US equities set for fresh new highs

US equities closed higher on Friday, with the S&P 500 reaching a record high. The tech sector, led by semiconductor shares like Nvidia, surged after Taiwan Semiconductor Manufacturing Corp.’s strong gains. The Dow set a record, lifted by Travelers’ positive earnings. The University of Michigan’s Survey of Consumers hit its highest level since July 2021. Investors returned to tech, pushing the S&P 500 to new highs amid reduced Fed rate-cut expectations. Semiconductors and regional banks gained, while consumer staples and utilities lagged. Weekly, the S&P 500 rose 1.2%, the Dow 0.7%, and the Nasdaq 2.3%. Elsewhere, European shares closed slightly lower on Friday with losses led by luxury brands LVMH and Hermes, along with industrial giants Mercedes, Volkswagen, and Airbus, resulting in a 0.7% drop for the week. ASML, however, added 1.5% following strong results from TSMC. 

Summary for 22.01.2024 

• Most Asian equities rose this morning, led by Japanese tech gains amid AI optimism, while Chinese markets lagged due to concerns about a slowing economic recovery. Expectations of a dovish Bank of Japan policy fuelled Japanese equities. Broader Asian markets benefited from positive tech outlooks, countering fears of higher interest rates. Hong Kong’s Hang Seng hit a 15-month low. Indian markets were closed for a holiday, with apprehension about potential communal tensions. 
• European equities are set to rise following the S&P 500’s record-high close driven by technology shares, as US equity futures edge higher on Monday, with investors anticipating fresh all-time highs amid strong corporate earnings and economic data. 
• Oil retreated to around $73 per barrel as Libya’s largest oil field, Al-Sharara, resumed full production after a three-week stoppage from political protests. Concerns over potential Middle East supply disruptions persisted with Houthi attacks on Red Sea shipping. Despite geopolitical uncertainties, both the IEA and OPEC foresee strong global oil demand growth in 2024. 
• The People’s Bank of China maintained its one-year loan prime rate at a record low of 3.45% for the fifth consecutive month, aiming to bolster economic recovery. The five-year rate, a mortgage reference, was also held at 4.2% for the seventh straight month. 
• In January 2024, the University of Michigan reported a surge in US consumer sentiment to 78.8, the highest since July 2021, reflecting confidence in improved economic conditions and declining inflation expectations. Year-ahead inflation forecasts dropped to 2.9%, the lowest in three years, continuing a trend of decreasing expectations in the US economy and aligning with the 2.3% – 3% range observed pre-pandemic. 
• In December 2023, Germany’s producer prices fell more than expected, declining 8.6% YoY, marking the sixth consecutive month of decrease, driven by lower energy prices. Prices of non-durable consumer goods rose, while excluding energy, producer prices increased by 0.3%. Monthly, producer prices tumbled 1.2%, contributing to a 2.4% decline in 2023. 
• UK retail sales plummeted 3.2% in December 2023, the largest monthly decline since January 2021, surpassing expectations and following a revised 1.4% increase in November. Non-food store sales dropped by 3.9%, contributing to a year-on-year decline of 2.4%. For the full year of 2023, retail sales fell by 2.8%, reaching their lowest level since 2018. 
• Early in the Q4 earnings season, 84% of reported S&P 500 companies beat earnings, but only 45% exceeded sales estimates. Despite high rates and cost pressures, 2024 earning estimates remain steady, supporting equities. Projections suggest S&P 500 earnings could reaccelerate in 2024, rising from a flat 2023. Forward earnings surpassing the peak from two years ago confirms the uptrend in equities. Earnings season gains momentum this week with around 350 companies including Microsoft, Visa, T-Mobile, Verizon, United Airlines, Netflix, and Tesla, set to report. 
• Macy’s turned down a $5.8 billion privatization proposal from Arkhouse and Brigade, citing worries about financing. The $21 per share offer was deemed financially unappealing, and Macy’s questioned the investors’ ability to secure funds. Despite owning valuable real estate, Macy’s faces challenges in the retail sector. Jefferies, their adviser, expressed confidence, but Macy’s considered the financing non-committal with unconventional conditions. In the midst of job cuts and store closures, the department store is actively seeking a bidder with not only committed financing but also a proven track record in executing buyouts within the retail sector. 
