Equities struggle to gain traction

US equities closed lower on Wednesday, with the S&P 500 down 0.7%, the Nasdaq falling 1%, and the Dow Jones losing 234 points, led by declines in consumer discretionary, materials, and technology sectors. Disney, Airbnb, and Super Micro experienced significant drops. Meanwhile, the Eurozone’s Stoxx 50 gained 2% to 4,667, driven by a global recovery in riskier assets. Notable gains were seen in banking, industrials, and energy shares, bolstered by rising oil prices.

Summary for 08.08.2024

Most Asian equities pared early losses and rose on Thursday but concerns over slowing economic growth and higher interest rates kept markets volatile. The summary of opinions from the BOJ’s July policy meeting also revealed that some members proposed more rate hikes, while RBA’s Bullock said they won’t hesitate to raise rates again to combat inflation. Shares in Australia and South Korea declined, while Japanese, Chinese and Hong Kong equities advanced.

European equity markets are set for a lower open while US equity futures reversed earlier declines to trade higher on Thursday.

Oil prices rose in Asian trade this morning due to a drop in US inventories and bargain buying. However, gains were limited by weak economic data from China and concerns over its crude imports. Fears of a US recession and a slowdown in global oil demand also weighed on prices.

Bank of Japan policymakers discussed further rate hikes during their July meeting, where they raised the policy rate to 0.25%. The hawkish shift, driven by inflation concerns and rising import costs, contributed to global market turmoil. BOJ Governor Ueda hinted at more hikes, while Deputy Governor Uchida downplayed immediate increases.

Reserve Bank of Australia Governor Michele Bullock reiterated a hawkish stance on inflation, emphasising readiness to raise rates if needed. Despite holding the rate at 4.35% since November, Bullock stressed the harm of persistently high inflation.

Robinhood exceeded Wall Street earnings expectations for Q2, driven by a surge in trading volumes and a 69% increase in transaction-based revenue to $327 million. The company’s shares rose 2.2% after it announced a new desktop version of its app. Despite regulatory uncertainties and potential economic challenges, Robinhood reported record revenue of $682 million and a profit of 21 cents per share.

Walt Disney’s shares fell 4.5% after it forecasted a "moderation in demand" for its theme parks, expecting mid-single-digit declines in operating income for Q4. Despite strong performance from "Inside Out 2" and improved streaming profitability, concerns about the US economy and inflation weigh on its parks and travel business.

Marathon Oil's shares were flat after missing Q2 profit estimates due to a 24.9% drop in natural gas prices, with adjusted earnings of 63 cents per share, below the expected 69 cents. In contrast, Occidental Petroleum's shares rose 1.3% following a Q2 profit 34% above estimates, with adjusted earnings of $1.03 per share and increased production to 1.26 million boepd, driven by its recent $12 billion CrownRock acquisition.

CVS Health slashed its 2024 earnings forecast to $6.40–$6.65 per share, citing high demand for medical care among older adults and increased costs. The company announced leadership changes and a $2 billion cost-saving plan. CVS also reported a drop in Q2 profit to $1.83 per share, despite beating some estimates.

Novo Nordisk cut its full-year profit outlook after reporting weaker-than-expected sales of its weight-loss drug Wegovy, facing increased competition from Eli Lilly. Shares dropped up to 8.4% as Wegovy's U.S. demand outpaced supply and sales missed forecasts. Novo’s revised guidance and production challenges fuelled investor concerns.

Shopify surpassed Q2 earnings expectations, with a 21% revenue increase to $2.05 billion and a 22% rise in gross merchandise volume to $67.2 billion. The company's AI tools attracted more merchants, lifting shares over 20%. Shopify forecasted robust Q3 revenue growth of low-to-mid twenties percentage rate, exceeding estimates.

