Equities on edge ahead of Nvidia earnings

Equity markets closed lower on Tuesday, with the S&P 500 down 0.6% and the Nasdaq retreating by 0.9%. Defensive sectors like utilities and consumer staples outperformed, while tech and consumer discretionary lagged. Walmart’s shares rose 3% post better-than-expected earnings. Treasury yields fell slightly, with the 2-year at 4.58% and the 10-year at 4.27%. The Nasdaq hit a two-week low on semiconductor declines ahead of Nvidia’s earnings, while Discover Financial surged over 12% after a buyout deal with Capital One. Elsewhere, the Stoxx 50 index slipped less than 0.1% amidst mixed corporate updates, key economic data releases, and anticipation of forthcoming events. 

Summary for 22.02.2024 

• Most Asian equities slipped on Wednesday, mirroring Wall Street’s caution before Nvidia’s earnings and Federal Reserve cues. Chinese markets rose on extended gains and a People’s Bank of China rate cut. Globally, tech shares were cautious. Japanese and Australian indices fell, while Hong Kong’s Hang Seng surged. 
• European shares are poised for a steady open while US equity futures are flat to negative, with investors focused on earnings season and anticipating Nvidia’s report, while Palo Alto Networks and SolarEdge Technologies dropped significantly in extended trading following guidance cuts. 
• Oil prices were stable this morning amid demand concerns and Middle East tensions. Brent crude saw a slight increase while West Texas Intermediate also rose. Investors remain focused on OPEC+ decision for an output cut extension amid escalating Middle East tensions. Meantime, oil prices fell 2% yesterday due to interest rate and demand uncertainties exacerbated by strong US inflation data and a shift towards renewable energy, according to the International Energy Agency. 
• HSBC Holdings reported a record annual profit of $30.3 billion for 2023, up 78% from the previous year. However, it fell short of analysts’ forecasts due to a $3 billion charge from its stake in a Chinese bank. The bank announced a $2 billion share buyback and plans for a special dividend once its Canada disposal is complete. 
• Palo Alto Networks shares dropped 21% after-hours due to lower-than-expected guidance for the fiscal Q3. While fiscal Q2 results beat estimates, with adjusted EPS of $1.46 and revenue of $1.98B, the outlook for Q3 fell short. The company provided adjusted EPS guidance for 2024 of $5.45 to $5.55 and revenue between $7.95B to $8.00B, with revised forecasts for fiscal 2025 billings and sales. 
• Public Storage surpassed Wall Street expectations in Q4 with core funds from operations of $4.20 per share, higher than the estimated $4.14. Despite a decline in occupancy due to the pandemic’s easing, increased rent boosted margins, leading to a 6% revenue rise to $1.16 billion. However, quarterly profit fell short of estimates at $2.21 per share. Shares were flat in after-hours trading. 
• Toll Brothers exceeded Wall Street expectations in Q1 with adjusted EPS of $1.78 on revenue of $1.88B. Deliveries surpassed guidance at 1,927 units, driven by robust demand. Net signed contract value rose 42% YoY. Q2 deliveries were projected at 2,400-2,500 units, while the 2024 delivery estimate increased to 10,000-10,500 units. Shares rose by over 2% in extended hours. 
• Teladoc Health’s shares plunged 18% in after-hours after FQ4 revenue and Q1 2024 guidance missed expectations. Despite a narrower-than-expected loss per share in Q4, revenue fell short. Operating and free cash flow for 2023 surged, with cash reserves reaching $1.12B. Q1 2024 EPS and revenue projections were below consensus, while full-year 2024 guidance exceeded EPS expectations but missed revenue estimates.  
• Home Depot forecasts full-year results below analyst expectations, citing continued subdued demand in the home improvement market amid inflationary pressures, with foot traffic declining in Q4 due to harsh weather; expects a 1% decline in 2024 comparable sales, prompting a muted reaction in its shares. 
• Walmart’s fourth-quarter US sales and earnings exceeded estimates, driven by strong holiday e-commerce activity and boosted by consumer preference for low-cost items amidst inflation. Despite a muted outlook, CEO Doug McMillon aims to maintain momentum by lowering prices. Walmart also proposed acquiring Vizio for $2.3 billion to expand advertising opportunities. 
• Barclays rallied 12% yesterday as investors assessed the bank’s plans to overhaul its operations, including dividing into five operating divisions and aiming to return £10 billion to shareholders by 2026. The restructuring follows dissatisfaction with the equity’s performance and aims for a group return on tangible equity of over 12% by 2026. 
• Amazon will replace Walgreens Boots Alliance in the Dow Jones Industrial Average next week. The move aims to increase consumer retail exposure and follows Walmart’s share split decision. Amazon’s diverse presence across industries aligns with the Dow’s representation of US commerce. Uber will also join the Dow Jones Transportation Average. 
• Evercore ISI downgraded Ingersoll-Rand from Outperform to In Line but raised its price target to $89.00, citing modest upside potential relative to new targets in the sector, including Caterpillar and Timken, reflecting a broader trend of shares nearing updated targets, leading to a more neutral stance on valuation. 
• Bernstein analysts reiterated an Outperform rating on Disney, raising their price target to $120, citing the company’s crackdown on password sharing for streaming services. They anticipate a revenue boost of $1.2B, with a significant portion potentially enhancing free cash flow, hastening direct-to-consumer profitability within a couple of years. 
• Redburn Atlantic upgraded ASML Holdings to Neutral from Sell, raising the price target to €900, driven by a significant 253% increase in Q2 2023 orders, surpassing expectations and de-risking FY25 guidance. Despite positives, concerns remain regarding methods employed for order intake and challenges in litho-intensity and EUV commerciality. 
• Rosenblatt analysts raised Super Micro Computer’s price target to $1,300 from $700, citing strong momentum in AI computing. They highlight the company’s potential for double-digit market share gains, particularly in enterprise, driven by its integration of liquid cooling technology, positioning it ahead of Asian ODMs and traditional OEMs in meeting AI demands. Meantime, shares fell by over 13% at one point during the session but managed to limit losses to 2% by the end of the session. 
• Deutsche Bank now views the U.S. airlines sector more positively, noting carriers have scaled back growth plans, easing pressure on over-supplied domestic markets. They expect domestic capacity growth to halve in H1 2024, leading to improved unit revenue and top-line performance, prompting upgrades for Alaska Air, JetBlue, and Southwest to ‘buy’. 
• UBS raised their 2024 S&P 500 target to 5,400, noting their previous target of 5,150 was “not bullish enough,” foreseeing roughly 8% upside by year-end. They favour Health Care within defensive sectors but see more potential in cyclicals, especially financials benefiting from rising interest rates and M&A activity. Additionally, UBS revised 2024-2025 EPS estimates upward to $240 and $255, respectively.