US equities extend record rally as momentum continues

On Monday, the S&P 500 and Nasdaq achieved record highs fuelled by strong performances in technology stocks driven by enthusiasm for AI. Apple and Microsoft led gains, with Broadcom and Micron Technology surging after upgrades. The Philadelphia Semiconductor index also reached a new peak. Meanwhile, European shares struggled to recover from last week’s selloff amid caution over French President Macron’s snap election call, while Adidas shares dropped over bribery allegations in China, contributing to overall market declines. 

Summary for 18.06.2024 

• Asian equity markets rebounded on Tuesday, tracking a tech-led rally in the US.  Meantime, the Reserve Bank of Australia kept its cash rate unchanged at 4.35% during its June meeting, holding steady for the fifth consecutive meeting, as widely expected. Shares in Australia, Japan, South Korea and China advanced, while Hong Kong stocks were sluggish. 

• European equities are a tad higher in early business on Tuesday like US equity futures, as investors await May retail sales data. 

• Oil prices remained resilient, driven by robust global demand forecasts and expectations of tight supply from major producers. Reports from OPEC, the IEA, and the US EIA indicate significant demand growth in the second half of the year. Easing inflation also fuelled hopes for interest rate cuts, boosting market optimism. 

• Bank of Japan Governor Kazuo Ueda stated that the central bank might raise interest rates next month based on economic data, despite concerns over rising import costs. He emphasised the need to scrutinise inflation sustainability before further hikes. The BOJ plans to trim bond purchases and will detail this in July. 

• In the Eurozone, wage growth accelerated to 5.3% year-on-year in Q1 2024, the highest since Q4 2022, with notable increases in manufacturing, construction, and professional services. Germany and Italy saw significant rises, while France experienced a slight slowdown. Various sectors, including utilities and real estate, reported slower wage growth. 

• Lennar Corp forecasted Q3 home deliveries below analysts’ expectations due to high mortgage rates dampening demand. The homebuilder’s shares fell 1.9%. Despite cutting home prices and offering incentives, Lennar expects Q3 deliveries slightly below estimates. However, its Q2 earnings and revenue exceeded projections, with EPS of $3.45 and revenue of $8.77 billion. 

• Adidas shares fell 2.6% yesterday following allegations of corruption in China, prompting an investigation. The company emphasised its commitment to compliance and ethical standards. The claims underscore challenges in overseeing digital operations in China and could hinder Adidas’s efforts to regain market share lost over the past four years. 

• Warren Buffett’s Berkshire Hathaway acquired 2.95 million more shares in Occidental Petroleum, raising its stake to nearly 29%. The recent purchases cost $176 million, totalling 5.5 million shares this month. Berkshire’s stake is now worth about $15.37 billion. Buffett has regulatory approval to buy up to 50% but no plans to acquire the company. 

• GameStop shares fell 12.1% after CEO Ryan Cohen announced plans yesterday to operate a smaller store network but provided no details on the use of its $4 billion cash reserve. Investors were disappointed by the lack of a strategic plan. Analyst Michael Pachter noted challenges from digital downloads and intense market competition. 

• Wedbush analysts raised Microsoft‘s price target to $550, citing accelerating adoption of AI-driven products like Copilot and Azure. They foresee AI transforming Microsoft’s cloud growth trajectory, expecting over 70% of its customer base to utilise automated options. Microsoft’s shares, up over 19% this year, are positioned for further growth amid competition towards a $4 trillion valuation. 

• Lynx Equity Strategies raised Apple‘s price target to $240, citing its ability to personalise AI for its vast user base without high capital expenditure. They expect strong demand for the upcoming iPhone 16 and future Gen AI applications to drive multi-year upgrade cycles across Apple’s device range, including Macs, iPads, and Watches.  In the meantime, Apple is shutting down its Pay Later program, marking a retreat from efforts to offer more financial services in-house. 

• Analysts at Argus initiated coverage of Palantir with a Buy rating and a $29 price target, citing improved profitability and cash flow. Palantir, known for its government data analytics, is expanding into the commercial sector. Argus sees future growth driven by new AI-powered applications, despite the shares’ volatility and premium pricing. 

• Evercore ISI raised their year-end S&P 500 target to 6,000, driven by AI’s transformative potential, pandemic effects, and a favourable economic environment. They forecast strong earnings growth and justify high PE ratios with effective cost management. Their bull case sees 6,500, while the bear case anticipates a drop to 4,750. 

• Citi analysts downgraded European equities to neutral, citing increased political risks and narrowing market leadership. They upgraded the US to a more attractive option due to its growth-oriented and defensive qualities, particularly in technology and industrials, and potential benefits from a stronger US dollar amid ongoing European political uncertainty.