Tech giants propel US equities to new highs

On Monday, US equities closed higher, with the S&P 500 and Dow Jones reaching record highs for the second consecutive day. The Nasdaq rose 0.3%, hitting a two-year high. The Magnificent 7 shares, including Apple and Amazon, gained 3.9% on average. However, the small-cap Russell 2000 was down 3.0% year-to-date. Bond yields rose, impacting the US Aggregate Bond Index, down 1.4%. Transportation and energy sectors surged, suggesting optimism about economic recovery amid ongoing earnings season and upcoming economic reports.  In Europe, the Stoxx 50 Index recorded a gain of 0.8%, led by a 2.1% surge in technology shares. 

Summary for 23.01.2024 

• Most Asian equities rose on Tuesday, following Wall Street’s positive momentum, particularly in the tech sector. Chinese markets stabilised, while Hong Kong’s Hang Seng rebounded on reports of a possible government fund to support local equities. Japanese equities retreated from 34-year highs after the Bank of Japan maintained a dovish stance. Broader Asian markets, including Australia and South Korea, gained, driven by technology shares.  
• European equities are anticipated to open flat as investors evaluate China’s market stabilization efforts, while US equity futures remain neutral. 
• Oil prices remained elevated, near four-week highs, as US and UK strikes on Houthi targets in Yemen fuelled concerns about regional conflict disrupting supply. Reports of Ukrainian drone attacks on Russian energy facilities also contributed to the upward pressure. However, resumed production from Libya’s largest oilfield and increasing output from non-OPEC countries weighed on the market. The IEA and OPEC revised their oil demand growth projections for 2024, citing improved economic conditions and lower crude prices in Q4. 
• The Bank of Japan maintained a -0.1% short-term interest rate and around 0% for 10-year bond yields, as expected. The BoJ lowered its CPI forecast for FY 2024 to 2.4% due to declining oil prices but expects 1.8% core inflation in 2025. Economic growth projections were revised, with Governor Kazuo Ueda emphasising no immediate need for a dovish stance change, considering the recent earthquake. 
• Chinese authorities are considering a package of measures to stabilize the slumping stock market, according to people familiar with the matter, after earlier attempts to restore investor confidence fell short and prompted Premier Li Qiang to call for “forceful” steps.  Market watchers question how viable and effective the plan will be. 
• UBS has issued a warning of a potential significant downturn in the S&P 500, exceeding 20%, with concerns about a US recession, persistent high inflation leading to stagflation, and escalating geopolitical tensions in Ukraine and Taiwan. The alert emphasises the combined impact of past Federal Reserve rate hikes and ongoing inflationary pressures, raising the possibility of a new bear market. 
• Morgan Stanley analysts highlight the current equity prices as reflective of the Federal Reserve’s dovish stance, raising questions about its impact on economic growth. Emphasising macroeconomic factors, they note a directional slowdown in growth and inflation, expecting Fed easing in the coming year. The late 2023 rally in lower-quality cyclicals is viewed as driven by short-covering, not a sustainable shift. The note suggests potential double-digit relative outperformance of quality growth over lower-quality cyclicals, citing upward relative earnings revisions for quality growth shares. 
• United Airlines expects an adjusted profit of $9-$11 per share in 2024, citing strong demand for premium travel. Despite warning of a wider loss in Q1 due to the grounding of Boeing 737 MAX 9 planes, United’s shares rose about 6% in extended trading. The US aviation regulator grounded MAX 9 jets for safety checks after an incident, impacting United and Alaska, with no set timeline for return. United reported a Q4 adjusted profit of $2 per share, beating estimates. Safety inspections of grounded planes will be discussed in an upcoming call. 
• Archer-Daniels-Midland shares plunged 24%, the largest one-day drop since 1929, as CFO Vikram Luthar was placed on leave amid an investigation into accounting practices at the Nutrition segment. ADM cut its 2023 profit forecast and delayed Q4 results due to the SEC inquiry. The shares closed at $51.69, the lowest since February 2021. At least four brokerages downgraded the shares and UBS analysts suggested alternatives like shares of Darling Ingredients and Bunge Global. 
