Cyclicals shine amid tech rotation

US equities stumbled at the start of the week, led by declines in technology and semiconductor shares ahead of Nvidia's earnings report, with the S&P 500 falling 0.32%, the Dow rising 0.16%, and the Nasdaq dropping 0.85%. Despite tech weakness, broader market breadth improved with gains in financials, materials, and defensive sectors, driven by expectations of Federal Reserve rate cuts. Meanwhile, the Eurozone’s Stoxx 50 closed slightly lower at 4,898, pressured by tech declines, including a 2.6% drop in ASML, but benefited from gains in energy shares due to rising oil prices.

Summary for 27.08.2024

Most Asian equities fell on Tuesday, with sentiment towards Chinese markets worsening after Canada joined the US and Europe in imposing steep import tariffs on China’s electric vehicle sector. Broader markets were weighed down by speculation over US interest rates and caution ahead of Nvidia’s earnings. Rising oil prices and concerns over China added to the negative mood.

Futures indicate European and US equity markets are set for a subdued open as a shift away from technology equities pressures markets, though expectations of interest rate cuts help to limit losses.

Oil prices fell this morning after recent gains, as traders assessed production disruptions in Libya and Middle East tensions. Brent and WTI crude futures dipped amid profit-taking after a 7% rebound in previous sessions. Libya’s oil output is halted due to a central bank dispute, while geopolitical risks in Gaza and dollar strength also influenced prices.

Canada will impose a 100% tariff on all Chinese electric vehicles and a 25% tariff on Chinese steel and aluminium from 1st October, following similar actions by the US and EU. This move, prompted by concerns over China's over-capacity policies, caused Tesla’s shares to drop by 3.2%. China criticised the tariffs as protectionist and contrary to WTO rules.

Apple is set to unveil the iPhone 16 and other new devices at its headquarters on 9th September, a day earlier than planned. The iPhone 16 will feature larger screens on Pro models and new camera enhancements. A major focus will be on Apple Intelligence, the company’s new suite of AI features. Meanwhile, CFO Luca Maestri will step down at year-end, with top deputy Kevan Parekh taking over.

BHP reported a 2% rise in annual profit to $13.66 billion, surpassing estimates despite a $5.7 billion hit from nickel impairments and the Samarco dam collapse. Strong iron ore output and resilient prices offset weak coal performance. With its failed $49 billion Anglo bid, BHP is now focused on growing copper assets in Chile, South Australia, and Argentina.

China's PDD Holdings missed quarterly revenue estimates, leading to a 28% share drop, wiping out nearly $40 billion in market value. Executives warned of challenges from rising competition, changing consumer demand, and a weak global outlook. Despite strong growth, concerns over increased investments and profitability weighed on investor sentiment.

Micron Technology shares fell over 3% on Monday after Needham & Company reduced their price target from $150 to $140, citing concerns over the company's cautious near-term outlook. Analysts noted potential risks to November’s consensus estimates due to flat bit shipments in fiscal Q1 2025 and a shift away from aggressive pricing amid moderating demand. Despite this, they remain optimistic about Micron's long-term prospects.

Oppenheimer analysts maintained a Perform rating on Starbucks despite a 22% share surge since new CEO Brian Niccol's appointment. While acknowledging Niccol's successful track record at Chipotle, Oppenheimer remains cautious due to Starbucks' unique challenges, such as demand softness and intense competition. They also express concerns over potential impacts on the company's 2025 earnings and domestic expansion plans.

Evercore ISI cut its price target on Ulta Beauty shares from $500 to $430, citing concerns over slowing sales growth, rising competition, and lack of product innovation. Despite maintaining an "Outperform" rating, they removed Ulta from their Top 5 Outperformers list and lowered their EBIT margin forecasts for FY24 and FY25 due to anticipated challenges and competitive pressures.

Baird analysts have added Planet Fitness to their "Bullish Fresh Pick" list, citing the company's strategic improvements and potential benefits from lower interest rates and building costs. Despite a year-to-date gain of only 10%, Baird is optimistic about Planet Fitness's prospects for 2025 due to leadership changes, effective pricing strategies, and a substantial marketing budget. They maintain an Outperform rating, with a target price of $100 per share.

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