Earnings take centre stage with Alphabet and Tesla report

US equities rebounded on Monday, with the S&P 500 up 1.1%, Nasdaq 100 rising 1.5%, and the Dow Jones gaining 127 points, driven by a rally in tech shares like Nvidia, Meta, and Alphabet. Despite this, CrowdStrike fell 13.4%, and Verizon shares dropped 6.1% due to disappointing revenue. Markets were also higher in Europe, the Stoxx 50 Index rebounding by 1.5% fuelled by solid gains in shares of Bayer Ag and Infineon Technologies.

Summary for 23.07.2024

Asian equities rose as technology shares rebounded, though Chinese markets lagged due to persistent economic uncertainty and fears of potential trade restrictions under a possible Trump presidency. Japan's Nikkei and Taiwan's TSMC gained, while Chinese indices fell despite a rate cut by the People’s Bank of China.

European and US markets are set of a mixed open ahead of key earnings reports from major companies like Alphabet, Tesla, Visa and LVMH.

Oil prices declined for a third session as concerns over increasing supplies and weak demand overshadowed US presidential campaign developments. Brent and West Texas Intermediate crude fell slightly. Analysts predict a supply surplus by next year, potentially lowering Brent prices. US crude and gasoline inventory data is awaited.

Vice President Kamala Harris secured majority support from Democratic delegates, making her likely to become the party's presidential nominee. Following President Biden's endorsement and withdrawal, Harris aims to protect abortion rights, ban assault rifles, and rebuild the middle class. She raised $81 million in 24 hours and garnered endorsements from key figures.

Verizon missed revenue estimates in Q2, reporting $32.8 billion versus the expected $33.06 billion, largely due to fewer phone upgrades and a sharp decline in prepaid subscribers following the end of the Affordable Connectivity Program. Shares fell over 6%, though Verizon saw growth in postpaid subscribers and strong adoption of its myPlan.

NXP Semiconductors' shares dropped 7.8% after Q2 results showed an adjusted EPS of $3.20, slightly missing the $3.21 consensus, with revenue at $3.13 billion, down 5% YoY. CEO Kurt Sievers expressed optimism for sequential growth despite challenging demand. Q3 guidance was below analyst expectations for both earnings and revenue.

Cleveland-Cliffs shares rose almost 1% after beating Q2 earnings estimates with an adjusted EPS of $0.11, despite slightly missing revenue expectations at $5.1 billion. The company managed effective cost control, reduced net debt by $237 million, and repurchased 7.5 million shares. They also revised 2024 capital expenditures downwards and reaffirmed cost reduction goals.

Crown Holdings’ shares surged 6.2% in after-hours trading after Q2 earnings beat expectations with an EPS of $1.81. Revenue was slightly below forecasts at $3.04 billion. The company saw a 6% increase in global beverage can shipments and raised its full-year EPS guidance to $6.00-$6.25. Net income rose to $174 million.

SAP's fiscal Q2 results exceeded market expectations, driven by strong cloud growth and increased demand for its AI offerings. The company reported adjusted earnings of €1.10 per share on €8.29 billion in revenue. SAP’s cloud and software revenue rose 10%, with a 28% increase in cloud backlog.

Porsche lowered its 2024 sales forecast to €39-40 billion due to aluminium supply shortages affecting production. The company now expects a return on sales of 14-15%, down from 15-17%. Production delays and muted demand, especially in China, have led to a 7% drop in global deliveries and slower EV sales.

Cybersecurity startup Wiz rejected a $23 billion acquisition offer from Alphabet, opting instead for an IPO. CEO Assaf Rappaport aims for $1 billion in annual recurring income (ARR). This decision marks a setback for Google’s cloud business strategy. Wiz, valued at $12 billion, provides AI-powered cloud cybersecurity solutions and had $350 million in revenue in 2023.