Continental reported better-than-expected results, with improved profit margins and a 40.6% rise in adjusted EBIT. Despite lowering its sales outlook to €40-42 billion due to weak demand, especially in Europe and China, the company anticipates stronger margins from cost-cutting measures. Shares rose 6.8%, reflecting cautious optimism.

Shares of Commerzbank fell up to 6% yesterday after it reported higher-than-expected loan loss provisions of €199 million in Q2, despite announcing a €600 million share buyback and meeting net profit expectations. The bank's net profit decreased by 4.8% year-over-year, and S&P upgraded its credit rating.

ABN Amro's shares rose 5.6% on Wednesday after it raised its 2024 net interest income forecast to €6.4 billion, driven by strong Q2 performance and higher interest rates. Despite a 26% drop in net profit to €642 million, the bank anticipates a cautious outlook for 2025 net interest income due to expected rate decreases.

Ahold Delhaize shares rose over 5% after reporting stronger-than-expected Q2 results. Group net sales of €22.3 billion and operating income of €933 million exceeded estimates. US sales slightly declined, while European sales grew. The company maintained its FY24 guidance and projected FCF of around €2.3 billion despite some challenges.

Nike has gained a significant boost from the Summer Olympics, with increased website traffic and sales driven by its sponsorship of athletes and new product launches. In contrast, competitors like Adidas and Hoka saw declines in site visits. Nike's investment in Olympic marketing and product innovation has helped it edge out rivals, despite ongoing struggles in other areas.

Micron Technology announced the resumption of its share repurchase program, which was paused due to the industry downturn. The company aims to strengthen its balance sheet and offset dilution from employee share purchases. Micron also revised its FQ1 guidance downward, citing weak demand and pricing challenges in the PC, smartphone, and other markets.

SoftBank plans to buy back $3.4 billion of its shares, aiming to enhance its share price amid a period of financial rebuilding. The buyback, which represents up to 6.8% of shares, falls short of the $15 billion sought by Elliott Management. The move comes after a net loss for April-June and reflects SoftBank's focus on artificial intelligence investments.

Bank of America maintained a Neutral rating on Boeing with a $200 price target, citing stable production forecasts and increased deliveries, including resumed Chinese orders. Despite this, analysts are sceptical about Boeing's ability to sustain a high production rate, citing potential safety and staffing challenges.

Bank of America downgraded Super Micro Computer shares to Neutral from Buy after the company reported lower-than-expected Q4 gross margins of 11.3%, compared to a forecasted 13.6%. Despite strong revenue guidance for fiscal 2025, analysts cited ongoing margin challenges and adjusted the price target to $700 from $1,090.

Bernstein upgraded Arm Holdings to Market-Perform and raised its price target to $100 from $92, citing confidence in mobile and cloud growth. Despite a 40% drop in Arm's share price over four weeks, analysts expect strong gains from Arm's v9 architecture and increased mobile royalty revenue.

Small-cap equities have struggled this summer, with the Russell 2000 nearing correction territory. Despite recent volatility and a VIX spike, Jefferies analysts expect small caps to eventually outperform large caps, citing historical trends. They note that small caps usually lag before rate cuts but tend to rebound strongly afterward.

Despite rising recession fears and weak economic data, Citi strategists remain confident in S&P 500 earnings, forecasting $250 EPS for 2024. They expect earnings to improve compared to 2023, supported by productivity and secular trends. They advise focusing on high-conviction shares and note that recent market pullbacks have moderated valuations.

Barclays strategists view the recent European market panic as exaggerated, driven by overextended positions and unwinding trades. They find current valuations improved and EPS momentum resilient, despite global growth softening. They recommend selectively buying the dip, upgrading European technology to Overweight after a 16% pullback.

Barclays has downgraded the US retail sector to neutral, citing increased promotions and weakening consumer demand. Analysts note that rising inflation and depleted consumer savings are curbing discretionary spending. Despite this, Barclays favours companies like Gap, American Eagle, Urban Outfitters, and Dick's Sporting Goods for their growth potential in the second half of 2024.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice.