Equities gain on in-line inflation

Equities rallied globally on Thursday, propelled by positive economic indicators and news of averted government shutdown. While US shares soared to record highs, the Stoxx 50 index in the Euro area closed around the flatline, reflecting mixed performance. Investors now await key reports like Nonfarm Payrolls amid lingering inflation concerns, with S&P 500 boasting 14 record closes so far this year and up 6.8%, building on 2023’s 24% gain. 

Summary for 01.03.2024 

• Most Asian stocks surged on Friday, buoyed by strong gains on Wall Street, with Japanese and Australian markets reaching record highs. Japanese shares led the rally, particularly in the technology sector, despite mixed economic data. Chinese shares also rebounded. India’s GDP data showed economic outperformance, driving optimism in the region. 
• European equities are poised for additional increases following four consecutive months of gains, while futures for US equities remain stable after the major indices closed higher for the fourth consecutive month, as investors await new developments. 
• As of Friday, oil futures strengthened, poised for a nearly 3% weekly gain amid speculation of OPEC+ extending supply cuts and ongoing Middle East tensions. Ceasefire talks between Israel and Hamas, as well as Houthi attacks on Red Sea shipping, added a risk premium to prices, highlighting market volatility and uncertainty.  
• In February, China’s manufacturing PMI matched expectations at 49.1, indicating a fifth consecutive month of contraction. Weak local and export demand persisted, hampering economic rebound efforts post-COVID. However, the Lunar New Year holiday boosted service sector demand, reflected in a higher-than-expected non-manufacturing PMI of 51.4. Beijing’s monetary stimulus measures have offered limited support, prompting calls for targeted fiscal interventions. 
• The US Personal Consumption Expenditure Price Index increased by 0.3% in January, fuelled by a 0.6% rise in services and a 0.2% dip in goods prices. The annual rate decelerated to 2.4%, while the core rate up 0.4%, showed ongoing moderation. The data was in line with expectations, alleviating concerns and supporting the trend of inflation trending downward. 
• Also yesterday in the US, data revealed a mixed view of the consumer landscape. Weekly jobless claims edged up to 215,000 but stayed near historic lows. January saw a robust 1% rise in incomes, outpacing a modest 0.2% increase in spending. While consumer income was boosted by Social Security adjustments, spending growth may have slowed from December’s high.  
• In February Germany’s annual consumer price inflation decreased to 2.5%, below market expectations of 2.6%, driven by lower food inflation (0.9% vs 3.8% in January) and continued decline in energy prices (-2.4% vs -2.8%). Services inflation remained unchanged at 3.4%, while monthly consumer prices rose by 0.4%, below the expected 0.5% gain. 
• Citi maintains a “wildly bullish” outlook on semiconductor equities, citing steady demand in PCs, handsets, and servers. They anticipate at least 11% year-over-year growth in global semiconductor sales for 2024, with a focus on artificial intelligence. Preferred equities include NVIDIA, AMD, and Broadcom, with Micron Technology identified as the top choice due to a perceived DRAM upturn. 
• Apple resellers in China cut iPhone 15 prices by up to $180, indicating weakened post-Lunar New Year demand. Discounts follow rare cuts on Apple’s site in January. The iPhone 15 Pro Max sees significant reductions on Alibaba’s Tmall, surpassing last year’s discount. Concerns linger over demand amid economic conditions and Huawei’s smartphone resurgence in China. 
• SoundHound AI’s Q4 results disappointed, with a loss of $0.07 per share and revenue of $17.15 million, missing estimates of a $0.06 loss and $17.75 million revenue. Despite an 80% year-over-year revenue increase, the stock dropped 15% in after-hours trading. The company forecasts revenue between $63 million and $77 million for fiscal 2024 and exceeding $100 million for 2025, aiming for positive adjusted EBITDA. 
• Duolingo’s shares soared over 16% in regular trading yesterday, as it projected robust 2024 revenue due to increased online learning and AI integration. The company’s innovative “freemium” model and introduction of Duolingo Max subscription tier with GenAI features have driven demand and record bookings, with significant growth in users and subscribers, fuelling positive market response. 
• CRH shares surged 6% after surpassing its 2023 guidance with a 15% core profit growth and projecting up to 10.5% growth in 2024. The company, mainly operating in the US, reported increased EBITDA margins due to price hikes in key materials. It anticipates further price growth driven by infrastructure investment and manufacturing reshoring, presenting an accelerated investment case according to analysts. 
• Anheuser-Busch posted disappointing Q4 EBITDA and revenue, causing a 3.3% drop in its share price on Thursday. While EPS slightly decreased, it surpassed expectations. US revenue fell by 17.3%, with a 12% drop in retailer sales. The company expects EBITDA growth to align with medium-term projections and forecasts FY24 net capital expenditure. BofA analysts find the quarter reassuring despite non-operational challenges, expecting no consensus downgrades. 
• Chemours shares plummeted to a three-year low after placing its CEO and top executives on leave over potential financial reporting weaknesses. The delay in releasing financials exacerbated concerns. Interim leaders were appointed as investigations continue. Preliminary estimates suggest a significant drop in net sales and a substantial annual loss. 
• Citi downgraded Bayer, citing potential litigation issues and lowered its target price by more than half. Bayer’s stock fell in response. The bank highlighted challenges in the pharmaceutical and crop sectors, exacerbated by recent setbacks in drug development and litigation, leading to significant earnings downgrades and increased provisions for legal expenses. 
• Salesforce’s price target was upped to $330 from $300 by Macquarie, maintaining an Outperform rating post robust Q4 FY2024 results. The firm cited Salesforce’s revenue beat and dividend announcement as evidence of its commitment to growth and profitability, reflecting confidence in its financial discipline and outlook for FY2025. 
• Citi maintains a Buy rating on United Airlines, emphasising its strong potential for free cash flow generation, which is expected to persist throughout the year. The firm believes the shares are undervalued, with an estimated 2024 P/E ratio of 4.6 times, driven by robust EPS growth and a promising free cash flow outlook. 
• RBC Capital Markets raised Monster Beverage Corporation’s price target to $65 from $60, maintaining an Outperform rating. The adjustment follows Monster’s robust January sales, primarily driven by international markets and timing differences in shipments. Management’s comments align with RBC’s views, bolstering confidence in the company’s performance and growth prospects. 

• Wells Fargo strategists caution that despite the S&P 500 hitting record highs, there may be limited room for further growth due to narrow market breadth. They note that the rally is primarily led by a few large-cap tech stocks, with smaller-cap indexes underperforming, signalling potential weakness in the overall market sentiment. 
• Billionaire Ray Dalio, founder of Bridgewater Associates, suggests the “Magnificent Seven” tech shares, including Alphabet and Meta Platforms, are somewhat overvalued but not in a full bubble. Despite an 80% rally since January last year, Dalio’s analysis indicates the US equity market overall isn’t in bubble territory, though uncertainties about AI impact remain. 
• Citi introduced its European “Super 7” equities, highlighting their potential to outperform amid narrowing dynamics in Europe. These shares, including Novo Nordisk, ASML Holdings, LVMH, SAP, Schneider, Richemont, and Ferrari, offer attractive margins and have underperformed the US “Magnificent 7,” suggesting room for catch-up if trends persist. 
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