Let the AI rally resume

On Wednesday, the S&P 500 and Dow closed nearly flat following a tech sell-off, while the Nasdaq dipped. Sparse economic data left the market influenced by the tech pause. Tech and communication sectors faltered, while energy and utilities advanced. Bonds slipped, pushing the 10-year Treasury yield to around 4.3%. European markets were broadly positive with the Stoxx 50 reaching a 23-year high. HSBC and Glencore shares dropped notably impacting the FTSE 100. Investors awaited Nvidia’s earnings amid a cautious Fed and tech’s correction. 

Summary for 22.02.2024 

• Asian equity markets mostly rose on Thursday, buoyed by US futures and Nvidia’s after-hours rally on strong earnings. Investors shrugged off Fed caution on rate cuts, focusing on positive private sector activity data from Australia and Japan. Shares in Japan, South Korea, Hong Kong, and China advanced, notably driven by Nvidia suppliers like TSMC. Australian stocks lagged amid concerns over high US interest rates and China’s recovery slowdown. 
• European stocks are set to climb amid a global rally, with a focus on ECB minutes and earnings from Nestle, Mercedes, and Axa. Meanwhile, US markets are expected to open higher on Nvidia’s robust earnings, with investors eyeing jobless claims and earnings reports from the likes of Moderna and Booking Holdings. 
• Oil prices remained stagnant this morning, as worries about another substantial increase in US inventories overshadowed hopes for tighter global supplies due to disruptions in the Middle East. Despite marginal gains on Wednesday, ongoing fears of weakening demand and the persistent Israel-Hamas conflict limited crude’s upward momentum. Additionally, weak PMIs and Federal Reserve apprehensions about interest rates further dampened the demand outlook. 
• The latest FOMC minutes published yesterday underscored the Fed’s focus on economic performance and inflation moderation, despite concerns about inflation surpassing the 2% target. While the funds rate has remained steady since July, worries persist regarding inflation’s impact on households. However, market sentiment remains stable, with traders predicting a high probability of no change in the funds target rate through March and May. 
• Japan’s manufacturing PMI fell unexpectedly to 47.2 in February, marking the ninth consecutive month of decline, with output contracting the most in a year. Meanwhile, the services PMI decreased to 52.5 from January’s four-month high of 53.1, reflecting softer output rises. Although new business growth accelerated, foreign demand declined, and both input and output cost inflation eased. 
• Nvidia’s fiscal Q4 results exceeded expectations, driven by strong demand for chips amid AI growth, with revenue reaching $22.1 billion and EPS at $5.16. This compared to analysts’ estimate of $20.55 billion in revenue and $4.64 in EPS. Data centre revenue surged 409%, while gaming revenue rose 56%. Despite a decline in sales to China due to export restrictions, Nvidia’s projected revenue for fiscal Q1 of $24 billion surpassed analyst estimates of $22.01 billion, leading to a 9% rise in its shares in after-hours trading. 
• Royal Caribbean Group raised its annual profit forecast, attributing it to strong cruise demand during the key ‘wave season’ and robust on-board spending. Shares surged 6% in extended trading. All four quarters and key products for 2024 are booked ahead of last year’s timeline. The company now expects adjusted earnings per share of $9.90 to $10.10. 
• Marathon Oil surpassed Q4 profit expectations, buoyed by increased production despite declining crude prices. The company reported a rise in oil and gas output to 404,000 barrels of oil equivalent per day. Although winter weather may affect first-quarter production, Marathon maintains its full-year oil production guidance. Adjusted profit per share exceeded analyst estimates. 
• Rivian’s annual production guidance for 2024 fell short of Wall Street estimates, with the company expecting to produce 57,000 vehicles compared to analyst expectations of 66,000. The electric vehicle maker also reported a narrower loss per share for Q4 2023 but missed revenue estimates. Rivian’s shares dropped over 15% in afterhours trading. 
• Rio Tinto reported a 12% decline in annual underlying earnings to $11.8 billion for 2023, primarily due to lower prices for aluminium and minerals. Despite inflation pressures, it declared a final dividend above expectations. The company anticipates rising production costs in 2024 but believes inflation is moderating. CEO Stausholm noted a focus on organic growth and cautiousness towards acquisitions amid high valuations. 
• Glencore saw a 50% drop in annual adjusted earnings to $17.1 billion due to declining energy and metal prices. CEO Gary Nagle attributed this to a rebalancing in international energy trade. Net debt surged to $4.9 billion, prompting a reduced shareholder distribution of $1.6 billion. No further special dividends are planned to preserve reserves for the Teck coal division acquisition. 
• Inditex’s Zara owner is expanding its budget brand Lefties to compete with online giant Shein, countering its budget prices. Lefties, now with stores in 17 countries, targets value-minded shoppers as Shein’s presence grows. The move aims to bolster Inditex’s market share amid Shein’s significant impact on the fast fashion market. 
• JPMorgan identifies Amazon as its Best Idea, citing its sustained dominance in the US e-commerce sector. Amazon’s market share grew to 46.4% in Q4, with projections of continued expansion. Factors include stable retail revenue growth, increased Prime member spending, and the potential doubling of U.S. e-commerce penetration. Meanwhile, Jeff Bezos has sold 14 million more shares, totalling $2.4 billion, as part of a planned divestment of up to 50 million shares, amassing $8.5 billion, with his intentions for the proceeds undisclosed. 
• HSBC downgraded Home Depot from Hold to Reduce, with a new price target of $323.00, citing concerns over rising operating costs outpacing sales growth, and impacting profit margins. Forecasted earnings per share for FY2025 and FY2026 were revised downward due to this observation, with the stock trading at a premium PE ratio compared to its historical average. 
• Evercore ISI maintained Palo Alto Networks’ Outperform rating and $405.00 price target post-earnings, citing confidence in the company’s long-term growth strategy despite short-term revenue impact. Conversely, Rosenblatt Securities downgraded Palo Alto Networks to Neutral, reducing the price target to $265 from $290 due to concerns over lower billings and revenue projections following the strategic shift. 
• Goldman Sachs reaffirmed its Buy rating and $193 price target on Walmart post its earnings. They cited share gains, improving profitability, and strong guidance as factors supporting their positive outlook. Analysts emphasised Walmart’s market share gains and compelling value proposition, foreseeing continued solid earnings growth. 
• Benchmark initiated coverage on ChargePoint Holdings Inc. with a Buy rating and a price target of $4.25. They emphasized ChargePoint’s “land-and-expand” business model, combining EV charging station sales with cloud services subscriptions, positioning it well to benefit from the growing EV market. This positive outlook is expected to drive share traction with an upside of  
• Reddit intends to allocate a portion of its IPO shares to 75,000 active users, offering them the chance to purchase shares at the initial public offering price before trading begins, a privilege typically reserved for large investors. The move marks a unique approach to democratising investment opportunities. 
• Oppenheimer’s chief investment strategist sees the US equities rally extending beyond tech giants due to interest rate normalisation and resilience in the consumer sector and job market. Despite some strategists raising forecasts, Oppenheimer remains cautious, with a year-end S&P 500 target of 5,200, suggesting 4.5% upside.