• ASML Holdings received bullish outlooks from Citi and Bernstein. Citi, maintaining a Buy rating, highlighted a 30-day positive catalyst watch for ASML’s results announcement, expecting management to reaffirm 2025 revenue expectations. Bernstein upgraded ASML to Outperform, citing attractive pricing compared to peers and raising the price target to $869 from $664 per share. 
• Gilead Sciences saw its equities plunge by the most since 2015, down 10.7%, after its late-stage trial for the antibody-drug conjugate Trodelvy failed to significantly improve survival in patients with advanced or metastatic non-small cell lung cancer. The Phase 3 EVOKE-01 study did not meet the primary endpoint of overall survival, causing a negative market reaction, though some analysts believe the decline may be an overreaction, noting the trial’s high risk and emphasizing Gilead’s long-term growth story driven by HIV. 
• Wolfe Research upgraded American Airlines shares to Outperform from Peer Perform, setting a price target of $17 per share. The firm recommends increasing exposure to airlines as domestic capacity growth slows. Wolfe sees potential for positive yield trends later in 2024 as capacity growth moderates, making 2024 a transition year for airlines. AAL’s adherence to guidance and specific risk factors make it stand out in the industry, contributing to the positive outlook. 
• Salesforce shares received a top pick designation at Morgan Stanley, with analysts citing the company’s solid risk/reward. The firm, which already has an Overweight rating on the equity, highlighted Salesforce’s greater top-line durability, potential for margin expansion, and its favorable positioning for GenAI apps with an unrivaled breadth of Front Office workflows. Morgan Stanley sees the Data Cloud as crucial to future success and notes compelling value in CRM shares, trading at a meaningful discount to large-cap Software peers on a growth-adjusted GAAP earnings basis. 
• Northland Capital downgraded AMD to Market Perform, removing its price target, stating that AI is significant but not as large as some investors perceive. The analysts believe AI chip revenue in CY27 will be $125 billion, modelling AMD with $16 billion in AI revenue and a 13% market share. Northland notes potential overestimation of AI demand in CY23 and suggests AMD’s shares reflect higher AI revenue in CY27 than their forecast. With AMD’s shares above the previous price target, the firm decided to downgrade the equity. 
• Morgan Stanley maintained an Overweight rating on Tesla but lowered the 12-month price target to $345 from $380, citing a stall in global electric vehicle momentum and an oversupply relative to demand. While acknowledging short-term challenges, analysts highlight ongoing advancements in Tesla’s other ventures, including AI developments. The note anticipates gaining more insights into these aspects during the upcoming 2024 Tesla AI day, emphasising the importance of Tesla’s role as an AI enabler for their investment thesis. 
• Oppenheimer downgraded both Home Depot and Lowe’s from Outperform to Perform due to a more cautious near-term stance on the home improvement retail sector. While remaining optimistic about the long-term prospects, analysts express concern about complacency in short-term market positioning. The risk of equity prices not adequately reflecting potential challenges in early FY24 and the potential negative impact of forthcoming initial guidance for 2024 led to a reduction in price targets for HD and LOW. 
• Country Garden’s offshore creditors, aiming to discuss debt repayment options, have appointed Kirkland & Ellis LLP as legal adviser. This move follows the Chinese developer’s plan to restructure its $11 billion offshore bonds after a missed coupon repayment in October. Country Garden’s financial advisers, PJT Partners, are already working on repayment plans. Notably, the developer has replaced financial advisers Houlihan Lokey and China International Capital Corp with KPMG Advisory for its offshore debt restructuring. 
• Apple’s Vision Pro headset pre-orders reportedly sold out immediately, with shipping times extending to 5–7 weeks after opening. Analysts estimate first-weekend sales of 160,000 to 180,000 units. Concerns arise about potential declining demand as shipping times remain unchanged 48 hours post-pre-order. Despite this, reaching 500,000 units shipped in 2024 appears feasible due to Apple’s large user base. 

• Ryanair aims to open five new bases in Spain and achieve 40% growth in the country by 2030, targeting 77 million passengers, up from the forecasted 55 million in 2024. The airline emphasises the importance of competitive airport charges and seeks incentives for regional tourism beyond coastal areas. The investment follows CEO Michael O’Leary’s commitment of €5 billion to Spain over the next seven years.