Investors nervous ahead of inflation data

On Thursday, the S&P 500, Dow Jones, and Nasdaq suffered losses amidst a sharp 19.8% drop in Salesforce shares. GDP growth revision to 1.3% and slower consumer spending heightened rate cut expectations. Kohl's plummeted 22.8%, while Oracle, Adobe, and Nvidia also declined. Conversely, Best Buy surged 13.4% on upbeat earnings. Meanwhile, the STOXX 50 in the Euro Area edged 0.4% higher, with Bayer leading gains in the health sector, while SAP dipped nearly 4% on Salesforce's revenue miss.

Summary for 31.05.2024

Most Asian equities rose slightly on Friday, with focus on upcoming US PCE inflation data. Chinese shares advanced despite weak PMI data, sparking hopes for more stimulus. Hong Kong's Hang Seng surged 1.3%, outperforming for May. Japan, South Korea, and Australia saw modest gains.

European bourses are set for a lacklustre open while US equity futures edged lower Friday as investors awaited Eurozone inflation and US PCE price index report while Dell plunged in extended trading.

Oil prices fell this morning, extending recent losses due to unexpected builds in US product inventories and weak business activity in China. Brent and WTI futures both dropped, set to lose nearly 5% in May. Concerns over sluggish demand and upcoming OPEC+ meeting influenced market sentiment.

In the first criminal trial of a former US president, Donald Trump was found guilty, potentially reshaping the political landscape ahead of November. Sentencing is scheduled for 11th July, just before the GOP convention, with Trump likely to appeal.

China's manufacturing PMI dropped to 49.5 in May from 50.4 in April, missing forecasts and indicating contraction. Sub-indices for new orders, export orders, and employment also fell. Despite a slight improvement in the services PMI, broader economic indicators show continued struggles, driven by weak domestic demand and a protracted property crisis.

The US economy expanded at an annualised rate of 1.3% in Q1, falling below the advance estimate of 1.6% and marking a significant decline from Q4's 3.4%. This downturn was primarily attributed to a downward revision in consumer spending, which slowed more than initially anticipated.

New York Federal Reserve President John Williams highlighted the current restrictive monetary policy, advocating for a data-driven approach to rate adjustments and downplaying the urgency for changes. Meanwhile, Dallas Federal Reserve Bank President Lorie Logan expressed cautious optimism regarding inflation, emphasising the Fed's vigilance amidst potential higher inflation risks.

Dell forecasted lower-than-expected profit for the current quarter due to increased costs in building servers for AI workloads, causing its shares to plummet over 17% in extended trading. Despite rising demand for AI-capable products, Dell expects a decline in gross margin rates. Revenue for Q1 rose 6%, breaking a streak of declines.

Marvell Technology Inc. slipped 4.5% after announcing Q1 FY2025 results. Despite a 12% YoY revenue decline to $1.16 billion, surpassing guidance by $11.0 million, CEO Matt Murphy attributed revenue to strong AI sector demand. Data centre revenue grew 87% YoY, with optimism for the second half driven by data centre growth and network recovery.

Costco Wholesale surpassed third-quarter revenue expectations as consumers sought low-priced items amid inflation. Strong demand for fresh foods and discretionary items contributed to revenue growth. Despite market declines, Costco's consistent performance contrasts with peers like Target, with total comparable sales rising 6.5% and ecommerce sales up 20.7%.

Kohl's revised its annual forecasts downward after posting an unexpected quarterly loss due to weak consumer demand for apparel and footwear. The department store chain's struggles contrast with retailers like Abercrombie, benefiting from on-trend merchandise. Kohl's attributed lower clearance sales to a drag on comparable sales, which fell 4.4%.

Ulta Beauty exceeded first-quarter profit expectations, driven by steady demand for skincare and makeup amid easing input costs. The company's strategic promotions and luxury line launches supported margins. Although foot traffic gains surpassed the industry, it revised down annual profit and revenue forecasts due to concerns over high rental and interest rates.

Gap Inc. shares surged 20% post its first-quarter results, beating analyst expectations. Gap reported EPS of $0.41, exceeding the consensus of $0.14, and revenue of $3.4 billion against the expected $3.28 billion. CEO Richard Dickson credited the strong performance to market share gains, prompting an upward revision of full-year guidance.

Foot Locker shares surged 15% yesterday after reporting Q1 adjusted EPS of $0.22, beating estimates by $0.09. Despite revenue slightly missing expectations at $1.87 billion, the company reaffirmed its full-year EPS guidance. CEO Mary Dillon credited the "Lace Up" plan for solid performance, despite a decline in total and comparable sales.

Capri Holdings Limited, owner of luxury brands like Versace and Michael Kors, reported a revenue decline of 8.4% in Q4 FY2024, falling short of analyst estimates. Adjusted EPS stood at $0.42, below expectations. CEO John D. Idol attributed the drop to softening demand for luxury goods but highlighted growth in consumer databases. The company's net loss widened due to impairments.

Hertz Global Holdings is exploring various financing options following a misguided investment in electric vehicles. The car rental company's recent dip in bonds and Moody's downgrade to a negative outlook reflect concerns over its weak earnings and slow improvement prospects. Hertz aims to steer back on track under new CEO leadership.

Barclays analysts cautioned that despite better-than-average earnings surprises, the tech sector appears overpriced, with the S&P 500 reporting an EPS surprise of +7.8%. While Big Tech led in beating estimates, other sectors like Energy, Utilities, and Materials frequently missed. Overall, most sectors, particularly Tech, are trading at or above full valuations.

A Goldman Sachs strategist predicts a slowdown in the equity market rally due to rising bond yields and high valuations. With the S&P 500 experiencing its first weekly decline since mid-April, the strategist advises diversifying investments geographically and across sectors, favouring quality defensive growth stocks and "deep value" shares.

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