TSMC fuels tech gains

On Thursday, major US equity indices rebounded, breaking a two-day losing streak. The Nasdaq Composite reached its highest close of the year, propelled by a rally in semiconductor shares, notably Taiwan Semiconductor Manufacturing, and an analyst-driven climb in mega-cap Apple. Despite strength in mega-cap shares, signs of market erosion emerged, with declining shares outnumbering gainers. The S&P 500 rose 0.9%, the Dow Jones gained 0.5%, and the Nasdaq increased by 1.4%. Treasury yields rose, and the dollar remained strong amid positive retail sales and reduced expectations for a Fed rate cut.  European equities also rebounded yesterday, with the Stoxx 50 rising 1.1%, driven by optimism from luxury giants in Paris and a 4% surge in ASML following strong results from TSMC, as markets assessed the economic backdrop for potential ECB monetary easing. 

Summary for 19.01.2024 

• Most Asian equities rose as Taiwan Semiconductor Manufacturing Corp’s positive outlook fuelled a tech sector rebound. Japan’s Nikkei 225 led gains, rising 1.6%. TSMC’s forecast, citing AI demand, boosted Asian tech shares. However, China’s indices lagged, facing a third consecutive weekly loss amid economic concerns. Doubts over early Fed rate cuts impacted regional bourses, with Hang Seng down 4.5% for the week.  
• European shares are set to extend gains in line with the global tech-driven rally, as US equity futures indicate a steady opening on Friday. 
• Oil prices held steady in Asian trade, set for weekly gains amid optimistic demand forecasts and US output disruptions. The International Energy Agency and OPEC predict improved demand. Unexpected US crude inventory drop and severe weather affecting North Dakota contributed to support. Geopolitical concerns in the Middle East persisted. Economic worries, rate-cut uncertainty, and a strong dollar limited weekly gains, reflecting concerns over global growth and inflation. 
• In December 2023, Japan’s annual inflation dropped to 2.6%, the lowest since July 2022, attributed to a 14-month low in food price increases at 6.7%. Concurrently, the core consumer price index rose 2.3%, marking the lowest reading since June 2022 and a slowdown from November’s 2.5%. Despite meeting expectations, the core inflation rate remains above the Bank of Japan’s 2% target for the 21st consecutive month. 
• Apple rose 3.3% yesterday after Bank of America upgraded the company to “buy” from “neutral” and raised its price target to $225 from $208, citing expectations for a robust iPhone upgrade cycle, advanced AI features, and the potential of Apple’s Services division.  The expected launch of the Vision Pro device, with spatial computing capabilities, further contributes to positive projections. 
• Reddit is advancing plans for an IPO in March, aiming to sell 10% of its shares with a valuation of around $10 billion. Facing competition from TikTok and Meta, Reddit’s IPO could test its community-driven model. Despite user loyalty and meme equity rallies, Reddit is unprofitable, relying on advertising. The success of its IPO will hinge on demonstrating its value proposition, future profitability plans, and navigating market conditions. 
• Macy’s plans to cut approximately 3.5% of its workforce, eliminating around 2,350 jobs, and close five stores as part of cost-cutting measures amid challenging market conditions. The department store aims to streamline operations and implement a new strategy to adapt to changing consumer needs. Private equity firm Sycamore Partners Management LP is reportedly considering a bid for Macy’s. The company’s shares dipped 0.5% in after-hours trading following the announcement. 
• Bayer AG shares dropped 2.8% as CEO Bill Anderson delayed presenting break-up plans in March to focus on internal reorganisation. Investors urge the separation of pharmaceuticals, consumer health, and agriculture units for added value. Challenges from US litigation, especially Roundup-related issues, and struggles in the crops division have prompted the delay. Future break-up plans might still emerge, but the current emphasis is on internal measures to address ongoing challenges. 
• Humana, a US health insurer, warned that increased demand for medical care among older adults would impact its Q4 results, leading to a 14% drop in its shares. The higher demand is expected to drive up medical costs, reflecting a broader industry concern as shares of UnitedHealth, CVS, and Elevance Health also fell. Humana cited rising demand for procedures and outpatient surgeries, impacting Medicare Advantage plans for those aged 65 and older. Analysts raised concerns about meeting 2025 earnings targets, and Humana will provide a full year forecast on 25^th January. 
• UBS raised its price target for Netflix to $560 from $500 per share, maintaining a Buy rating. Analysts expect accelerating revenue and operating income growth in Q4 and 2024, citing Netflix as the main beneficiary of industry trends like price increases and platform consolidation. They anticipate in-line Q4 results, continued acceleration in 1Q guidance, and noted that paid sharing and price increases should drive average revenue per membership in 2024. 
• Activist investor Trian Fund Management is pushing for the election of its nominees, Nelson Peltz and Jay Rasulo, to Walt Disney’s board of directors. Trian criticises Disney’s performance, citing lower EPS despite significant capital investment and streaming business profit margins lagging behind peers. Peltz contends that the current board lacks an “ownership mentality,” failed to address streaming profitability, and did not plan for a successor to CEO Bob Iger.  
• TD Cowen raised the price target for AMD to $185 from $130 per share, maintaining an Outperform rating. Analysts highlighted challenges in Gaming and Embedded sectors but noted reflected estimates. They expressed optimism in AMD’s server share gains, anticipating solid Q4 results, and emphasised AMD’s potential in the AI market with the MI300, presenting a GenAI alternative. The bank sees AMD well-positioned for continued gains in the premium and commercial PC market. 
• Odeon downgraded Wells Fargo to Hold from Buy with a $48.80 price target, expressing concerns about the bank’s recent Q4 results and challenges in the industry. Odeon noted potential difficulties for Wells Fargo in replicating its recent performance and indicated that the banking sector faces significant challenges, citing high-cost production and a potentially weakening economy. Analysts believe Wells Fargo may be losing market share within the industry and pointed to the impact of rising interest rates on the industry’s balance sheet. 
• Bernstein upgraded Meta Platforms to an Outperform rating and raised the price target to $435 from $375 per share. The analysts believe that Meta’s revenue growth will outpace the digital ad market and consensus in 2024, driven by factors such as Reels, click-to-message, Advantage+/AI, China ad spend, and increasing user engagement. They view Meta as a compounding grower, disciplined operator, and AI winner. 
• Morgan Stanley upgraded Hertz Global to “Overweight” from “Equal Weight,” with a lowered price target of $15.00. The upgrade follows Hertz’s announcement of acquiring 20,000 Tesla units for its global EV fleet. Despite challenges, Morgan Stanley sees Hertz’s bold EV strategy addressing longer-term risks, justifying the upgrade, leading to a 7.5% climb in its shares on Thursday. 
• Richemont experienced a surge in China sales, contributing to its highest-ever quarterly sales. China’s improvement led to a 25% increase in sales in the three months ending December, with the company’s shares rising nearly 10% in Zurich. This success contrasts with Burberry’s lower-than-expected growth in China, reflecting the luxury sector’s resilience in China despite economic concerns.