cite low investor expectations for Pfizer’s COVID assets, foreseeing an opportunity for near-term estimates to increase, supported by potential success in pipeline assets. 
• Following Carvana Co.’s strong fourth-quarter, William Blair upgraded the company from Market Perform to Outperform, citing profits surpassing expectations. Concurrently, Baird raised Carvana’s price target to $60 from $35, maintaining a Neutral rating, post-projected quarterly adjusted EBITDA exceeding $100 million, highlighting strategic evolution amidst operational improvements. 
• Citi upgraded Block Inc. to Buy, raising the price target to $86 from $76, citing strong fourth-quarter performance and growth prospects, especially in CashApp’s strategic shift. Wells Fargo also upgraded Block Inc. from Equal Weight to Overweight, setting a new price target of $95, driven by optimism regarding the company’s financial outlook. 
• Citi analysts maintain a Buy rating and €158 price target on Volkswagen AG, anticipating solid fourth-quarter results on 13^th Marc to potentially surpass consensus earnings for FY24. They expect VW’s net cash to increase and suggest that its undervalued status compared to other European OEMs could prompt a sector-wide revaluation. 
• Bank of America analysts upgraded the mining sector to Overweight and downgraded the luxury sector to Marketweight in their European equity strategy note. They remain pessimistic on European equities due to anticipated slower growth in the US and Euro area. The shift reflects concerns about global PMI deterioration and sector performance trends. 

• In the week ahead, major economic indicators in the US, including PCE price indexes, personal income, and spending data, will be closely watched, alongside speeches by Federal Reserve officials. Elsewhere, inflation rates in key economies like Japan, Australia, and the Euro Area, as well as GDP growth rates for several countries, will draw attention. Manufacturing PMIs in pivotal nations and unemployment rates in major economies are also on the radar.  The earnings calendar includes key releases from Lowe’s, eBay, AutoZone, Salesforce, and AnheuserBusch InBev.