Equities receive a tech-related boost

US equities saw a late-day surge yesterday, with the S&P 500 gaining 1.4%, recovering from last week's dip. The Nasdaq rose 2%, driven by technology and growth investments, while the Dow had a smaller 0.6% increase, hindered by Boeing shares. Despite the positive finish, the market is cautious in 2024, possibly due to early-year repositioning after last year's sharp rally. Technology, communication services, and consumer discretionary sectors performed well, while energy declined due to a 4% drop in crude oil prices. In Europe, the Stoxx 50 index also rebounded, gaining approximately 0.4%. Notable individual performances included Philips surging nearly 3%, and Airbus rising over 2% amid safety checks on some Boeing jets.

Summary for 09.01.2024

Asian equity markets posted gains on Tuesday, following Wall Street's tech-driven rally and a rebound from last week's selloff. Investors monitored economic reports in Asia, including Tokyo's inflation and Australian retail sales. Samsung Electronics projected a 35% drop in fourth-quarter operating profit. Shares in Australia, Japan, South Korea, Hong Kong, and mainland China all advanced on the positive market sentiment.

European shares are expected to edge higher at the open while US equity futures show a slight dip after strong gains in technology shares. Attention is on major banks’ upcoming earnings reports and crucial US inflation data later i

Oil prices steadied in Asia this morning as Saudi Arabia's sharp cuts in oil prices raised concerns about sluggish demand. The world's largest oil exporter reduced export prices to Asia and parts of Europe, hitting their lowest in 27 months. Amid worries of slowing crude demand, particularly in China, and heightened competition among oil-producing countries, Brent oil and West Texas Intermediate crude both plummeted over 3% on Monday. OPEC+ production cuts and disagreements over further cuts also contributed to the challenging oil market outlook for 2024.

Samsung Electronics expects a 35% decline in Q4 operating profit due to slow demand for memory and smartphone chips. Operating profit is anticipated to fall to 2.8 trillion won from 3.7 trillion won a year ago. Weak chip demand, influenced by global economic conditions, rising interest rates, and reduced consumer spending on electronics, has impacted Samsung's performance. The company faces challenges in AI-driven chip demand and increased competition in high-density memory chip sales for AI development. The full earnings report will be released on 31st January.

Boeing faces a deepening crisis as United Airlines discovers loose bolts on multiple grounded 737 MAX 9 aircraft, following the recent panel incident on an Alaska Airlines flight. United's preliminary checks found bolts requiring tightening, raising concerns about the MAX 9's production process. Talks with regulators and airlines on inspection guidelines are ongoing. Boeing plans to revise guidelines, with FAA approval needed for repairs. Boeing shares dropped 8% yesterday, and the FAA has grounded 171 MAX 9 planes for enhanced inspections.

Airbus is reportedly close to securing an order from Delta Air Lines for several wide-body jets, potentially including additional A350-1000 aircraft. The deal, if finalised, might be announced when Delta reports Q4 earnings. While Delta ordered 100 Boeing 737 MAX 10 jets in 2022, it has been a significant Airbus customer, with an existing fleet of A330 and A350 wide-body jets. The new twin-aisle jets are expected to support Delta's network growth in the Asia-Pacific region amid increasing demand and competition.

American Airlines shares surged on Monday as Morgan Stanley upgraded them to Overweight from Equal-Weight, maintaining a $20 price target, indicating a potential 50% upside. Analysts highlight the importance of management execution and discipline, expressing a preference for premium carriers. Shares rose 3.9%, and an upcoming Investor Day is seen as a catalyst to enhance the narrative around the company's positive post-pandemic progress and strong execution.

Nvidia's shares surged to a record high close of $522.53 yesterday, up 6.4%, after unveiling the GeForce RTX 40 SUPER Series of graphics processors and other components related to artificial intelligence (AI). As the leading supplier of AI computing processors, Nvidia's shares, which tripled in 2023, traded over $32 billion on Monday, making it the most traded company on Wall Street. Nvidia's market value now stands at nearly $1.3 trillion.

Microchip Technology expects a larger-than-expected 22% decline in Q3 revenue due to lower shipments and a weakened economic environment. The U.S. Commerce Department plans to award the company $162 million in grants for semiconductor production. Details will be provided in the third-quarter results report on 1st February.

Apple is set to launch its Vision Pro mixed-reality headset in the United States on 2nd February, with pre-orders starting on 19th January. Priced at $3,499, it's Apple's most expensive product since the original iPhone. Analysts praise its advanced technology, but the need for constant power and a high price tag limit initial adoption. The headset enters a market crowded with devices, competing directly with Meta's offerings. Analysts anticipate limited sales impact initially, targeting wealthier users and tech enthusiasts.

Melius Research upgraded AMD to Buy with a new $188 two-year price target, citing the expected AI "Halo Effect" beginning in 2024, anticipating a lift in the second half. They believe AMD could experience significant ramps in AI equipment sales in 2024 and 2025. Cisco was downgraded to Hold with a $55 two-year price target, as the company navigates its way in AI customer engagement and business predictability.

Morgan Stanley reduced Alibaba's price target to $85, citing expectations of a challenging quarter. Analysts anticipate 3QF24 revenue at RMB260bn, with GMV growth but slower Customer Management Revenue growth due to factors like increased Taobao merchant engagement. The bank believes Alibaba's business transformation will take time, but improved capital management could be a positive factor.

Wolfe Research upgraded Toll Brothers to Outperform, setting a $118.00 price target, citing strong cash flow, a favourable land bank, and leverage to the Age Targeted/MU buyer market. The company's healthy land bank and robust lot inventory are expected to lead to improved profit margins, with a projected 10% community count increase in '24. Existing land holdings suggest sustained high gross margin spread, and revised underwriting standards are anticipated to surpass pre-COVID averages.

Deutsche Bank strategists indicate that the consensus outlook for US Q4 earnings appears excessively negative, creating room for notable positive surprises in corporate performance. Despite projecting a 7.4% decline in S&P 500 earnings per share, they emphasize strong year-on-year growth, anticipating substantial beats beyond conservative expectations. However, they caution that the market's previous ascent and existing equity positioning might temper the usual earnings-season rally.

Shares of Shell declined in European trading yesterday following the company's announcement of a Q4 impairment charge of up to $4.5 billion. The Anglo-Dutch group attributes the non-cash post-tax impairments to "macro and external developments" and strategic choices, including its Singapore chemicals and products assets. Despite this, Shell expects higher gains from its integrated gas trading unit, countering recent crude price downturns.

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