• Elon Musk denies reports that his AI company, xAI, has secured $500 million in commitments from investors toward a $1 billion goal. The AI startup is reportedly discussing a valuation of $15 billion to $20 billion, with final terms expected to be decided in the next few weeks. Musk previously stated in December that xAI was not raising funds, despite filing for a $1 billion equity offering. 
• Evercore ISI upgraded IBM to Outperform, citing the company’s potential to meet the rising demand for artificial intelligence (AI) applications and overall growth in IT spending. IBM’s shares rose nearly 3% following the upgrade. The company aims to expand its AI and hybrid cloud services through strategic acquisitions, including StreamSets and webMethods from SoftwareAG, with a target price raised from $165 to $200 by Evercore ISI analysts. 
• Mizuho economists took a contrarian view for 2024, opposing the consensus by predicting the Fed won’t cut rates due to the resilience of American consumers. They emphasise the robustness of the economy, citing healthy balance sheets and dismissing fears of a credit crunch. The outlook is optimistic, with limited room for rate cuts amid a tight labor market and steady wage growth. 
• CFRA Research downgraded Under Armour to Sell from Hold and lowered the 12-month price target to $5 from $7, implying a more than 33% downside. The downgrade is based on a valuation of 10 times estimated EPS for the fiscal year ending March 2024 and reflects concerns about operational underperformance and bloated inventory compared to industry competitors like Nike and Lululemon. CFRA notes the company’s lack of consistent free cash flow and suggests a focus on improving operating metrics over share repurchases. 
• Evercore ISI analysts expressed positive sentiments about Apple’s headset Vision Pro, noting strong early demand indications. Despite delivery delays and initial limited production volumes, the analysts estimate that 1 million units could contribute approximately $3.5 billion in sales and boost earnings per share by around $0.05. They anticipate a gradual increase in revenue over the next five years, projecting it to reach $19 billion with EPS growing to $0.20. Evercore maintained an Outperform rating on Apple with a $220 price target. 
• Goldman Sachs reinstated a Buy rating on Broadcom with a 12-month price target of $1325, indicating a 16% potential upside. The bullish outlook is driven by expectations of strong double-digit revenue growth in AVGO’s AI-related businesses, a cyclical recovery in its classic Semiconductor business, and the anticipated synergy capture following the acquisition of VMware. Goldman Sachs also highlights AVGO’s attractive capital return profile as a catalyst for relative outperformance. 
• Jefferies downgraded Hertz to Hold from Buy, reducing the 12-month price target to $8.00 from $12.00. Concerns about electric vehicle repair issues, higher operating expenses, and depreciation may limit near-term profitability. Despite being undervalued, analysts lack confidence in 2024/2025 estimates due to consecutive quarters of missing guidance. Jefferies notes challenges like elevated EV-related expenses and anticipates short-term profitability issues to impact stock performance. They also expect share repurchases to decrease in 2024. 
• Crédit Agricole has acquired a 7% stake in payment services provider Worldline, solidifying their partnership to become leaders in the French payment market, enhancing digital payment solutions. Worldline, with robust 2022 earnings of €4.4 billion, is set to release full-year financial results on 28^th February. The move aligns with Crédit Agricole’s strategic entry into the digital payments sector, with Worldline’s favourable financial metrics making it potentially attractive for investors despite recent price volatility. 
• S&P Global Ratings has shifted the credit rating outlook for Ecopetrol SA from stable to negative, aligning with a similar adjustment in Colombia’s sovereign credit rating. Despite the altered outlook, Ecopetrol’s global rating remains ‘BB+’ at its Stand-Alone profile at ‘bbb-’, indicating its investment-grade status. S&P underscores the company’s vital role in the Colombian economy, with its credit rating tied to the sovereign rating. Ecopetrol, a major energy company, operates in hydrocarbon production, transportation, logistics, refining, and more, both domestically and internationally. 
• This week, in the US, investors will closely monitor the advance estimate of Q4 GDP growth rate, PCE Price Indexes, personal income and spending, durable goods orders, and Manufacturing and Services PMIs. Globally, interest rate decisions are expected in the Euro Area, Japan, Canada and Turkey. Additionally, manufacturing and Services PMIs will be closely watched in Australia, Japan, France, Euro Area, and the UK. Furthermore, Germany will release the Ifo Business Climate and GFK Consumer confidence indices, while Australia will present the NAB Business Confidence.