US GDP growth defies recession fears

Shares closed Thursday’s session higher following a robust US Q4 GDP growth report, with the S&P 500 reaching a record fifth consecutive day of gains. Energy led the S&P 500, driven by a nearly 3% oil price rise. Tesla shares declined over 10% after reporting Q4 earnings below expectations. European markets were mostly up after the European Central Bank decided to maintain policy rates. 

Summary for 26.01.2024 

• Most Asian equities retreated on Friday as the stimulus-driven rebound in Chinese shares slowed, and Japan’s Nikkei 225 slid away from recent highs. Caution ahead of key US inflation data and an upcoming Federal Reserve meeting kept investors on edge. Chinese markets cooled after a rebound, while Japan’s weakness followed signals of a potential policy shift by the Bank of Japan. Overall, Asian markets were mixed, with Southeast Asian stocks marking losses, and South Korea’s KOSPI surging as an outlier. Indian and Australian markets were closed. 
• European shares are expected to see marginal gains this morning following another all-time high on Wall Street; however, US equity futures dipped after Intel’s weak first-quarter guidance, impacting semiconductor shares, while overall positive sentiment prevailed due to higher-than-expected US economic growth in Q4. 
• Oil prices moved lower this morning as China reportedly urged Iran to address Houthi attacks on Red Sea shipping, easing supply concerns. Despite this, weekly data showed a significant 9.2 million barrel drop in US crude inventories, supporting a bullish outlook. Geopolitical tensions in the Middle East increased with US and UK strikes in Yemen, posing potential supply risks. Overall, market movements were influenced by a mix of geopolitical events and economic data from the US and China. 
• The first preliminary reading for Q4 US real GDP exceeded expectations, growing at a 3.3% quarter-over-quarter annualised rate. Despite a modest slowdown from Q3, the resilient 3.3% growth, driven by robust consumption, outperformed the estimated long-run potential of 2%. The GDP chain-price index indicated a moderate 1.5% quarter-over-quarter increase, aligning with the recent trend of lower inflation amid strong economic growth. 
• The European Central Bank kept interest rates unchanged at 4%, reiterating its commitment to fighting inflation. While the ECB ended its rate-hike cycle in September, policymakers hinted at a potential change in rhetoric, raising the possibility of a rate cut in June if data confirms inflation control. ECB President Christine Lagarde cautioned against interpreting omissions and stressed the need to progress further in the disinflation process for confidence in reaching the inflation target sustainably. Some investors anticipate a U-turn by the ECB with five rate cuts, as economic concerns persist. 
• US Treasury Secretary Janet Yellen said that inflation is now “well under control” after a historic surge triggered by the pandemic, and that she believed many Americans would agree. “Inflation is now near-term at close to the lowest levels we’ve seen in that survey,” she said Thursday in an apparent reference to inflation expectations reported by the University of Michigan consumer sentiment survey. Data released earlier Thursday showed a closely watched measure of underlying inflation ran at 2% for a second straight quarter, in line with the Federal Reserve’s target.   
• Intel shares fell 10% in after-hours trading after forecasting Q1 revenue below estimates by over $2 billion. CEO Pat Gelsinger cited uncertain demand for chips in traditional server and PC markets, with core businesses experiencing a seasonal low. Intel’s heavy investments in AI impacted gross margin, and the company faces challenges in the data centre AI market. Analysts see 2024 as a critical year for Intel’s AI initiatives. Gelsinger expressed optimism about improving performance throughout the year and highlighted $2 billion worth of AI chip orders. 
• Visa declined 2.8% in after-hours trading despite reporting Q1 earnings per share of $2.41, surpassing the estimated $2.34. Revenue reached $8.6 billion, a 9% YoY increase, exceeding the expected $8.55 billion. On an adjusted basis, net income rose to $4.9 billion. Payments volume grew 8% YoY, and Visa processed 57.5 billion transactions. CEO Ryan McInerney expressed optimism for fiscal year 2024, highlighting growth in payments volume, transactions, and cross-border volume. 
• T-Mobile US forecasts robust growth in bill-paying phone subscribers for 2024, targeting 5 million to 5.5 million additions, surpassing Wall Street expectations. Despite this positive outlook, T-Mobile’s shares dipped nearly 3% in extended trading after falling short of Q4 profit estimates. The company attributes its subscriber growth to extensive 5G coverage and enticing promotional offers, outperforming rivals AT&T and Verizon in the October-December quarter. T-Mobile’s CFO highlights growth opportunities in smaller markets and rural areas, covering 40% of the US population. 
• LVMH reported a 10% rise in Q4 sales, nearly €24 billion, beating expectations. Resilient demand, especially from Chinese buyers, contributed to the growth. CEO Bernard Arnault expressed confidence for 2024, citing ongoing demand for high-end products. Louis Vuitton’s business from high-end Chinese spenders in Europe reached 70% of pre-pandemic levels. The group proposed a dividend increase. 
• Comcast reported strong Q4 results with adjusted earnings per share of 84 cents, surpassing estimates of 79 cents. The company’s revenue of $31.25 billion, a 2.3% YoY increase, also exceeded expectations. Peacock, Comcast’s streaming service, recorded $1.03 billion in revenue, with paid subscribers reaching 31 million, surpassing estimates. Comcast increased its dividend by 6.9% YoY and announced a new $15 billion share repurchase program. The shares rose more than 3.0% in yesterday’s session.   