Goodyear Tire & Rubber will sell its Off-the-Road equipment tire business to Yokohama Rubber for $905 million in cash, aiming to streamline its operations. The deal, set to close by early 2025, includes manufacturing commitments and will enhance Yokohama's non-agricultural tire offerings. Evercore advised on the transaction.

Elon Musk announced that Tesla's humanoid robot, Optimus, will enter low production for internal use in 2024, with hopes for high production for external clients by 2026. Originally set for factory use by late 2023 and potential sales by late 2025, the robot aims to address labour shortages and perform repetitive tasks.

Berkshire Hathaway reduced its stake in BYD to 4.94% from 5.06%, potentially marking the end of its disclosures on BYD share sales. Berkshire, which began investing in BYD in 2008, had previously held a 7.02% stake. The reduction follows significant gains since BYD’s share price surged.

Piper Sandler and Loop Capital both raised their price targets for Nvidia, with Piper Sandler increasing from $120 to $140 and Loop Capital from $120 to $175. Both firms anticipate strong growth driven by Nvidia's new Blackwell architecture, high demand for its products, and a potential revenue surge in data centre and compute sectors.

Citi analysts highlight that while Nvidia remains the most positively viewed semiconductor equity, Broadcom is gaining traction due to its expanding AI client base and VMware acquisition. NXP and Analog Devices are favoured in the analog sector, but Texas Instruments is watched for potential capex cuts. AMD and Microchip Technology face negative sentiment, with Micron Technology under a negative catalyst watch. Overall, Citi remains very bullish on the semiconductor sector.

JPMorgan upgraded Abercrombie & Fitch to Overweight, driven by strong performance and growth prospects. They raised 2Q EPS estimates to $2.30, above the consensus, and set a December 2025 price target of $194. The upgrade follows a 20% drop in shares since the first quarter, with expected revenue growth of 19% for 2Q.

Wedbush analysts are optimistic about Alphabet's Q2 2024 results, projecting a 13.1% revenue growth, driven by a revised 12.8% growth estimate for Google Search, reaching $48.1 billion. They expect operating margin expansion to 31.7% and maintain an Outperform rating with a $205 target price, focusing on AI investments and advertising growth.

Bernstein highlights Amazon as its top eCommerce pick, citing potential for margin expansion and strong performance despite sector challenges. While noting concerns over freight costs and lower margins from Prime Day, Bernstein remains optimistic about Amazon's growth and advertising acceleration. Other eCommerce players, like eBay and Wayfair, show mixed prospects, with Etsy facing weaker forecasts.

Bank of America warns that new US export restrictions on semiconductor equipment to China could reduce ASML Holdings' EBIT by up to 30%, depending on restriction severity. Scenarios range from minor impacts to a full ban on key technologies. Despite risks, BofA maintains a Buy rating, seeing current equity prices as a buying opportunity.

BlackRock remains optimistic about technology equities, viewing them as key drivers of market returns despite recent volatility. They focus on long-term trends like AI rather than short-term economic data. BlackRock expects tech earnings to outpace the S&P 500 and advises using market pullbacks as buying opportunities, despite potential near-term volatility.

UBS projects the GLP-1 obesity market will hit $90 billion by 2029, with the combined obesity and diabetes market reaching $150 billion. The growth is driven by increased use of GLP-1 treatments, with orforglipron's sales forecast raised significantly. UBS also expects Medicare to start covering anti-obesity meds in 2024.

Fitch Ratings expects the global insurance and reinsurance industry to avoid major financial damage from the recent CrowdStrike software outage, with insured losses likely in the mid-to-high single-digit billions. Most claims will fall under primary insurers, as cyber insurance typically excludes third-party service disruptions.

The Bank of France and the country’s financial market regulator urged Europe to reduce the share trade settlement cycle from two days to one (T+1), aligning with US reforms that took effect in May. They emphasised the need for coordinated action and adequate preparation time to enhance market efficiency and reduce counterparty risk.

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