Mega caps under pressure on China trade tensions

General market commentary

Wall Street’s main indexes ended lower on Monday, pressured by declines in technology equities following China’s announcement of an antitrust probe into Nvidia. The chipmaker fell 2.5%, weighing on broader sentiment and contributing to losses of over 0.5% in the Dow and approximately 0.6% in both the S&P 500 and Nasdaq. Nvidia’s movements often have an outsized market impact, and its decline spilled over into other tech shares, though many see these pullbacks as opportunities in a resilient year-end bull market. Meanwhile, Treasury yields edged higher during the day, though the benchmark U.S. 10-year yield remains down by 30 basis points over the last month, providing some support for equities.

In other corporate news, Advanced Micro Devices slid 5.5% after a downgrade by BofA Global Research, while Oracle shares fell in after-hours trading following disappointing revenue figures. Comcast dropped sharply after forecasting broadband subscriber losses, adding to the day’s negative tone. Hershey, however, bucked the trend with a nearly 11% surge on reports of potential acquisition interest from Mondelez. Globally, China’s shift to looser monetary policy and additional stimulus measures helped drive a rally in Hong Kong markets, while dramatic geopolitical developments, including the fall of the Assad regime in Syria, lifted crude oil prices as investors shifted focus to international events.

Latest market update

• Most Asian equities rose on Tuesday, led by Chinese markets after the government signalled plans for more fiscal stimulus and looser monetary policies in 2025, boosting optimism across the region. The Shanghai Composite gained 1.6%, Hong Kong’s Hang Seng rose 1.5%, and South Korea’s KOSPI rebounded 2.4%, as investors hoped China's measures would bolster global demand despite lingering concerns over U.S.-China trade tensions.

• U.S. equity futures were flat on Tuesday as investors remained cautious ahead of Wednesday's key inflation report, which is expected to shape expectations for future Federal Reserve rate decisions. Markets are also digesting recent tech sector weakness following Nvidia's decline and Oracle's disappointing earnings.

• The Euro Stoxx 50 edged higher on Monday as investors awaited a likely 25-basis-point rate cut from the ECB later this week and sought clarity on future policy direction. Gains were driven by optimism over China’s economic stimulus, boosting European luxury names like Kering, while Volkswagen rose over 1% despite ongoing worker strikes amid protracted wage negotiations.

• The US dollar index held steady around 106.1 on Tuesday, maintaining recent gains as investors awaited key inflation data that could influence Federal Reserve policy decisions. Against the euro, the dollar remained firm with the pair trading near 1.0560, reflecting ongoing dollar strength amid rising US inflation expectations and robust job market data.

• Oil prices edged lower in Asian trade this morning, giving back some of the gains made after China’s pledge for economic stimulus boosted optimism about demand from the world’s largest importer. Geopolitical tensions in Syria, following the installation of a new regime, added a risk premium to oil markets, while traders awaited key economic signals from China, the U.S., and OPEC in the coming days.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

• Oracle’s second-quarter revenue rose 9% year-on-year to $14.06 billion, falling short of Wall Street’s $14.11 billion estimate, as competition in the cloud and database sectors intensified. Despite strong growth in its cloud segment, Oracle faces margin pressure from increased capital expenditure, and its shares fell over 7% in after-hours trading following a slight earnings miss and a lower-than-expected profit forecast for the next quarter.

• China has launched an investigation into Nvidia over suspected anti-monopoly violations, potentially linked to its AI and gaming chips, as well as its 2020 acquisition of Mellanox Technologies. The probe follows recent U.S. restrictions on China's semiconductor sector, though analysts suggest the impact on Nvidia may be limited, as most of its advanced chips are already restricted from being sold in China.

• Mondelez is reportedly exploring a potential acquisition of Hershey, aiming to create one of the world's largest confectionery companies, with shares of Hershey rising 19% on the news. However, discussions are in the early stages, and the deal would require approval from the Hershey Trust Company, which holds voting control over Hershey.