• STMicroelectronics reported a Q4 2023 net revenue of $4.28 billion, down 3.2% YoY, and full-year revenue increased 7.2% to $17.29 billion, driven by strong automotive demand. The Q1 2024 revenue outlook is $3.6 billion, a 15.2% YoY decline. The company plans $2.5 billion in net capital expenditure in 2024, targeting revenues between $15.9 billion and $16.9 billion. 
• ServiceNow reported Q4 results exceeding expectations, with adjusted EPS of $3.11 and revenue of $2.40 billion. Subscription revenue was $2.37 billion, with an adjusted gross profit of $2.01 billion. The company provided a strong outlook, forecasting Q1 subscription revenue between $2.51 billion and $2.52 billion and annual subscription revenue of $10.56 billion to $10.58 billion. Analysts noted the strong performance and raised price targets. 
• NextEra Energy reported Q4 earnings of $0.52 per share, beating the estimated $0.50, with revenue at $6.88 billion, surpassing the expected $5.84 billion. The company experienced a record year in new renewables and storage origination, adding approximately 9,000 megawatts to its backlog. NextEra Energy expects FY2024 earnings between $3.23 and $3.43 per share. 
• American Airlines forecasts full-year 2024 adjusted earnings per share between $2.25 and $3.25, exceeding analyst estimates, citing strong passenger booking trends and a decline in fuel prices. The airline expects a first-quarter adjusted diluted per-share loss between $0.15 and $0.35. Despite a strong performance in 2023, with annual revenue at $52.79 billion, AAL anticipates challenges in the first quarter due to lower total revenue per available seat mile and higher expenses related to a pilot agreement. The shares rallied by 10.3% during Thursday’s session. 
• Nokia’s shares surged more than 11% yesterday after reporting better-than-expected Q4 profit. The Finnish telecom company’s comparable EBIT dropped to €846 million, beating estimates. Nokia expects a recovery in demand in the second half of 2024, with a projected comparable operating profit between €2.3 billion and €2.9 billion. The company also announced a 2-year €600 million share buyback plan. 
• Apple is embarking on a historic overhaul of its iOS, Safari and App Store offerings in the European Union, aiming to placate regulators set to impose tough new antitrust rules. The revamp will allow customers to download software from outside the App Store for the first time, the company said Thursday. They’ll also be able to use alternative payment systems and more easily choose a new default web browser — addressing two frequent complaints of developers and lawmakers. 
• UBS analysts raised AMD’s price target to $220 per share, expressing confidence in the shares potential to continue rising in 2024. They noted the complexity of the tactical setup around earnings due to recent rallies but highlighted firm demand commitments for AMD’s data centre GPU, potentially leading to significant revenue growth. UBS now sees AMD annualising at $6 or more in EPS exiting 2024, with a potential push to $8 annualised by the second half of 2025. 
• Deutsche Bank reiterated a Buy rating on Tesla but lowered the 12-month price target, expressing concerns about the automaker’s limited growth outlook for 2024. Despite Tesla’s description of 2024 as a transitional year, Deutsche Bank sees it as a challenging period with minimal volume growth, potential price reductions, and revised gross margin estimates leading to a reduced EPS projection of $2.50 for 2024. 
• Health insurer Humana faces an “unprecedented” surge in medical costs, impacting its 2024 earnings and derailing its 2025 profit target. The company attributes the rise to increased inpatient and outpatient procedures. Humana plans to price its 2025 Medicare Advantage contract bids to reflect the high costs while avoiding member losses. The announcement led to a 12% drop in Humana’s shares, and rivals, including CVS, Cigna, Centene, and UnitedHealth, also saw declines of 2% to 5%. 
• Bank of America raised the price target for Meta Platforms to $425 from $405 and reiterated a Buy rating. The bank cited the positive impact of Reels monetisation and growing artificial intelligence capabilities. Despite potential revenue deceleration in 2024, analysts remain constructive on Meta’s stock, emphasising favourable advertising conditions, a strong messaging revenue ramp, and ongoing cost-cutting opportunities. Bank of America expects Meta to post a Q4 revenue and EPS beat, projecting ~24% revenue growth. 
• Jefferies analysts raised Amazon’s price target to $190 from $175, maintaining a Buy rating. Recent layoffs indicate Amazon’s commitment to cost efficiency, supporting record high margins in 2024. The upcoming Prime Video advertising launch is seen as a significant monetisation opportunity. Jefferies expects Q4 sales growth to decelerate to 11%, with a 460bps year-over-year improvement in operating margin to 6.4%. 
• Hertz Global Holdings received downgrades from both JPMorgan and Deutsche Bank. JPMorgan moved its recommendation from overweight to neutral, citing concerns about near-term positive catalysts and a deterioration in underlying earnings. Deutsche Bank downgraded HTZ to Hold from Buy, highlighting a wide risk/reward disconnect compared to Avis Budget Group and expressing doubts about Hertz’s true run rate earnings power. Last week, Jefferies also downgraded HTZ. 
• Shein investors are reportedly trying to sell shares in the private market at a valuation of around $45 billion, a 30% discount to its valuation about a month ago. Shareholders’ equity sales in late 2023 valued Shein between $45 billion to $55 billion, down from the $66 billion valuation in May 2023. The Chinese online retailer is facing complications as it seeks approval for a US IPO, including a cybersecurity review by US authorities and a lawsuit from rival Temu.