• Comcast has forecasted greater-than-expected broadband subscriber losses for Q4 2024, anticipating a drop of over 100,000 customers due to competition from wireless providers and the impact of recent hurricanes in Florida. The company’s shares fell 9.5%, while rival Charter Communications also saw a 6.5% decline, as Comcast struggles with a competitive market and the end of the federal Affordable Connectivity Program.

• Eli Lilly has announced a $15 billion share repurchase programme and a 15% increase in its quarterly dividend, marking the seventh consecutive year of dividend growth. The company's shares rose by 1% in after-hours trading following the announcement, with the buyback programme set to span the next three years.

• Allianz announced plans to return at least 75% of its net profit to shareholders through dividends and share buybacks over the next three years. The insurer will continue its 60% dividend payout policy and aim to distribute an average of 15% of profit through share buybacks from 2025 to 2027.

• Shares of AppLovin, The Trade Desk, and Coinbase fell after they were excluded from the latest S&P 500 Index rebalance, with AppLovin dropping 11%, The Trade Desk 1.6%, and Coinbase 3.3%. In contrast, Apollo Global Management and Workday saw gains as they were added to the index, replacing Qorvo and Amentum, highlighting ongoing market shifts.

• Bank of America upgraded PayPal to "buy" from "neutral," citing progress in the company's turnaround, stable payment volume growth, and a promising outlook for transaction growth by 2025. With a new checkout button rollout in 2025 and ongoing share buybacks, BofA raised its price target to $103. Incidentally, we have also taken an exposure to PayPal shares in our portfolio over the past couple of weeks on the strength of it transitioning from a payments platform to an e-commerce platform.

• Barclays upgraded Robinhood Markets to "overweight," citing its growth strategy, particularly in the evolving crypto landscape, as a key factor for future success. The bank expects Robinhood to benefit from improved market conditions and growth opportunities in 2025, alongside other brokers and alternative asset managers.

• Citi maintained a Neutral rating on Adobe, citing concerns over fading pricing advantages and competitive pressures that may limit its growth potential. The bank lowered its price target to $590 from $616, expecting modest upside and slower-than-expected AI adoption to impact revenue and annual recurring revenue growth in FY25.

• UBS has downgraded Porsche Automobil Holding SE to "sell" and reduced its price target to €32 per share, citing weak revenue growth, profitability challenges, and concerns over the performance of its core investments, Volkswagen and Porsche AG. The analysts also highlighted the risk to Porsche SE's financial stability due to high net debt, reduced dividends from Volkswagen, and structural inefficiencies.

• Deutsche Bank has selected Tesla as one of its top picks for 2025, highlighting the company's leadership in autonomous driving technology and its resilience amid industry challenges. Despite a tough global automotive market, Tesla's innovation, scale, and edge in autonomy and robotaxi deployment position it well for continued growth, making it a standout investment.

• Bank of America downgraded Advanced Micro Devices to Neutral, lowering its price target to $155, citing competitive pressures in AI from NVIDIA and others, as well as concerns about a potential slowdown in the PC processor market in 2025. Despite AMD's strong execution and partnerships with major companies, BofA expects its market share in AI to remain limited and warns that growth momentum may be tempered in the coming year.

• Bank of America named Chevron a top pick, raising its price target from $168 to $180, citing strong free cash flow projections driven by key projects and cost reductions. Despite uncertainties around Chevron's arbitration with Hess in 2025, BofA remains bullish, highlighting the company's robust portfolio and upcoming project milestones as key catalysts for growth.

• Rivian Automotive's shares rose over 11% after Benchmark initiated coverage with a "buy" rating, citing strong industry partnerships with Amazon and Volkswagen, along with a robust financial position. The brokerage set a $18 price target, highlighting Rivian's potential to capture significant market share in the expanding electric vehicle sector, supported by its strategic ventures and $6 billion liquidity.

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